From India to Indonesia, Elon Musk is looking for sites to build more Teslas. With a world mired in supply chain chaos, access to content matters most. He got it right. After lobbying against India’s strict manufacturing policies and prohibitive import duties, Musk is due to meet with Indonesia’s President Joko Widodo and visit parts of the country, which is also a top producer of nickel, a major producer of batteries. is metal. It’s a smart bet for Tesla and Indonesia. And a missed opportunity for New Delhi. To meet ambitious electric vehicle (EV) goals, Indonesia has attracted a number of battery and car manufacturers with a variety of incentives in recent months.
With a favorable policy bolstering the country’s EV goals, companies have begun to invest billions of dollars. LG Energy Solutions, among others, is investing nearly $9 billion in the country’s entire supply chain from mining to manufacturing. Along with Hyundai, the firm is also developing a battery plant. Meanwhile, Contemporary Amperex, the world’s top powerpack maker, is investing nearly $6 billion in a battery project with state-backed Aneka Tambang and Industrie Batterai Indonesia. Moving up the value chain, China’s Zhejiang Huayu Cobalt and Vale Indonesia announced that they would be working together on a nickel project.
The companies move into the EV supply chain in Southeast Asia’s largest economy shows how important it is to be close to the source of raw materials. If logistical screw-ups and delays have shown the industry over the past year, it’s that proximity is key. Even if global supply and demand are balanced on paper, industrial goods are expensive to move around.
Tesla knows this very well. It has created major manufacturing hubs in China and Germany. It has grown its market share globally after having trouble making electric vehicles in the US. Now the EV-maker is looking to secure materials and build its own batteries while avoiding buying mines. Wherever Musk sees problems in production, he finds solutions. Tesla is essentially creating a worldwide discrete supply chain.
Indonesia produces about 1 million cars in a good year, and is dominated by smaller vehicles from Japanese producers. Its auto market is smaller than that of China and the US, in which EVs have a smaller share. The potential sales generated in Indonesia won’t really move the needle for Tesla. Still, Jakarta is leveraging existing resources, an EV business-friendly policy, and the right story to make it fertile ground for large-scale investments. The moment this happens, Indonesia will be able to boast about its battery manufacturing supply chain on a global scale.
Meanwhile, India is and continues to dominate import duties. Government officials in New Delhi have made bold statements about their ambitions, speaking of their desire to attract Tesla. Earlier this month, Road Transport Minister Nitin Gadkari said Tesla would benefit from a plant in India. Still, customers who placed orders are still waiting and it’s unclear how Musk’s firm will proceed. Now, there are questions about whether Tesla will make its way to India.
This is probably a good bet too. Firms are concerned about procuring parts and dealing with logistical issues and high shipping costs. Progress on EVs is scattered and commitment is unclear. Toyota, one of the world’s largest automakers but an EV laggard globally, has promised to invest $624 million in making EV components through its existing units in India, but that’s unclear. who will buy them. Even India’s top automaker Maruti Suzuki is not planning on an EV until 2025. Add in policy hoops and punitive taxes, and India has defied itself by making the cost of investing in its market so high. India’s vaccine king Adar Poonawalla also decided to weigh in earlier this month. He tweeted that investing capital into building a car in India would be the “best investment” that Musk “will ever make.” This is probably too optimistic.
EV and battery makers are in high demand around the world and it will be much more than bold words and political ambition. Resources must be made available and policy must be consistent enough for manufacturers to work with. It is ironic that the government of Prime Minister Narendra Modi is constantly backtracking. Yes, there are a few local EV models, but the Indian auto market is still aspirational. This means that widespread adoption will only accelerate if people want to buy enough models – like Tesla’s Model 3 – and enough charging features that make it easier, as the growth of the two-wheeler market showed.
Just as China made Tesla a global company, Indonesia could do the same for its battery supply chain. Making manufacturing more affordable and eventually, EVs too. It is a means to an end – and a smart one at that. © Bloomberg
Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia.