To achieve its ambitious EV target, Indonesia has attracted several battery and car manufacturers with various incentives in recent months. Government ministers say they hope to make investments across the supply chain.
Manufacturers are starting to pour billions of dollars into favorable policies that reinforce the country’s EV targets. LG Energy Solutions, along with other companies, is investing approximately $9 billion to establish a domestic supply chain from mining to manufacturing. It is also developing a battery plant with Hyundai Motor Company. Meanwhile, Contemporary Amperex Technology Co., the world’s largest power pack manufacturer, is investing nearly $6 billion in battery projects with state-owned PT Aneka Tambang Tbk and PT Industri Baterai Indonesia. Moving further along the value chain, China’s Zhejiang Huayou Cobalt Co. and PT Vale Indonesia Tbk announced last month that they would collaborate on electronics’ fifth nickel project in China.
The move of companies across EV supply chains to Southeast Asia’s largest economy shows how important it is to get close to the source of the raw materials supplied for manufacturing. If there’s one thing the industry has seen over the past year due to logistical issues and delays, it’s that proximity is key. Even with global supply and demand balanced on paper, moving industrial goods has become costly, slow and cumbersome.
Tesla knows this all too well. It has created large manufacturing hubs in China and now Germany. The country is known for its industrial production capacity and policies that help sell cars. After struggling with making electric vehicles in the United States, they gained market share globally. Now, the company is looking for ways to acquire materials and make its own batteries, as it buys mines and jumps into new businesses. Whenever Musk finds a problem in production, he finds a solution. Tesla is essentially creating an individual supply chain globally.
Automakers may not necessarily have made their way to Indonesia. The country produces around 1 million cars in a good year and is dominated by small cars from Japanese producers. The automobile market is weak compared to China and the United States, and the proportion of electric vehicles is small. In addition, the government aims to make the tourist hubs of the capital Jakarta and Bali into green transport hubs, but geographically it is not an ideal location for connecting electric vehicle charging stations and infrastructure.
The potential sales generated in Indonesia won’t actually move Tesla’s needle. But the country is leveraging existing resources, EV business-friendly policies, and the right story to create fertile ground for large-scale investments. In that moment, Indonesia will be able to boast a global battery manufacturing supply chain. It is a proud honor that even the United States competes today. Private investment in battery manufacturing will attract more attention.
Meanwhile, India continues to debate whether to lift tariffs. Government officials there made loud and bold statements about their ambitions and expressed their desire to attract Tesla. Earlier this month, Road and Transport Minister Nitin Gadkari even said that Tesla would benefit from manufacturing in India. But customers who have ordered are still waiting, and it’s unclear how Musk’s company will stretch its legs. Now the question arises as to whether Tesla will enter India given all the hurdles.
That’s probably a good bet too. It’s something companies don’t want to face, especially when they start manufacturing now, as they struggle to get parts for their products and deal with logistical issues and high shipping costs. Progress on EVs is scattered and promises are unclear. Toyota Motor Corp., one of the largest automakers in the world, but lagging behind in electric vehicles globally, has committed to investing $624 million in making electric-vehicle-related parts from existing devices in India, although it’s unclear who will buy it. Even Maruti Suzuki India Ltd, the dominant automaker in India, has no plans to launch an electric car until 2025. Adding policy loops and punitive taxes, India has ruled out itself by making its investment in the market so high.
India’s vaccine king, Adar Poonawalla, also decided to take on the weight earlier this month. He tweeted that investing capital in building cars in India would be “the best investment” Musk could make. You may be too optimistic.
EV and battery manufacturers are in high demand worldwide and require much more than bold words and political ambitions, including making available existing resources and putting in place coherent policies for manufacturers to work together. But it’s odd that Prime Minister Narendra Modi’s government is still on hold. Yes, there are several domestic EV models, but the Indian auto market is still an ambitious market. This means widespread adoption will accelerate where there are models people want to buy, like Tesla’s Model 3, or where there are enough charging facilities that are readily available for purchase, as the evolution of the two-wheeler market shows.
Just as China made Tesla a global player, Indonesia could do the same for its battery supply chain. It could make manufacturing cheaper and ultimately even electric cars. It is a means to an end and a wise means.
More from Bloomberg comments:
• Making EV batteries is expensive. So what now?: Anjani Trivedi
• India’s battery race is led by scooter manufacturer Andy Mukherjee.
• Nickel market will collapse even if LME is locked: David Fickling
This column does not necessarily reflect the views of the editorial board or Bloomberg LP or its owners.
Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. Previously, she was a reporter for the Wall Street Journal.
More stories like this can be found here. bloomberg.com/opinion