As Tesla examines building a plant in India, officials have asked the company to emulate Apple in finding local firms to partner with any Chinese suppliers involved, according to three government sources with direct knowledge of the matter. Tesla has been in talks with India for weeks about setting up a factory which will potentially build a $24,000 car for local sales and exports, however strained India-China ties threaten to complicate Tesla's plans for bringing in Chinese suppliers. Tesla founder Elon Musk is seeking to expand beyond the company's biggest foreign base of China where regulatory approvals for expansion are slow to come. But Chinese suppliers could be critical if Tesla were to establish a plant in India and keep costs in check for a cheap EV. India does not have local suppliers for components such as battery cells, with even India's largest EV maker, Tata Motors, importing them from China.

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In meetings with officials in New Delhi, Tesla executives informed the Indian government that it would like to have some of its vendors from China set up base locally to boost its supply chain, three Indian officials with direct knowledge of talks said. In response, officials told Tesla that granting approvals for wholly-owned Chinese companies in India could be difficult due to intense scrutiny of Chinese firms since a 2020 border clash between the two countries. Instead, the Indian officials said they had suggested a workaround in which Tesla would emulate the approach of Apple (AAPL.O). The U.S. smartphone giant in recent months has obtained approvals to bring Chinese suppliers to India after they found local joint-venture partners.

Tesla, the spokesperson of the Indian government and the trade ministry did not respond to requests for comment. Apple has a fast-growing supply chain in India which includes Taiwan's Foxconn assembling its iPhones. New Delhi in recent months has been approving some Chinese suppliers' JV partnerships with Indian companies on a case-to-case basis, one of the government sources said.

India remains hesitant about allowing Chinese companies, especially automakers, to expand in the country, however. Last month, China's BYD (002594.SZ) told its Indian partner it would shelve a new $1 billion investment plan to build EVs there after its investment proposal faced scrutiny from New Delhi. Without specifying Chinese vendors, a fourth source with direct knowledge of Tesla's discussions in India said the U.S. company is looking at supply chain partners for its India factory.

One of the Indian officials said pairing local and Chinese players could work for Tesla. "Tesla has been demanding a separate ecosystem for their (Chinese) vendor base ... those approvals can be granted on a case-to-case basis if there an Indian joint venture partner," the official said.