Elon Musk can make an even smarter offer now

Indonesia wants Tesla to make cars – and batteries – locally. It might be the smartest bet Elon Musk can make, and it won’t be that difficult. “What we want is the electric car, not the battery. For Tesla, we want them to build electric cars in Indonesia,” President Joko Widodo said in an interview with Bloomberg News editor. , John Micklethwait The country wants a “huge ecosystem of electric cars”.

Jokowi has the right idea. If companies can manufacture batteries there and use the country’s vast nickel resources, they can also be part of the solution that helps the country go green. As part of its electrification roadmap, Indonesia aims to manufacture around 400,000 electric vehicles by 2025 and multiply them thereafter. It strives to create a domestic electric vehicle supply chain, from metal mining to smelting and battery-ready precursor products.

In recent months, Tesla and battery giants like Chinese tech Contemporary Amperex and South Korea’s energy solution LG have poured billions into the country to set up nickel processing and powerpack projects as that the race for raw materials intensifies on a global scale. It has effectively become a promising hedge against global supply chain problems and shortages. Jakarta, shrewdly enough, now wants to leverage its position.

Indonesia does not ask much. Although the country’s auto market is barely of significant size, it is growing, in part because manufacturing cars isn’t difficult or burdened with the bureaucracy that holds back other emerging markets. The world’s largest automaker, Toyota Motor Corp., dominates the market, along with other Japanese automakers. Last week, China’s national unit SAIC-GM-Wuling Automobile Co. launched a locally-made small electric vehicle – the AirEV. Other Chinese manufacturers have also recently set their sights on the market, while South Korea’s Hyundai Motor Co. said it was also working on a locally assembled electric vehicle.

The Southeast Asian nation has had car manufacturing incentives in place for several years. He used these requirements for decades to boost the production of domestic industry. Companies can bring in completely knocked down kits, or CKDs, i.e. parts from overseas which are then assembled in the country, or incomplete kits containing Indonesian components. The percentage of local content determines the rates, which are not prohibitive.

Indonesia has long been known for its infuriating bureaucratic obstacles to foreign businesses. Jokowi has spent much of his presidency trying, with mixed results, to lower barriers to investment. The government has revised regulations and set policies for electric vehicles, simplifying their local production. Tax and non-tax incentives are now in place, such as tax deductions and holidays on materials and machinery related to electric vehicles, certifications and preferential financing rates. Altogether, the complete plan paves the way for foreign players. Consumers are encouraged to buy green cars, which helps create a local market.

Leveraging these requirements, Tesla could easily meet Jokowi’s challenge by bringing in CKD kits from China – the global supplier of electric vehicle parts – to build the Model 3, or perhaps a new, smaller, larger vehicle. basic. It won’t be an expensive proposition.

The same was true in China, where Musk took advantage of all the grants on offer, including loans, cheaper land and production incentives to help Tesla make millions of electric vehicles. In doing so, he helped elevate both China’s electric vehicle status and that of his own company, and catered to the needs of an enthusiastic consumer base. It now exports automobiles to the rest of the world. Making a splash in the Indonesian market, with barely a million cars a year (compared to the 20 million made in China), can be easily accomplished.

This could pave the way for Musk to manufacture batteries, which is the ultimate – and more lucrative – endgame.

© 2022 Bloomberg L.P.


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