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Why Elon Musk Might Choose Indonesia Over India For Tesla's Manufacturing Base

Dissatisfied with India's high import duties and lack of an ecosystem to support EV sales, Elon Musk is exploring other locations in Asia for a Tesla factory. And Indonesia could mark the spot

Why Elon Musk Might Choose Indonesia Over India For Tesla's Manufacturing Base
Elon Musk.

India's loss could well be Indonesia's gain when it comes to Tesla Motors. For a long time now, the e-vehicle major's founder and CEO, Elon Musk, has been championing that the Indian government reduces import duties by as much as 100 per cent, allowing the company to establish itself in the country. 

Prime Minister Narendra Modi's administration wants the company to set up a factory to sell locally and export. However last August, Musk said Tesla might do this only if it first succeeds with imported vehicles in the country. 

Despite his best efforts, the maverick billionaire has not convinced the Indian government to lower import duty on Tesla cars. He also argued that India lacked the ecosystem to support its EV sales in India. "Still working through many challenges with the government," he said in a Twitter post early this year.

Amid the stalemate, Musk is exploring other locations in Asia to set up a factory for its Tesla cars. He is slated to meet Indonesian President Joko Widodo as the Southeast Asian country seeks to accelerate the development of its nickel industry to supply batteries for electric vehicles. Representatives of Musk's EV maker Tesla Inc were recently in Indonesia to visit the nickel production hub of Morawali on Sulawesi Island.

Going All Out

Indonesia has long been pushing for investments in electric vehicle and battery manufacturing with various incentives. The country, which has the world's most extensive nickel reserves, wants to build a complete supply chain for extracting battery chemicals from the metal rather than simply exporting it. It has struck multi-billion dollar deals with South Korean and Chinese companies to take advantage of its nickel resources. 

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 also developing a battery plant. 

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. 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, Bloomberg has reported.

Hyundai is building new EVs at its new plant in Cikarang and will also construct a battery cell factory with LG Energy Solutions. This month, the country announced $15 billion worth of investments from China's Ningbo Contemporary Brunp Lygend and LG Energy Solutions to develop an EV battery infrastructure.

India Will Have To Wait 

While Musk had said that Tesla wanted to launch its e-vehicles in India, he also noted that "import duties are the highest in the world by far of any large country!" India levies 60 per cent import duty on EVs costing $40,000 or less and 100 per cent for those priced below.

News reports have quoted unnamed official government sources saying that Tesla is free to use the Production-Linked Incentive (PLI) window to produce electric vehicles in India. These sources suggest that the businessman seeks to apply pressure on India to slash import duties without offering any commitment to manufacturing here.

Even though Road Transport Minister Nitin Gadkari said Tesla would benefit from manufacturing in India, it's unclear if Tesla will now consider India given it's already eyeing setting up its base in Indonesia. On the other hand, New Delhi is not keen to have China-made Tesla cars here.

While for India, it remains to be seen if the government will change its stance to make it a lucrative for foreign firms to invest in the country. For now, it is focusing on local manufacturing and has also announced the PLI scheme, under which it gives a cash incentive to manufacturers who meet production goals. Would that be enough to tickle Tesla's fancy and shift its plans to set up a local facility in India into first gear?

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