Tesla is hedging its bets on the global supply chain

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From India to Indonesia, Elon Musk is looking for sites to make more Teslas for the world’s roads. With the world mired in supply chain chaos, access to materials is paramount. He did good. After lobbying against India’s strict policies on manufacturing and prohibitive import tariffs, Musk will meet with Indonesian President Joko Widodo and visit various areas across the country, which is also the top producer of nickel, a key metal for batteries. That’s a wise bet, for Tesla and Indonesia. And a missed opportunity for New Delhi.

To meet ambitious electric vehicle targets, Indonesia has lured a number of battery and car manufacturers in recent months with a variety of incentives. Government ministers say they hope to have investments throughout the supply chain.

With a friendly policy reinforcing the country’s electric vehicle goals, automakers have begun committing billions of dollars. LG Energy Solution, together with other companies, is investing around $9 billion to establish a supply chain, from mining to manufacturing, in the country. Along with Hyundai Motor Co., the company is also developing a battery plant. Meanwhile, the world’s largest power pack 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 they would work together on the former’s fifth nickel project in the country.

The move of companies along the electric vehicle supply chain to Southeast Asia’s largest economy shows how important it is to be close to the source of raw materials that fuel manufacturing. If there’s one thing the past year of logistical blunders and delays has shown the industry, it’s that proximity is key. Even if global supply and demand are balanced on paper, moving industrial goods has become costly, time-consuming and cumbersome.

Tesla knows this well. He has created huge manufacturing centers in China and now Germany, countries known for his prowess in industrial production and policies that will help sell his cars. After struggling to make electric vehicles in the US, its market share has grown globally. Now the company is looking to secure materials and make its own batteries, short of buying mines and entering a new business. Whenever Musk sees problems in the production process, he looks for a solution. Basically, Tesla is creating discrete supply chains around the world.

Automakers wouldn’t necessarily have targeted Indonesia. The country produces around 1 million cars in a good year and is dominated by smaller vehicles from Japanese producers. The car market pales in comparison to China and the US, with electric vehicles accounting for a small portion. Furthermore, its geography does not make it an ideal location for electric vehicle charging stations and infrastructure connectivity, although the government intends to make the capital Jakarta and the tourist hub of Bali model hubs for greener transportation.

Potential sales generated in Indonesia wouldn’t really move the needle for Tesla. However, the country is leveraging existing resources, a pro-electric vehicle business policy and the right history to make it fertile ground for large-scale investment. The moment 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 doubt whether it will lift the tariffs. Government officials have made big and bold statements about his ambitions, speaking of his desire to woo Tesla. Earlier this month, Road Transport Minister Nitin Gadkari went so far as to say that Tesla would benefit from manufacturing in India. However, customers who placed orders are still waiting and it is unclear how Musk’s firm would gain an advantage. Now, there are questions about whether Tesla will come to India, given all the obstacles.

It’s probably a good bet too. Setting up manufacturing now, especially when companies are struggling to source parts for their products and dealing with logistical hassles and high shipping costs, is the one thing companies don’t want to deal with. Progress towards electric vehicles has been scattered and the compromise is unclear. Toyota Motor Corp., one of the world’s largest automakers but a global laggard in electric vehicles, has pledged to invest $624 million to make electric vehicle-related components through its existing units in India, however, it is not clear who will buy them. Even India’s dominant automaker, Maruti Suzuki India Ltd, doesn’t plan electric vehicles until 2025. Add in policy hurdles 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 weighed in earlier this month. He tweeted that putting capital into car manufacturing in India would be the “best investment” Musk would “ever make.” That is perhaps too optimistic.

Electric vehicle and battery manufacturers are in high demand around the world and it will take much more than bold words and political ambition, including making existing resources available and crafting consistent policy that manufacturers can work with. So it is strange that Prime Minister Narendra Modi’s government continues to hold back. Yes, there are some domestic EV models, however the Indian car market remains aspirational. That means wide-scale adoption will accelerate where there are models people want to buy, like Tesla’s Model 3, or enough charging facilities to make it easier, as the evolution of the two-wheeler market has shown.

Just as China made Tesla a global company, Indonesia could do the same with its battery supply chain. All while making manufacturing more affordable, and eventually electric vehicles too. It is a means to an end, and an intelligent one at that.

More from Bloomberg’s opinion:

• Making batteries for electric vehicles is expensive. What now?: Anjani Trivedi

• India’s battery race is run by a scooter manufacturer: Andy Mukherjee

• Nickel market will crash even if LME fixes itself: David Fickling

This column does not necessarily reflect the opinion of the editorial board or of Bloomberg LP and its owners.

Anjani Trivedi is a columnist for Bloomberg Opinion, covering industrial companies in Asia. Previously, she was a reporter for the Wall Street Journal.

More stories like this are available at bloomberg.com/opinion

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