After years of speculation, Tesla may finally be making its debut in India. The American electric vehicle (EV) manufacturer has started hiring for positions in Delhi and Mumbai and is reportedly scouting for showroom locations in both cities.

India, Asia’s third-largest economy, presents an exciting growth opportunity for Tesla, especially as its global EV sales decline and competition from Chinese manufacturers intensifies. However, a key question remains: Can Tesla succeed in India’s price-conscious market?

Currently, Tata Motors dominates India’s EV market with more than 60% market share, followed by MG Motors at 22%, a joint venture between India’s JSW and a Chinese company. Tata and MG’s EVs are priced well below Tesla’s, with their base models costing less than half of Tesla’s $40,000 (£31,637) base model. This pricing positions Tesla’s cars as luxury vehicles, competing with high-end brands like Hyundai, BMW, and Mercedes, making India a smaller market for Tesla unless it introduces a more affordable model tailored to Indian consumers.

In addition to price, India’s road conditions could also be a challenge for Tesla. Tesla vehicles have low ground clearance, which could make driving on Indian roads difficult. To operate effectively in India, Tesla may need to re-engineer its cars, which would increase manufacturing costs.

It’s unclear if Tesla is willing to make such changes for a market that could have limited presence. “It’s been a challenge for other global manufacturers at the high end with small volumes. You can’t justify these major engineering changes,” said Hormazd Sorabjee, editor of Autocar India.

Despite these obstacles, India is actively working to attract electric vehicle manufacturers. The country has set an ambitious goal to increase electric vehicle adoption by 2030, with plans for 30% of private cars, 70% of commercial cars, 40% of buses, and 80% of two- and three-wheelers to be electric. Most state governments have implemented EV policies to encourage demand and supply.

India also offers some of the highest subsidies for electric vehicles among major economies, reaching up to 46% of the price of the top-selling EV model. As a result, passenger EV sales have surged by more than 2,000% in less than five years, growing from 4,700 annual sales to 100,000.

“The price gap between regular cars and EVs has narrowed significantly, prompting customers to reconsider their options,” says Jyoti Gulia, founder of JMK Research.

In addition, India reduced import taxes on EVs from global carmakers who commit to investing $500 million (£400 million) and starting local production within three years. Tesla and other imported EVs priced above $35,000 (£27,550) now face a lower import duty of 15% for up to 8,000 vehicles.

This policy shift comes after Elon Musk expressed frustration with India’s high import duties, which had previously hindered Tesla’s ability to enter the market. “It’s quite clever, as it forces a global player to localize—this is how the game works: come and build in India,” says Sorabjee.

This policy could put Indian carmakers at a disadvantage. An HSBC research paper warns that the investment requirements for foreign players are relatively low compared to domestic companies in the EV market. Furthermore, the 15% import duty is significantly lower than the taxes on comparable internal combustion engine vehicles, which also face additional road taxes.