This article explains the environmental configurations that determine if the NSX Edge TEP and the ESXi TEP can be on the same network.
Note: Invalid configuration may result in BFD tunnels going down between Edge VMs and ESXi Hosts while Host to Host and Edge to Edge remain up. This triggers Edge tunnels down alarm.
VMware NSX
Edge TEP and ESXi host TEP can be configured on the same VLAN in the following configurations:
Edge TEP and ESXi host TEP must be on separate VLANs in the following configurations:
Steps to Enable NSX on vDS portgroup
Once this is successfully activated, the Edge VM's TEP interface can natively connect to the vDS portgroup sharing the host's TEP VLAN, and the Geneve tunnels will establish correctly.
If using a VLAN segment on an NSX prepared VDS, adding only a single VLAN to the segment will result in the segment processing traffic for that VLAN only and stripping the tag for ingress traffic and adding the tag for egress traffic. This will result in the edge TEPs being unable to communicate as they require a trunked segment. This can be achieved by applying a range to the VLAN value (inclusive of your required VLAN).
For more details refer Broadcom KB NSX-T Edge tunnels are down to ESXi hosts when sharing the same VLAN for TEP traffic