In a significant development, US-based electric vehicle giant Tesla has reportedly signed a strategic agreement with Tata Electronics to procure semiconductor chips for its global operations. 

The deal, executed discreetly a few months ago, positions Tata Electronics as a reliable supplier for top-tier global clients looking to establish a crucial segment of their semiconductor value chain in India.

The agreement, whose value and specific terms remain undisclosed, highlights Tesla’s growing interest in India beyond local revenue generation. Tesla, the world’s largest automotive company by market value, is eyeing entry into India, the world’s fastest-growing automotive market.

Tata Electronics’ Expansion and Expertise

Tata Electronics has bolstered its workforce by hiring 50-60 top-level expatriates in recent months, aiming to leverage their expertise in semiconductor technology, strategic planning, and design to enhance its business operations. The company has established semiconductor manufacturing facilities in Hosur (Tamil Nadu), Dholera (Gujarat), and Assam, with plans for further expansion to create a well-integrated supply chain in India. Tata Electronics has invested $14 billion in its business operations thus far.

According to sources familiar with the matter, Tata Electronics has made substantial investments in indigenous technology development across these platforms and has assembled a team with over 1,000 years of combined global domain expertise to lead the project.

Elon Musk’s Upcoming Visit to India

Tesla CEO Elon Musk is scheduled to meet with Prime Minister Narendra Modi during his visit to India this month. Musk is expected to announce potential investments in India, including plans for EV manufacturing facilities. Tesla is anticipated to invest approximately $2-3 billion in India to manufacture electric cars, reflecting the growing interest in EVs within the country’s personal mobility market.

Recent policy adjustments have enabled automakers to import EVs priced above $35,000 at a reduced import duty rate of 15%, subject to committing to invest $500 million within three years to establish manufacturing facilities in India. Tesla is likely to prioritise premium electric models initially, while also considering local manufacturing of entry-level electric vehicles.

Diversifying Supply Chain Post-COVID

Following the COVID-19 pandemic, Tesla has diversified its component sourcing beyond China for critical electronic, electrical, and mechanical parts. Although Tesla keeps its supplier information confidential, it manufactures certain electric components internally, such as electric motors, battery packs, and chargers, while procuring sub-assemblies and other parts from global suppliers.

Ashok Chandak, the president of the India Electronics and Semiconductor Association (IESA), noted that Tesla’s efforts to establish a local supplier ecosystem for electronics and subsystems indicate its commitment to diversifying its supply chain. However, he highlighted the need for improvement in the local semiconductor sourcing ecosystem to support industries like automotive, which require higher value addition in their supply chains.

The Tesla-Tata Electronics deal not only underscores India’s growing importance in the global semiconductor supply chain but also establishes Tata Electronics as a significant player in the Indian semiconductor manufacturing ecosystem.