India may be rolling out the red carpet for Elon Musk, but the Tesla CEO could end up setting the terms of the deal—and not necessarily in New Delhi’s favor. While the electric vehicle giant is finally making moves in the world’s third-largest car market, Washington’s trade priorities could limit India’s leverage in securing the manufacturing investment it craves.

According to Reuters, Tesla has locked in locations for two stores in New Delhi and Mumbai and is actively hiring for front-end and operational roles. This has fueled speculation that Musk’s recent meeting with Indian Prime Minister Narendra Modi might have cleared the way for Tesla to officially enter the Indian market.

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The biggest hurdle? Import tariffs. India has long used steep duties on foreign vehicles as a bargaining chip to encourage local production. Musk, however, has been reluctant to commit to building cars in India—likely because the country’s luxury EV market is still in its infancy compared to China, Tesla’s second-largest revenue source after the U.S.

Modi may now face pressure to rethink tariffs, either as a gesture toward the U.S. or to lure Tesla in. However such concessions could weaken India’s negotiating position. Trump has already dismissed the idea of Tesla using an Indian factory to bypass tariffs, calling it “unfair” to American workers. More importantly, Tesla may not need additional manufacturing capacity at all. In 2024, the company utilized only about 75% of its existing plants in the U.S., Germany, and China—a sign that it anticipates slowing global demand.

For India, the real risk isn’t just in lowering tariffs; it’s in making concessions only to end up with Tesla showrooms rather than factories. One potential bargaining chip remains: Musk’s satellite internet venture, Starlink, which is still awaiting regulatory approval in India. But with U.S. trade policy shifting and Tesla’s global strategy in flux, New Delhi must tread carefully. Betting big on Musk could bring India long-awaited EV investment—or leave it with little more than a high-profile retail expansion.