When is Tesla Planning to Enter Indonesia?

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For a number of years, Tesla and its CEO Elon Musk have expressed interest in venturing into the Indonesian market. President Joko ‘Jokowi’ Widodo’s government has actively engaged with Tesla, with prominent figures like Coordinating Minister for Maritime Affairs and Investment Luhut Binsar Pandjaitan visiting Tesla’s manufacturing plant in Texas in April 2022 to promote investment opportunities in Indonesia.

During the 2022 G20 summit in Bali, Musk, in an interview with Anindya Bakrie, CEO of Bakrie and Brothers, expressed his optimism about Indonesia. Despite these positive signals, Tesla has yet to make substantial strides in the country. This sluggish progress might be particularly disappointing given Tesla’s recent establishment of a sales office in Malaysia and plans to open a showroom in Thailand. Consequently, Indonesia may be left wondering why it has seemingly been overlooked by Tesla and what factors have influenced this decision.

To comprehend this situation, it is important to consider Tesla’s goals in Indonesia and the country’s own motivations for collaboration with Tesla. Presently, Indonesia is not a significant market for electric vehicles. The scarcity of charging stations and the underdeveloped national road system pose challenges. Government subsidies aimed at encouraging the adoption of electric vehicles have also been a subject of intense debate. In the short term, Indonesia is more likely to witness a surge in the consumption of electric scooters rather than electric cars, which are not within Tesla’s product portfolio.

If the objective is to sell electric vehicles in Southeast Asia soon, Tesla appears to view Malaysia as a more appealing market. With a higher per capita income, a larger segment of the population in Malaysia is likely to afford Tesla’s offerings. Moreover, Malaysia boasts superior road infrastructure and has plans to establish 10,000 electric vehicle charging stations by 2025.

On the other hand, Indonesia is not merely interested in being a market for Tesla but also aims to engage in production activities, including building batteries and assembling battery packs for Tesla vehicles. Indonesia seeks to elevate its position in the value chain by manufacturing Tesla vehicles for domestic consumption or export.

However, the main obstacle to these plans is the existence of Tesla’s regional production hub in Asia, the Shanghai Gigafactory. Additionally, the company has long relied on batteries from Japan’s Panasonic, resulting in well-established supply chains that pose a challenge for integrating Indonesia into Tesla’s production networks.

Even if Tesla were considering establishing another production hub in Southeast Asia, Indonesia might not be the top contender. While Indonesia’s automotive manufacturing industry has experienced growth driven by domestic demand, Thailand remains the regional leader in automobile exports. Therefore, if Tesla were to contemplate a new production facility in Asia, Indonesia would face tough competition from Thailand.

Indonesia’s most probable point of entry into Tesla’s ecosystem lies in the realm of batteries. Leveraging its control over global nickel supplies, Indonesia has invested in downstream industries, including nickel smelting and the production of batteries. Notably, Chinese battery giant CATL and the state-owned Indonesia Battery Corporation have made significant commitments to invest in Indonesian battery manufacturing. Tesla has already begun sourcing batteries from CATL, paving the way for potential integration of Indonesian supplies into Tesla’s supply chains.

However, complications persist in this area, particularly related to the US Inflation Reduction Act of 2022. A provision in the act renders electric vehicles produced using Indonesian nickel ineligible for tax credits in the United States, adding another layer of uncertainty for automakers like Tesla as they consider incorporating Indonesia into their supply chains.

It is essential to recognize that Tesla is not the sole, nor the largest, player in the market. South Korean and Japanese car manufacturers such as Toyota and Hyundai have well-established manufacturing operations and extensive business ties in Indonesia. Chinese companies like Wuling are also producing cars in Indonesia. These competitors are well-positioned to manufacture electric vehicles using critical minerals and batteries produced in Indonesia, and they might be able to scale up faster than Tesla due to their existing infrastructure.

It would be surprising if Indonesia and Tesla never engage in business together. However, it is likely that the nature of this relationship will extend beyond Indonesian consumers simply purchasing Tesla vehicles. Indonesia is poised to play a role in the production of these vehicles, with the use of Indonesian nickel and batteries representing the most probable entry point.