Tesla has put its electric car sales in India, discontinued a search for showroom space, and reappointed some of its domestic team after losing to secure lower import taxes.
The decision comes after more than a year of the impasse with government authorities as Tesla sought to initially test demand by selling electric cars (EVs) imported from production centers in the United States and China at cheaper tariffs.
However, the government is forcing Tesla to carry out manufacturing locally before it will lower taxes, which can run as high as 100% on imported vehicles.
Tesla had set a deadline of February 1, the day India published its budget and revealed tax adjustments, to determine if its lobbying was successful, according to people familiar with the company's plans.
When the government refused to make a compromise, Tesla halted plans to import cars into India, according to the people, who requested anonymity because the discussions were private.
Tesla had been looking for real estate to establish showrooms and service centers in New Delhi, Mumbai, and Bengaluru for months, according to two sources. An email requesting a comment from Tesla was not returned.
A government official did not reply quickly to a request for comment.
Some of Tesla's tiny crew in India has been given extra tasks for other markets. Manuj Khurana, its India policy executive, has taken on an extra "product" responsibility in San Francisco since March, according to his LinkedIn page.
In January, Tesla CEO Elon Musk stated that the company was "still working through a lot of problems with the government" in terms of sales in India.
However, increasing demand for Tesla vehicles in other markets, as well as a conflict over import duties, spurred the strategic adjustment, according to the sources.
The government has launched a "Make in India" push to entice manufacturers. Nitin Gadkari, India's transport minister, stated in April that Tesla importing automobiles from China would not be a "good proposal."
However, New Delhi secured a victory in January when German luxury automaker Mercedes-Benz announced that it will begin building one of its electric vehicles in India.
Tesla hoped to acquire an early lead in India's modest but expanding electric car industry, which is presently dominated by homegrown automaker Tata Motors.
Tesla's minimum price of $40,000 would place it in the premium category of the Indian market, where sales account for only a tiny proportion of annual car sales of approximately 3 million.