How Tesla CEO Elon Musk is hedging his global supply chain bets
To meet ambitious electric vehicle targets, Indonesia has drawn in several battery and car manufacturers in recent months with a variety of incentives. Government ministers say they hope to have investment across the supply chain.
With a friendly policy bolstering the country’s EV goals, manufacturers have started committing billions of dollars. LG Energy Solution, along with other companies, is investing about $9 billion to set up a supply chain — from mining to manufacturing — in the country. Together with Hyundai Motor Co., the firm is developing a battery plant, too. Meanwhile, the world’s largest powerpack maker Contemporary Amperex Technology Co. is investing almost $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 they would work together on the former’s fifth nickel project in the country.
The move by companies across the EV supply chain into the Southeast Asia’s largest economy shows how important it is to be close to the source of raw materials that feed into manufacturing. If there’s one thing the past year of logistical screw-ups and delays has shown the industry, it’s that proximity is key. Even if global supply and demand is balanced on paper, moving industrial goods around has become expensive, slow and cumbersome.
Tesla knows this well. It has created large manufacturing hubs in China and now Germany — countries known for their prowess in industrial production and policies that will help sell its cars. After having trouble making EVs in the US, its market share has grown globally. Now the company is looking to secure materials and make its own batteries, while stopping short of buying mines and getting into a new business. Wherever Musk sees problems in the production process, he looks for a solution. Tesla is essentially creating discrete supply chains across the globe.
Automakers wouldn’t have necessarily made their way to Indonesia. The country churns out around 1 million cars in a good year, and is dominated by Japanese producers’ smaller vehicles. The auto market pales in comparison to the likes of China and the US, and EVs make up a small portion. In addition, its geography doesn’t 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.
Potential sales generated in Indonesia wouldn’t really move the needle for Tesla. Yet, the country is leveraging existing resources, an EV business-friendly policy and the right story to make it fertile ground for large-scale investment. The moment that happens, Indonesia will be able to boast about its battery manufacturing supply chain on the global scale — a much vaunted accolade these days that even the US is vying for. Private investment into manufacturing batteries will only draw more attention.
Meanwhile, India continues to hem and haw around whether it will lift duties. Government officials there have made big, bold statements about their ambitions, talking up their desire to draw in Tesla. Earlier this month, Road Transport Minister Nitin Gadkari went as far as to say that Tesla would benefit from manufacturing in India. Yet customers who placed orders are still waiting and it’s unclear how Musk’s firm would get a leg up. Now, there are questions around whether Tesla will make its way into India at all, given all the roadblocks.
That probably is a good bet, too. Setting up manufacturing now, especially as companies struggle to procure parts for their products and deal with logistical issues and high shipping costs, is the one thing firms don’t want to face. Progress toward EVs has been scattered and commitment isn’t clear. Toyota Motor Corp., one of the world’s biggest automakers but a laggard in EVs globally, has pledged to invest $624 million to making EV-related components through its existing units in India, however it’s unclear who they will buy them. Even India’s dominant automakers Maruti Suzuki India Ltd isn’t planning on EVs until 2025. Add in policy hoops and punitive taxes, and India has all but 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 putting capital into making cars in India would be the “best investment" Musk would “ever make." That’s perhaps too optimistic.
EV and battery manufacturers are in high demand across the globe and it will take far more than bold words and political ambition — that includes making existing resources available and coming up with a coherent policy that manufacturers can work with. It’s bizzare, then, Prime Minister Narendra Modi’s government continues to hold back. Yes, there are a few domestic EV models however, the Indian auto market remains an aspirational one. That means wide-scale adoption will pick up pace where there are models that people want to buy — like Tesla’s Model 3 — or enough charging facilities that make it easy, as the evolution of the two-wheeler market showed.
Much like China made Tesla a global company, Indonesia could do the same for its battery supply chain. All while making manufacturing more affordable and eventually, electric vehicles, too. It’s a means to an end — and a smart one at that.
This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.