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Analysis: RI's long journey to attract Tesla Gigafactory

Jakarta Post - January 25, 2023

Tenggara Strategics, Jakarta – Indonesia's discussion with electric automaker Tesla made headline again last week as Bloomberg reported that the two are closing in on a deal.

However, Tesla's CEO Elon Musk was quick to respond via his recently-acquired Twitter cautioning against citing "unnamed sources" as they are frequently false. So where is Indonesia currently in the talks to attract Tesla into building an auto factory in the country?

Home to the biggest nickel reserves in the world, Indonesia has been leveraging its potential to attract investment in battery and electric vehicle (EV) production. It is currently building an end-to-end EV battery production ecosystem, from mining to recycling, and seeking to expand it to an EV manufacturing ecosystem.

In EV battery production, Indonesia has been receiving flocking interests, especially from Chinese companies. Indonesia's Morowali Industrial Park is home to the lithium-ion battery plant backed by subsidiary of China's Contemporary Amperex Technology Co. Ltd. (CATL), the world's biggest EV battery manufacturer, and GEM Co., a supplier to Samsung Electronics, PT Indonesia's Morowali Industrial Park (IMIP), China's Tsingshan and Japan's Hanhwa Co. Ltd, and has made its first shipment of 1,200 tons of nickel metal.

Furthermore, the Morowali Industrial Park is also home to a refining facility run by Zhejiang Huayou Cobalt Co., and the site of CNGR Advanced Material Co.'s future smelting plant. In August 2022, Tesla signed pricing agreements with Huayou and CNGR to supply ternary precursor materials produced in their factories in Indonesia and made from the country's nickel reserves. Huayou will supply the EV maker from July 1, 2022, to the end of 2025 and CNGR from 2023 to 2025.

Meanwhile, for EV manufacturing, South Korea's automaker Hyundai had launched its plant in Indonesia in March last year and sold the country's first locally assembled EV in the market throughout 2022. China's Wuling Motors Holdings has also built assembly facilities in Indonesia and set a record for the most battery EV sold in the country in 2022.

With an established EV battery production ecosystem where Tesla has made deals with and precedents from EV automakers that have built and sold their cars in the country, the discussion to have Tesla build its EV factory in Indonesia has been dragging for a long time, so the issue may not be production ecosystem unreadiness.

Coordinating Maritime Affairs and Investment Minister Luhut Binsar Pandjaitan said the country is preparing for some incentives to attract giant EV automakers, such as Tesla and China's BYD. However, he did not mention what has been dragging the deal finalization and the incentives prepared.

What we've heard

A source in the government said that the difficulties in Tesla's investment plan to build an electric vehicle manufacturing facility in Indonesia was because the company owned by Elon Musk wanted to ensure that the nickel used as raw material for the batteries did not come from illegal mining.

The source said that, apparently the illegal mining of nickel around Morowali and Konawe had caught Tesla's attention. The company then put forward conditions: it only wants to invest and build a car factory in Indonesia if the raw materials for the batteries don't come from illegal mining.

That's why the lobbying team from the Ministry of Maritime Affairs and Investment ensured to Tesla that the battery raw materials to develop the EV ecosystem in Indonesia were all mined legally.

If Tesla does invest in Indonesia, said the source, they will build electric vehicles to target emerging markets. They will set a price for an electric vehicle that is quite competitive with the price of the Wuling Air EV.

This approach was taken because Tesla realized that the price of the electric cars they have been producing so far is too expensive for most consumers in Indonesia and other Southeast Asian countries. However, another source said that Tesla's investment plans in Indonesia could still change.

A source at BKPM said that the team from the Maritime Affairs and Investment Ministry had lobbied for Tesla to enter Indonesia, without involving other ministries or institutions. That is why many officials at BKPM admit that they are not aware of Elon Musk's plans to invest in building factories in Indonesia. They only found out about the plan after Maritime Affairs and Investment Coordinating Minister Luhut Panjaitan conveyed it at the regional head coordination meeting recently.

Source: https://www.thejakartapost.com/opinion/2023/01/25/analysis-ris-long-journey-to-attract-tesla-gigafactory.htm