Elon Musk's Tesla has agreed in principle to the Centre's proposal that, in addition to assembling its electric vehicles in the country, it establish a vendor base here. However, the government has stated that the company can begin with domestic car assembly and then expand by establishing a vendor base.

According to indications, Tesla may not put off establishing a domestic vendor base for long because it does not believe in decoupling manufacturing and supply chain.

Currently, more than half of Tesla's global production takes place in China (Shanghai), where the company has established a large vendor base. It also recently constructed a megapack battery factory there.

If the company establishes a manufacturing base in India, these vendors will be relocated there. Following the 2020 border clashes, the vendors would be required to form joint ventures with Indian firms, as India discourages 100% Chinese investment.

Analysts believe Tesla will drive a hard bargain with India, as China is also courting Musk to keep its investments in the country. Musk had recently visited China and met with the country's top leaders.

Officials told the Tesla team, who visited the country last month, that the government is willing to offer import concessions on the components needed for the project until the company establishes its supply chain here. A scheme like this is currently in place for the smartphone production-linked incentive scheme under the phased manufacturing programme