Tesla manufacturing: India’s loss, Indonesia’s gain?

By Anjani Trivedi

From India to Indonesia, Elon Musk is exploring sites to manufacture more Teslas for global roads. As the world is mired in supply chain chaos, access to materials matters most. He is right.

After lobbying against India’s strict manufacturing policies and prohibitive import duties, Musk is set to meet Indonesian President Joko Widodo and visit several regions of the country, which is also the top producer of nickel, a key metal for batteries. It’s a smart bet – for Tesla and Indonesia. And a missed opportunity for New Delhi.

To achieve ambitious electric vehicle targets, Indonesia has attracted several battery and car makers in recent months with various incentives. Government ministers say they hope to have investments across the supply chain.

With a friendly policy bolstering the country’s electric vehicle goals, manufacturers have started pledging billions of dollars. LG Energy Solution, along with other companies, is investing around $9 billion to set up a supply chain – from mining to manufacturing – in the country. Together with Hyundai Motor Co., the company is also developing a battery factory. Meanwhile, the world’s largest power supply maker, Contemporary Amperex Technology Co., is investing nearly $6 billion in a battery project with state-backed PT Aneka Tambang Tbk and PT Industri Baterai Indonesia. . Further up the value chain, China’s Zhejiang Huayou Cobalt Co. and PT Vale Indonesia Tbk announced last month that they would work together on the former’s fifth nickel project in the country.

The shift of electric vehicle supply chain companies to Southeast Asia’s largest economy shows how important it is to be close to the source of the raw materials that power manufacturing. If there’s one thing the past year of logistical hiccups and delays has shown the industry, it’s that proximity is key. Even though global supply and demand are balanced on paper, moving industrial goods has become expensive, slow and cumbersome.

Tesla knows this well. He has created major manufacturing hubs in China and now Germany – countries known for their industrial production prowess and policies that will help sell his cars. After struggling to manufacture electric vehicles in the United States, its market share has grown globally. Now the company is looking to secure materials and manufacture its own batteries, while pausing before buying mines and embarking on a new venture. Wherever Musk sees problems in the production process, he looks for a solution. Tesla essentially creates discrete supply chains around the world.

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Automakers would not necessarily have traveled to Indonesia. The country produces around 1 million cars in a good year and is dominated by small vehicles from Japanese manufacturers. The auto market is nothing compared to markets like China and the United States, and electric vehicles are only a small part. Moreover, its geography does not make it an ideal place for electric vehicle charging stations and infrastructure connectivity, although the government aims to make the capital, Jakarta, and the tourist hub of Bali model centers for greener transport.

The potential sales generated in Indonesia wouldn’t really move the needle for Tesla. Yet the country is leveraging existing resources, a policy favorable to electric vehicle companies, and a good history to make it fertile ground for large-scale investment. By the time that happens, Indonesia will be able to brag about its global battery manufacturing supply chain – a much-vaunted accolade these days that even the United States is vying for. Private investment in battery manufacturing will only attract more attention.

Meanwhile, India continues to debate whether it will lift the duties. Government officials there have made big, bold statements about their ambitions, expressing their desire to attract Tesla. Earlier this month, Road Transport Minister Nitin Gadkari went so far as to say that Tesla would benefit from manufacturing in India. Still, customers who placed orders are still waiting, and it’s unclear how Musk’s company would get a head start. Now one wonders if Tesla will make it in India, given all the roadblocks.

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It’s probably a good bet too. Setting up manufacturing now, especially as companies struggle to source parts for their products and deal with logistical issues and high shipping costs, is the only thing companies do not want to confront. Progress towards electric vehicles has been scattered and the commitment is unclear. Toyota Motor Corp., one of the world’s largest automakers but lagging behind in EVs globally, has pledged to invest $624 million in manufacturing EV-related components through its existing units in India, but it is unclear who they will buy them from. Even India’s dominant automakers, Maruti Suzuki India Ltd, aren’t planning electric vehicles until 2025. Add to that political hurdles and punitive taxes, and India has pretty much ruled itself out by making the investment cost on its market so high.

India’s vaccine king Adar Poonawalla also decided to weigh in earlier this month. He tweeted that investing in car manufacturing in India would be the “best investment” Musk “would have ever made”. Maybe that’s too optimistic.

Manufacturers of electric vehicles and batteries are in high demand around the world and it will take more than bold words and political ambition – this includes making existing resources available and developing a coherent policy with which manufacturers can work. It’s strange, then, the government of Prime Minister Narendra Modi continues to hold back. Yes, there are a few domestic EV models, but the Indian car market remains ambitious. That means wide-scale adoption will accelerate where there are models people want to buy – like Tesla’s Model 3 – or enough charging facilities that make it easy, as shown by the evolution of the two-wheeler market.

Just as China made Tesla a global company, Indonesia could do the same for its battery supply chain. While making manufacturing more affordable and eventually electric vehicles too. It’s a means to an end – and a smart one at that.

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