From India to Indonesia, Elon Musk is looking for sites to make more Teslas. With the world stuck in chaos in the supply chain, access to materials is most important. He’s right. Following lobbying against India’s strict manufacturing policies and unaffordable import duties, Musk is set to meet with Indonesian President Joko Widodo and visit parts of the country, which is also the leading producer of nickel, a key metal for batteries. It is a wise bet – for Tesla and Indonesia. And a missed opportunity for New Delhi. To meet ambitious targets for electric vehicles (EVs), Indonesia has brought in several battery and car manufacturers in recent months with a variety of incentives.
With a friendly policy that strengthens the country’s EV goals, companies have started to invest billions of dollars. LG Energy Solution, along with others, is investing approximately $ 9 billion in a complete supply chain from mining to manufacturing in the country. Together with Hyundai, the company is also developing a battery system. At the same time, the world’s leading power package manufacturer Contemporary Amperex is investing almost $ 6 billion in a battery project with state-supported Aneka Tambang and Industri Baterai Indonesia. Further up the value chain, China’s Zhejiang Huayou Cobalt and Vale Indonesia announced they would work together on a nickel project.
The relocation of companies throughout the electric car supply chain to Southeast Asia’s largest economy shows how important it is to be close to a source of raw materials. If there is one thing that the past year of logistical hassles and delays has shown the industry, it is that proximity is the key. Although global supply and demand are balanced on paper, it is expensive to move around industrial goods.
Tesla knows this well. It has created large manufacturing hubs in China and Germany. After having problems manufacturing electric cars in the United States, its market share has grown globally. Now the electric car manufacturer is looking to secure materials and manufacture their own batteries, while not having to buy mines. Wherever Musk sees problems in production, he looks for a solution. Tesla mainly creates discreet supply chains all over the world.
Indonesia produces about 1 million cars in a good year and is dominated by Japanese manufacturers’ smaller vehicles. Its car market is fading compared to China and the US, with electric cars a small part. Potential sales generated in Indonesia would not really move the needle for Tesla. Nevertheless, Jakarta uses existing resources, a company-friendly policy for electric cars and the right history to make it a breeding ground for large-scale investments. As soon as that happens, Indonesia will be able to boast of its global supply chain battery supply chain.
At the same time, India continues to fall and end up on import duties. New Delhi government officials have made bold statements about their ambitions and expressed their desire to withdraw Tesla. Earlier this month, Road Transport Minister Nitin Gadkari said Tesla would benefit from a plant in India. Still, customers who have placed orders are still waiting and it is unclear how Musk’s company would get a step. Now there are questions about whether Tesla will enter India at all.
It’s probably also a good card. Companies are worried about acquiring parts and handling logistical issues and high shipping costs. Progress in electric cars has been widespread and the commitment is not clear. Toyota, one of the world’s largest carmakers but a lagging electric car globally, has promised to invest $ 624 million in manufacturing electric car components through its existing units in India, but it is unclear who will buy them. Even India’s leading carmaker Maruti Suzuki is not planning on electric cars until 2025. Add political framework and penalties, and India has almost ruled itself out 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 in making cars in India would be the “best investment” Musk would ever make. That is perhaps too optimistic.
Manufacturers of electric cars and batteries are in high demand all over the world and it will require much more than bold words and political ambition. Resources must be made available and policies should be coherent enough for manufacturers to work with. It is therefore strange that the government of Prime Minister Narendra Modi continues to hold back. Yes, there are some local EV models, but the Indian car market is still an ambitious one. This means that large-scale use will only gain momentum when there are enough models that people want to buy – such as Tesla’s Model 3 – and enough charging options that make it easy, as the development of the two-wheeled market showed.
Just as China made Tesla a global company, Indonesia could do the same for its battery supply chain. All at the same time as the production becomes more affordable and eventually also electric cars. It’s a means to an end – and it’s smart. © bloomberg
Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia.