Making sense of Tesla’s planned Indonesia investment

Aktsa Efendy is a tech builder and VC investor, investing in Southeast Asia and beyond.

For many, Indonesia’s years-long effort to attract investment from Tesla’s Elon Musk has seemed bewildering.

A recent Reuters report, saying that the US electric-vehicle (EV) manufacturer plans to invest in a battery manufacturing facility in Indonesia, suggests some progress in this uphill battle. President Joko Widodo’s vision of creating a vertically integrated supply chain for key EV components may finally be coming to fruition.

However, a closer look at the landscape reveals it may not be so simple to fulfill that vision.

Image credit: Timmy Loen

Teething pains

On the surface, Indonesia has the ideal makings of a prime investable EV market opportunity.

It has a growing consumer market for EVs with a projected compound annual growth rate of 20.9%, regulatory incentives for EV consumers and investors, and the world’s largest nickel reserves. The latter fact is often hailed as Indonesia’s supposed primary draw for EV firms.

Critics often blame the government’s lack of policy flexibility for losing out to neighboring Malaysia in the race to court Tesla, but this argument holds little water. Indonesia has already secured multi-billion dollar investments in EV production from the likes of Hyundai, Honda, Toyota, Mitsubishi, and Wuling.

So why have Indonesia’s advances largely failed to sway Tesla?

One factor may be the fact that the company no longer uses nickel-based batteries anymore, making the nickel reserves in the country a moot point.

In fact, some researchers believe Tesla moved to lithium iron phosphate (LFP) batteries, which don’t use nickel, in response to Indonesia’s nickel ore export ban in 2020. This ban was hoped to drive the development of domestic processing facilities for batteries and EVs, which consequently drove up global nickel prices.

If not nickel, why the investment?

An Instagram post from senior minister Luhut Pandjaitan appears to have been the basis for the Reuters article. In that post, Pandjaitan said Musk was investing in the “manufacturing of materials for lithium batteries.”

This would only make sense if Indonesia has some of the materials needed to make LFP batteries apart, which it does.

The country is home to vanadium in West Java, graphite reserves in Southeast Sulawesi, mountainous deposits of cobalt, and rare earths in the tin-mining waste of Bangka Belitung – but not lithium.

A win regardless