New Delhi:

Tesla has started producing right-hand-drive vehicles at its German factory for export to India later this year, three people familiar with the company’s plans told Reuters, as the company could enter the world’s third-largest auto market.

A Tesla team is expected to visit India later this month to examine sites for a local car manufacturing plant that would require an investment of about $2 billion, two of three people familiar with the matter said. They declined to be named because the plan has not been made public. However.

India last month slashed import taxes on certain electric vehicles if the automakers invest at least $500 million in the country and start production within three years. The move is a victory for Tesla, which has been lobbying for lower taxes for months but faced resistance from local automakers.

“Production of right-hand-drive cars to be allocated to India has already begun,” and some of the cars will be shipped to India by the end of this year, a person familiar with the matter said.

Read | Tesla to invest $3 billion to explore electric vehicle factory locations in India: Report

It is unclear which model Tesla plans to export to India. Currently, the company only produces Model Y at its factory near Berlin.

According to India’s new policy, companies can import up to 8,000 cars per year at lower tax rates.

Tesla did not immediately respond to an email seeking comment outside U.S. office hours.

The plan to ship to India is the first sign that Berlin will produce right-hand drive (RHD) cars. Tesla’s Shanghai factory, its main export hub near right-hand-drive markets such as Australia and Japan, has so far been responsible for the production of such vehicles.

Tesla imports RHD Model Y vehicles from China for launch in the UK, but has not yet revealed whether it has switched to importing from Berlin.

The automaker has been eyeing the Indian market for years, with officials visiting the country several times over the past year. CEO Elon Musk also met with Indian Prime Minister Narendra Modi in New York last June.

Tesla’s move into India comes as demand for electric vehicles slows in its main markets of the United States and China, and competition from Chinese companies intensifies. That led Tesla to report lower first-quarter deliveries than expected.

One of the three sources said Tesla’s plans to enter India also include investing in a charging network, which would cost $2 billion to build the factory, and sourcing more components locally.

“Tesla already imports components from India and is now considering reducing purchases from China to make India a larger procurement center,” the person said.

Tesla is considering building factories in the southern state of Tamil Nadu, the western state of Maharashtra and Modi’s home state of Gujarat, two sources said, and is expected to build them within two years.

India’s small but growing EV market is dominated by domestic automaker Tata Motors. Electric models will account for 2% of total car sales by 2023, but the government aims to reach 30% by 2030.

In January this year, Tesla’s Vietnamese rival VinFast agreed to invest $2 billion in India and start building an electric vehicle factory in Tamil Nadu.

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)