Tesla's HQ In Malaysia, Significant Blow To Indonesia - What Is Jokowi's Next Move?

Nikkei Asia reported that according to A. Lin Neumann, managing director of the American Chamber of Commerce in Indonesia, Tesla's decision to establish a regional headquarters in Malaysia was a significant blow to Indonesia and a major boost for Southeast Asia's electric vehicle industry.

Tesla was given a special allowance to set up, base and sell their vehicle in Malaysia, directly bypassing the traditional principle and dealer business module with additional taxes, middle-man and approval permits (AP) that all other brands would have to adhere to in Malaysia, leading to its higher selling price.

Tesla’s special allowance in Malaysia is unique and is the first of its kind under the Battery Electric Vehicle Global Leaders Initiative (BEV GLI), which aims to make Malaysia a key hub for the electric vehicle sector in the region. Nickel rich Indonesia, on the other hand, had much earlier eyed for this position thanks to heavy foreign investment in its nickel extraction and processing facilities crucial in EV battery production.

However, to date, Indonesia has yet to attract any major car manufacturers to establish an EV production facility within its borders. Indonesia, just like Malaysia, has been repeatedly hinting at the “potential billion-dollar” investment from Tesla. Both Malaysia and Indonesia would join India in attracting Tesla to set up a Giga-Factory in this part of the world.

Now, Indonesia, in the wake of Malaysia's successful deal with Tesla, announced its plans to introduce new incentives for EV producers and has scheduled a meeting with Musk. Indonesia presently imposes a 50% import tariff on fully assembled EVs, and is looking to consider taking a page off Malaysia’s play-book and waiving this tax to attract companies like Tesla to set up base there.

Tesla’s direct to consumer model in Malaysia has resulted in their vehicles being priced significantly lower than neighbouring countries like Singapore, Thailand and Indonesia. The only caveat to this was Tesla’s promise to establish service centres, charging networks and employment opportunities for starters in Malaysia. The Model Y Standard Range is priced at RM199,000 in Malaysia, while in Thailand it is around RM256,000.

Now, by planning to switch over methods or policies to challenge Malaysia in vying for the investment, Indonesia risks going back on its "local content" requirements policy. This policy has been criticised and deterred foreign investors, resulting in them favoring Vietnam in recent times.

Looking at Malaysia and Indonesia, some would see Indonesia as a perfect choice due to its cheaper operating and labour costs, but Malaysia triumphs in having a more skilled workforce and technological readiness.

Having said that, both nations are still fishing for the ultimate prize, which would be the chance to house Tesla’s vehicle and battery production facility. Although Malaysia thus far has the one up by securing Tesla's regional headquarters and service centres, the game is still not over as President Jokowi and his team know the ace up their sleeves where Indonesia is the largest source of NICKEL, which is a key component in current EV battery manufacturing.

So it all now depends on how Indonesia would lax its strict policies which had earlier required Tesla to partner with state-owned Indonesia Battery Corporation (IBC) that Elon Musk is highly against. Should this barrier be taken down, the smart money places Indonesia as the right place to house the production facility as skilled labour is the easiest factor to be sourced world-wide and is highly mobile.