Indonesia Wants To Be A Manufacturing Super Power

The United States is desperate to move the supply chain for electric vehicles — especially battery materials — back onshore after 50 years of offshoring every facet of American manufacturing, mostly to China. The new Inflation Reduction Act is a big step forward on the path to reconstituting domestic production. But other countries want in on the fun, too. Indonesia is a major world supplier of nickel to the world, a metal that is vital to the production of lithium-ion batteries.

Last week, the government of Indonesia announced a long term agreement to supply $5 billion worth of nickel to Tesla over the next 5 years. It is also a major source of other metals, as well as coal and palm oil, and is willing to use taxes and export bans to coax companies to invest in its manufacturing base.

To help realize his vision of a full fledged domestic EV manufacturing industry, President Joko Widodo is considering a new tax on nickel exports, a move that would have big ramifications for automakers. Despite the latest agreement with Tesla, Indonesian officials are still conducting talks with Tesla and other leading automakers to encourage them to invest in manufacturing plants.

Widodo said last week in an interview with Bloomberg News editor in chief John Micklethwait, “What we want is the electric car, not the battery. For Tesla, we want them to build electric cars in Indonesia. We want a huge ecosystem of electric cars.” Jokowi, as he is known, said he has similar expectations of Ford, Hyundai, Toyota, and Suzuki as he seeks to ensure his nation isn’t relegated to simply being a raw material supplier or component maker. A Tesla team visited several sites in Indonesia in May, including Morowali Industrial Park, a hub being developed as a key nickel industry site in Central Sulawesi, according to Indonesian officials.

Talks with Tesla about potential investments in the country are ongoing, according to Jokowi. “It’s still a discussion,” he said when asked what’s holding back a deal with Tesla. “Everything needs time. I don’t want to be quick with no result. It needs intense communication and the result will show.” Jokowi met with Elon Musk in Texas earlier this year. Musk has said he is considering a visit, “hopefully in November,” to Indonesia to explore opportunities. The government has held talks about various potential partnerships with Musk in recent years, including the possibility of a SpaceX rocket launch site in the country, but no agreements have been reached.

Indonesia’s plans for a possible levy on nickel — a critical material for powerful and long-range EV batteries — lifted prices of the metal last week. Nickel has jumped almost a third since the start of last year. While the new tax could crimp sales in the short term, Jokowi has an eye on future benefits. Refining nickel at home to feed EV component makers, rather than shipping raw materials overseas, could create up to $35 billion of added value, he believes.

The Takeaway

Elon Musk has talked recently about building 10 to 12 more Tesla factories around the world. Canada seems to be a possibility. Indonesia could certainly be another. According to Wikipedia, the economy of Indonesia is the largest in Southeast Asia. The country is a member of the G20 and is classified as a “newly industrialized country.” A Tesla factory in Indonesia would help propel the country’s economy forward and give Tesla a foothold in several emerging markets.

Many nations are reconsidering the wisdom of globalization, which has primarily benefited wealthy nations. For some, it is just another version of the exploitation mentality that began when Columbus sailed the ocean blue in 1492 and reported back to his Spanish masters that the native peoples of the Caribbean were so docile, they would make excellent slaves.

India has basically told Tesla to build cars there or forget about selling its wares to its people. Now even the US is making noises about requiring companies to build cars in America using battery materials sourced in the US or at least supplied by countries it deems acceptable. The globalization bubble hasn’t burst, it has ruptured and the results are just now becoming apparent. As Indonesia goes, so may go the world.


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