Tesla Eyes India’s Semiconductor Sector: Talks With Micron, CG Semi & Tata Electronics to Expand Supply Chain

Tesla, the electric vehicle (EV) manufacturer led by Elon Musk, is actively exploring options to broaden its semiconductor supply sources. The company has initiated discussions with US-based memory chip manufacturer Micron and CG Semi, a Mumbai-based entity within the Murugappa Group. These talks aim to evaluate procurement alternatives and diversify Tesla's global supply chain. This move follows a strategic agreement with Tata Electronics, a significant step towards acquiring semiconductor chips for its worldwide operations, as previously reported in April last year.

In pursuit of expanding its semiconductor supply base, Tesla has engaged with three prominent semiconductor facilities in India. Representatives from Micron, CG Semi, and Tata Electronics were approached by Tesla approximately a month and a half ago. The discussions aimed to understand the types of chips that will be produced, the production ramp-up schedules, and the operational timelines. This exploration is part of Tesla's broader strategy to diversify its supply chain amidst the growing geopolitical risks and cost surges associated with its current sourcing strategies.

Micron and CG Semi Invest in Indian OSAT and Assembly Facilities

Micron is set to establish a facility in Gujarat dedicated to assembly and test manufacturing. This plant will cater to both domestic and international markets. Similarly, CG Semi is developing an outsourced semiconductor assembly and test (OSAT) facility. This joint venture involves CG Power, Renesas, and Stars Microelectronics, with Renesas serving as the anchor customer. However, the facility is expected to provide services to a global clientele. Elon Musk expressed his anticipation of visiting India this year through a post on X, highlighting the importance of India in Tesla's future plans.

Tata Group's Growing Role in Tesla's Global Supply Chain

The Tata Group has emerged as a key global supplier for Tesla, with Tata AutoComp, Tata Consultancy Services, Tata Technologies, and Tata Electronics playing significant roles. Should Tesla expand its operations to India, these entities are poised for an even larger involvement. Tata Electronics is making a substantial investment exceeding Rs 91,000 crore to establish a semiconductor fabrication unit in Dholera, Gujarat, and an OSAT facility in Morigaon, Assam, for Rs 27,000 crore. Meanwhile, CG Semi is setting up an OSAT facility in Sanand, Gujarat, for Rs 7,600 crore, where Micron is also creating an assembly, testing, marking, and packaging (ATMP) facility for over Rs 23,000 crore ($2.7 billion).

Ashwin Amberkar, an independent automotive analyst, noted that Tesla is broadening its supplier base beyond China and Taiwan, with India emerging as a key player in this strategic shift. Tesla's reliance on Chinese fabs for mature-node chips, central to its Shanghai Gigafactory's operations, is being reevaluated due to increasing geopolitical tensions and rising costs. CG Semi's Gujarat facility and Micron's Sanand plant are expected to focus on automotive-grade dynamic random-access memory and other critical components for computer processors. Tata's facilities could support legacy-node chip requirements for automotive electronic control units.

Danish Faruqui, CEO of US-based semiconductor investment advisory firm Fab Economics, highlighted the importance of 28-65 nm nodes and legacy packaging in the EV component mix. He anticipates double-digit compound annual growth in Tesla's consumption of these products. Battery Management System components, crucial for Tesla's competitive edge, depend on the performance and efficiency of these semiconductors.

China's imposition of import tariffs above 80% on semiconductor products, as a retaliatory measure against US tariffs, is expected to disrupt traditional semiconductor supply chains. This situation presents an opportunity for new entrants in the semiconductor manufacturing and packaging domain, such as India. The country's emerging semiconductor sector is well-positioned to benefit from the reorganization of the supply chain, offering viable alternatives for both fabrication and packaging.

India Positioned to Gain from Semiconductor Supply Chain Realignment

The semiconductor ambitions of India, despite facing challenges related to scale and ecosystem maturity, could receive a significant boost through partnerships with global EV leaders like Tesla. However, competition with China's technological advancements and price competitiveness remains a hurdle. Industry experts and veterans believe that a robust, diversified supply chain is essential not just for geopolitical insulation but also to mitigate operational disruptions and cost volatility.