Why Tesla May Set Up Its Indian Manufacturing Plant In A Western Coastal State And How The Proposed IMEC Could Influence Tesla's Long-Term Strategy

Electric vehicle (EV) manufacturer Tesla Inc. TSLA will halt production at its Berlin plant from Jan. 29 to Feb. 11, 2024, according to Reuters. Tesla relies heavily on batteries shipped from China. And, the supply chain issue caused by attacks on the Red Sea shipping route is the primary cause for this interruption.

Over the long term, the proposed India-Middle East-Europe Economic Corridor (IMEC) transit route, which connects India's western coast to Israel via the Arabian Gulf countries and the European continent, may offer a reliable and alternate shipping route.

Since Oct. 7, the Middle East has been embroiled in conflict, and hostilities have grown in 2024. Reacting to Israel's retaliatory military response in the Gaza Strip, certain radical militant factions started attacking cargo vessels in the Red Sea. In mid-January, the attacks crossed the Red Sea corridor, and some ships passing through the Indian Ocean region have also been targeted.

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Tesla's batteries are shipped from China — across the Indian Ocean, through the Gulf of Aden, to the Suez Canal via the Red Sea. The attacks have forced shipping companies to sail south to the Cape of Good Hope in South Africa and travel around the African continent. The longer transit route encircling Africa increases transit time as well as transportation and insurance costs.

The proposed IMEC corridor comprises two sections — the Eastern Corridor and the Northern Corridor. The Eastern Corridor will link India with the Arabian Gulf countries via a sea route while the Northern Corridor will connect the Arabian Gulf with Europe by a rail network. 

The ship-to-rail transit arrangement will first link the Indian coastal states of Gujarat and Maharashtra on its western coast to the United Arab Emirates. In its second phase, IMEC's Northern Corridor will connect the United Arab Emirates (UAE), Saudi Arabia, Jordan and Israel via a land route and then enter the Mediterranean Sea. 

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The availability of lithium for car batteries is another key factor in EV manufacturing. In early 2023, the Geological Survey of India announced the discovery of lithium reserves in Jammu and Kashmir. Observer Research Foundation, an independent global think tank based in Delhi, said, "The estimated reserve of 5.9 billion tonnes would make India one of the world's largest lithium producers." The report also said that the Indian government is planning to auction the site in blocks for mining.

India has set a target of 30% EV share in all of its new vehicle sales by 2030. Once the lithium mining operation is functional in India, it may significantly influence EV manufacturing.

The 10^th Vibrant Gujarat Global Summit (VGGS), held Jan.10 to Jan. 12, witnessed many high-profile visitors including world leaders and leaders from the global business community. The summit also held conferences and events that focused on EV manufacturing in India. 

Rumors circulated in the Indian media that Tesla CEO Elon Musk may also attend the summit. CNBC TV18 quoted an official from the Gujarat state government saying, "Elon Musk, who is the founder of Tesla, has his eyes set on the state. Let us hope they come to Gujarat." Musk did not attend the event. And contrary to the hype, there were no announcements on Tesla's manufacturing plant in India.

In June, Prime Minister Narendra Modi met business leaders, including Musk, during his state visit to the United States. At the time, Musk told reporters that he was planning to visit India in 2024 and that Tesla would also come to India "as fast as humanly possible." In November, WION reported that the Prime Minister's Office had also instructed the concerned departments to fast-track Tesla's pending investment proposals by January 2024.

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