India missed Intel twice. Can it afford to fumble Tesla’s chip play?

Tesla’s much-anticipated entry into India’s electric vehicles (EV) market appears to be opening new, unexpected doors in the country’s nascent semiconductor ecosystem. According to people familiar with the matter, Tesla has started early exploratory conversations around sourcing semiconductor packaging and assembly services from India for its EVs. These are preliminary engagements, with no confirmed contracts yet.

But the very fact that Tesla is evaluating Indian players marks an important moment: it signals a growing recognition of India’s potential role in the global semiconductor value chain, even as the country’s chipmaking ambitions are still taking root.

Why Tesla is exploring India for semiconductor packaging

At the heart of the move is Tesla’s push to secure the supply chain for its EVs. The ongoing US-China trade tensions, including tariffs on semiconductors, have prompted companies to diversify their supply chains. Sourcing chips from India can help Tesla mitigate risks associated with tariffs and ensure a more stable supply chain.

Today, modern vehicles are increasingly reliant on semiconductors for managing a multitude of functions, right from engine control to advanced driver-assistance systems. And while the exact number of chips in a car varies, on average, it contains between 1,000 and 3,000 semiconductor chips. And even more in EVs.

The global semiconductor shortage during the COVID-19 pandemic, which left automakers like Ford with thousands of unfinished cars piled up in lots, exposed the fragility of automotive supply chains. Since then, companies like Tesla have become far more proactive in securing chip supplies well in advance. Given that semiconductor manufacturing operates on long lead times—with orders often placed years ahead—Tesla’s efforts to localise and diversify its chip supply chain are part of a broader strategy to avoid production bottlenecks and maintain resilience in an increasingly uncertain global market.

According to Danish Faruqui, CEO of Fab Economics, a US-based semiconductor consultancy firm, Tesla's need to source chips from India is tied to the fact that the company wants to insulate itself from the tariffs.

“It is not only due to supply chain resiliency, but tariff insulation also that Tesla is scouting for semiconductor fabrication and packaging supply out of India," he said.

India’s upcoming chip testing and packing facilities, such as Micron and CG Power’s plants in Gujarat and Tata Electronics’ packaging facility in Assam, are beginning to create the foundational capabilities needed to support these ambitions.

But, this does not mean Tesla will replace its current set of chip suppliers.

“Tesla relies on leading global chipmakers like Infineon, STMicroelectronics, NXP, Texas Instruments, and ON Semiconductor for its power management and vehicle control systems. These firms have strong design and fabrication capabilities. However, the packaging and testing phase—known as OSAT (Outsourced Semiconductor Assembly and Test)—offers opportunities for localisation, particularly in India," pointed out Manish Rawat, semiconductor analyst, Techinsights.

Rawat added that Indian OSAT companies such as SPEL, Tata OSAT, and Kaynes Semicon could enter the supply chain as subcontractors for packaging and testing.

The tariff tensions between China and the US also indicate that the wafers will need to be supplied from Japan or Taiwan. But in the long run, India needs to attract wafer manufacturing companies for local production.

“While specific supplier replacements would depend on various factors, India-packaged power chips could potentially supplement or replace components sourced from regions facing geopolitical tensions, tariffs or supply chain disruptions. This move would help Tesla to enhance its supply chain resilience,” said Devroop Dhar, co-founder and managing director at Primus Partners.

A cautious start, a long road

Industry experts caution these are very early days: less about immediate procurement and more about building future options.

Tesla is known for its high standards in chip quality, automotive safety, and supply chain transparency. Indian OSAT providers would need to undergo rigorous qualification processes that could easily take a few years, even for basic packaging services. Automotive-grade chips, especially those used in EVs, must meet strict international certifications for durability, reliability, and performance under extreme conditions.

“It will take at-least 4-5 years to produce and qualify chips for auto production. Once Indian companies start to produce the chips, the tier-1 auto companies such as Aptiv, Bosch, etc. need to qualify the chips, and integrate them into their production,” explained Sanjay Kumar, VP of semiconductors at Kearney, a global strategy and management consulting firm.

Still, even preliminary engagements carry weight. If Tesla eventually onboards Indian OSAT firms—even for non-critical components—it could serve as a catalyst for the broader Indian semiconductor ecosystem. Validation by a marquee client like Tesla would boost the credibility of Indian players globally and encourage others—both EV makers and semiconductor firms—to invest in local capabilities.

“Interest from such global giants may help in validating India's potential and can lead to increased collaborations, technology transfers and infrastructure development. These developments will also positively encourage other global firms to consider India for semiconductor manufacturing and R&D,” added Dhar of Primus Partners.

“Tesla is not only a buyer – it has significant design capabilities which can help Indian companies. Tesla’s advanced knowhow of the electronics architecture of the car can help to catalyse local design ecosystem in India, and also further motivate U.S. and EU companies such as Texas instruments , Microchip, NXP etc. to increase presence in India,” Kumar said.

Challenges remain

That said, India faces several hurdles. Automotive semiconductor packaging demands advanced capabilities such as heterogeneous integration, chiplet packaging, and robust thermal management—areas where Indian players are still relatively new.

“Indian fab and OSAT players need to pivot from pure legacy semiconductor play at fabrication and packaging architecture level to more of a specialty – auto tuned technology platforms at 28nm, 40nm, 65nm and 90nm along with auto tuned and auto reliable packaging. Only then Indian players can truly leverage the EV manufacturers like Tesla demand,” said Faruqui.

Indian players must also adhere to the committed and publicly announced Semiconductor Greenfield Fab and OSAT readiness and output timelines, as the world is watching. “Iterative delays in semiconductor industry leads to tarnishing image of even the longest standing player like Intel leading to unprecedented market share loss and shunning of customers. Thus, for India, the cost of delay could be catastrophic,” he added further.

Beyond mere delays, reports of marquee semiconductor projects—such as those by Tower Semiconductor - Adani’s fab and Zoho’s compound fab—being put on hold pose a serious threat to the credibility India has built in the global tech and semiconductor manufacturing ecosystem over the past three years. These high-profile ventures were not just symbolic of India’s semiconductor ambitions but also crucial to building confidence among international stakeholders.

When such flagship projects are abruptly halted, it sends a worrying signal to global players like Tesla, which have started to explore India as a serious contender for its future chip sourcing. It also raises concerns about policy consistency, long-term commitment, and whether India can sustain the ecosystem needed to support large-scale, high-tech investments.

Amid shifting geopolitical dynamics and growing calls for supply chain diversification, India has emerged as an attractive, tariff-insulated hub for semiconductor packaging — but only if it can act swiftly and decisively. Several countries, including Vietnam, Malaysia, and Mexico, are aggressively positioning themselves to attract semiconductor investments. India cannot afford complacency. It already missed out on hosting Intel’s manufacturing facilities twice in the past. Missing a third golden opportunity, especially when global giants like Tesla are exploring the Indian market, would be a costly setback.