In March, the Indian government announced a cut to import tariffs on electric vehicles, aiming to lure automakers like Tesla to build factories locally. Under the new policy, companies can import up to 8,000 EVs annually—provided they commit to investing $500 million in a local plant within five years. Observers expected Tesla to move quickly, but three months on, the company remains conspicuously quiet.

This isn’t a sudden chill in relations but the latest chapter in a years-long tug-of-war. Since 2021, Tesla has tried to enter the Indian market but has been caught in a standoff over sequencing: India demands foreign automakers build local plants first, while Tesla insists on testing the market before committing. The stalemate lingered for years, and even with India’s recent concession, Tesla remains cautious.

Elon Musk’s wait-and-see approach isn’t due to a lack of interest but reflects a sober assessment of India’s institutional risks.

First, India’s policies shift frequently, and local authorities struggle with execution. Apple, General Motors, and others have faced setbacks over land approvals and infrastructure delays. Second, India’s manufacturing ecosystem is underdeveloped, falling short of Tesla’s exacting production standards. Third, hidden hurdles remain, including complex approvals and localization mandates, leaving foreign firms grappling with a familiar “easier said than done” dilemma.

Meanwhile, Tesla finds more attractive conditions elsewhere in Southeast Asia. Malaysia and Indonesia offer lower taxes, mature supply chains, and smoother implementation. Against a backdrop of slowing global demand, Musk prefers markets with greater policy certainty and clearer cost structures.

For India, this cool reception is the inevitable outcome of its established investment approach. Ford, GM, Hyundai, and others have repeatedly run into policy roadblocks and union challenges, delaying their expansion plans. Even with a softer tone now, systemic uncertainty continues to deter foreign investors.

Crucially, Tesla’s global strategy has entered a “cost-cutting and efficiency” phase. Delays at its Mexico plant and slower expansion in Berlin reveal a cautious stance on large-scale new projects. As Tesla’s global factory network takes shape, India’s appeal diminishes in comparison.

China, despite geopolitical headwinds, remains Tesla’s most reliable manufacturing hub. The Shanghai plant’s capacity, operational efficiency, and integrated supply chain remain unmatched worldwide. For Musk, India is clearly no substitute.

Tesla’s hesitation reflects more than a corporate decision—it signals an evaluation of India’s overall business climate. Tariff cuts may catch headlines, but they don’t sway capital. “Institutional trust” is the real variable determining whether foreign investment flows in or stays away.

Unless India makes significant progress on policy transparency, execution efficiency, and the rule of law, it risks missing out on the next wave of foreign investment.