Elon Musk can make a smarter show now

Suspension

Indonesia wants Tesla Inc to make cars — and batteries — locally. This might be the smartest bet that Elon Musk can make, and it won’t be too difficult.

“What we want is the electric car, not the battery. For Tesla, we want them to make electric cars in Indonesia,” President Joko Widodo said in an interview with Bloomberg News Editor-in-Chief John Micklethwait. The country wants a “huge ecosystem for electric cars.”

Jokowi got the idea right. If companies can make batteries there and use the country’s vast nickel resources, they can also be part of the solution that helps the country turn green. As part of its electrification roadmap, Indonesia wants to manufacture around 400,000 electric vehicles by 2025 and increase that several times after that. It is building a supply chain for electric vehicles locally – from mineral extraction to smelting to ready-made primary products for batteries.

In recent months, Tesla Inc. and battery giants such as China’s Contemporary Amperex Technology and LG Energy Solution Ltd. South Korean billions of dollars are poured into the country to set up nickel processing projects and a powerpack in the race to snatch raw materials globally heated. It has effectively become a promising hedge for the problems and shortages of the global supply chain. Jakarta, very cleverly, now wants to boost its position.

Indonesia doesn’t ask for much. While the country’s auto market doesn’t have any meaningful size, it is growing, in part because the auto industry there isn’t as tough or overburdened with the red tape that holds back other emerging markets. Toyota Motor Corporation, the world’s largest automaker, dominates the market along with other Japanese manufacturers. The domestic unit of SAIC-GM-Wuling Automobile Co., Ltd. has launched In China last week only a small homemade electric vehicle – AirEV. Other Chinese manufacturers have also recently set their sights on the market, while South Korea’s Hyundai Motor said it is working on a locally assembled electric vehicle as well.

The Southeast Asian country has had manufacturing incentives in place for cars for several years. These requirements have been used for decades to boost domestic industry production. Companies can bring in completely disassembled kits, or CKDs, which means parts from abroad that are then assembled locally, or incomplete kits with some Indonesian components. The rate of local content sets the tariffs, which are not prohibitive.

Indonesia has long been known to be crazy about bureaucratic hurdles to foreign business. Jokowi has spent most of his presidency trying, with mixed results, to lower barriers to investment. The government has reformed regulations and instituted policies for electric vehicles, making it easier to produce them locally. There are now tax and non-tax incentives in place such as tax deductions and vacations on materials and machinery related to electric vehicles, certifications and preferential financing rates. Finally, the overall plan paves the way for foreign players. Consumers are encouraged to buy green cars, which helps create a local market.

By taking advantage of these requirements, Tesla could easily meet the Jokowi challenge by bringing CKD kits from China – the supplier of EV parts to the world – to build the Model 3, or perhaps a new, smaller and more basic car. It will not be an expensive proposition.

The same has happened in China, where Musk has taken advantage of all the subsidies on offer, including loans, cheaper land and production incentives to help Tesla build millions of electric cars. By doing so, he helped raise the profile of electric vehicles in China and his own company, satisfying the needs of an enthusiastic consumer base. He is now exporting cars to the rest of the world. Success in Indonesia’s market, with barely a million cars a year (compared to 20 million cars made in China), can be easily achieved.

That could pave Musk’s path to making batteries, which is the ultimate end-game — and the most lucrative.

More from Bloomberg Opinion:

• Tesla can win in China, on Beijing terms: Anjani Trivedi

• Tesla is hedging its own global supply chain bets: Anjani Trivedi

Subsidizing electric cars is not the best climate policy: Tyler Quinn

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

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

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

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