JAKARTA – Indonesian Maritime Affairs and Investment Coordinating Minister Luhut Panjaitan is seeking a meeting with Elon Musk after the multibillionaire carmaker left him with egg all over his face by spurning Indonesia and choosing Malaysia for his Southeast Asian headquarters.
Panjaitan had made the world’s richest man an irresistible target of the Indonesian government’s efforts to attract heavyweight investors to a country on the way to a major expansion into nickel-based batteries and electric vehicles (EVs).
But the talks went quiet in the latter part of 2022 and Malaysian Prime Minister Anwar Ibrahim’s announcement that Musk’s Tesla auto company was establishing a regional office and service center in Selangor, the state surrounding Kuala Lumpur, took the Indonesians by surprise.
Malaysia sweetened the pot by allowing Tesla to import its latest Model 3 and Model Y models, whose launch contributed to the firm raising its EV production to 441,000 units in the first quarter of this year, an 86% increase over the same period in 2022.
Anwar apparently gave nothing away when Panjaitan accompanied President Joko Widodo on a visit to Kuala Lumpur in early June which focused mainly on border issues and the welfare of Indonesian migrant workers in Malaysia.
Sources close to Panjaitan said he only had an inkling of Musk’s move several days before the announcement, but that did little to diminish his annoyance at being blindsided.
Only days later, Indonesia’s Ministry of Communication and Informatics blocked Musk’s X, the social-media site previously known as Twitter, because it did not yet conform with the country’s strict laws against pornography, gambling and other online infractions.
Analysts sense a possible payback. Indonesia has 24 million Twitter users, the fifth-highest in the world after the United States (95.4 million), Japan (67.5 million), India (27.3 million) and Brazil (24.3 million).
Musk is clearly looking at Malaysia as a potentially fast-growing retail market, which may not preclude him from looking at Indonesia as a growing future source of EV batteries or other components derived from the processing of its rich sources of nickel, cobalt and copper.
Malaysia head of car industry game
Malaysia has long had a mature auto industry. Toyota, Nissan, Honda, Volvo, Porsche, BMW and Mercedes-Benz already operate in Selangor and the government recently launched a Battery Electric Vehicle Global Leaders initiative to attract EV makers, which Musk termed “forward looking.”
Since 2018, the Malaysian Investment Development Authority (MIDA) has approved 58 EV projects, worth US$5.8 billion, ranging from assembly plants to factories producing parts and charging components.
Unlike Indonesia, Malaysia doesn’t insist that investors have local partners. It also has an emerging EV ecosystem, with 1,000 charging stations around the country of 34 million people and plans to add 10,000 more by 2025, relying partly on Tesla’s help.
Indonesia, by comparison, has only 450 charging stations, most of them on Java. It will need 20,000 over the next two years to service a targeted 400,000 electric cars – and then to facilitate longer-distance travel outside of Jakarta.
Panjaitan is undaunted by the latest turn of events. He says he plans to meet with Musk on August 2 and insists a Tesla investment is still in the cards despite the deal with a neighbor with which it shares a close, but often testy, relationship.
That goes back to the armed conflict known as Confrontation in the early 1960s over Indonesia’s opposition to the creation of the state of Malaysia from the Federation of Malaya, a former British colony.
Losing out to Malaysia is hard to swallow for Indonesians, aggrieved in 2002 when the International Court of Justice awarded Borneo’s hotly contested Sipadan and Ligitan islands in the Celebes Sea to Malaysia.
Indeed, Indonesian media have said very little about the Tesla setback, a sign of embarrassment – or perhaps further evidence of the government’s control over information it doesn’t want widely disseminated.
“If I were Musk, I would invest first in Malaysia,” says one Indonesian business analyst. “It has a higher per capita income, which means more EV sales, and a better road infrastructure. For now, Indonesia’s EV growth is around motorcycles.”
Despite four rounds of meetings with Tesla in 2020-2021 – and a series of seemingly overly confident public statements – Panjaitan’s negotiating team, which also included his son-in-law, was unable to win Musk over.
With President Widodo calling him a “super-genius,” even the Indonesian leader’s much- anticipated May 2022 visit to the tech mogul’s SpaceX complex near Brownsville on the Texas Gulf Coast failed to produce results.
Musk did appear upbeat about future investment, but behind the scenes he was reportedly expressing concern about Indonesia’s “chaotic” regulatory framework and the high level of corruption, which has worsened in recent years.
Shortly before the SpaceX visit, Panjaitan complained that Musk was making too many demands. “Tesla is dictating too much,” he said, stressing the need for the firm to meet domestic investment guidelines.
The minister was initially pushing Tesla to build an energy storage system (ESS) plant in Central Java’s Batang industrial park, but Musk’s focus was solely on batteries and on partnering with environmentally friendly suppliers.
Considered key to the future of the EV and electric-power industries, an ESS is a device or combination of devices capable of storing energy from solar panels and wind turbines that can be used at a later date.
Regulatory roadblocks
Musk was also put off by the government wanting EV investors to partner with the state-run Indonesian Battery Corporation (IBC) that will allow for integrated development and speed up technology transfers, always an important issue for Indonesia.
IBC is a holding company comprising Indonesia Asahan Aluminium (MIND ID), gold and nickel miner Aneka Tambang (Antam), petroleum company Pertamina and utility firm Perusahaan Listrik Negara (PLN), each of which holds a 25% stake.
Panjaitan claimed in August last year that Tesla had signed contracts worth about $5 billion to buy materials for its lithium batteries from processing facilities concentrated in nickel-rich eastern Indonesia, but he offered few details.
More bad news for Indonesia is the mounting obstacles to a proposed free-trade deal with the US on critical minerals used in the EV battery supply chain, which would open the way for tax credits under the Inflation Reduction Act (IRA).
As the world’s largest producer of nickel, one of those critical minerals, Indonesia has banned exports of nickel ore to force the development of domestic nickel-based plants producing stainless steel and lithium-ion batteries.
Although US free-trade-agreement (FTA) partners account for less than 10% of global nickel production, analysts say Washington will likely push Indonesia to limit the use of export bans, which now also apply to bauxite and could soon affect tin and copper concentrate.
Indonesia is currently appealing a World Trade Organization ruling that export bans and domestic processing rules amount to unfair trade practices, which cause market disruptions but are considered key to Indonesia’s industrial future.
A further hurdle is presented by Chinese involvement in the nickel industry, with steelmaker Tsingshan nd other Chinese firms the dominant investors in the three main refinery centers at Morawali and Konawe in Central and Southeast Sulawesi and Weda Bay in Maluku.
That would open the way for Chinese firms to benefit indirectly from IRA tax credits, a violation of a provision in the legislation on battery technology or critical minerals sourced from “foreign entities of concern.”
A third issue stems from the exclusive use of coal to power Morawali and Weda Bay, which would seem to preclude Indonesia from benefiting from tax credits given the emphasis the IRA places on the use of renewables.
After a visit to Morawali last year, where labor problems have also been an issue, Tesla executives underlined Musk’s single-minded focus on clean energy, which were raised during the firm’s discussions with the Indonesians.
Analysts doubt the US government will go for the limited FTA plan, narrowly focused as it is, saying officials first want to see more progress in Indonesia implementing the Group of Seven’s $20 billion Just Energy Transition Partnership (JETP) signed last November.
Under that program, funded from both public and private sources, Jakarta has pledged to cap omissions from the power sector by 2030, faster than the initial target of 2037, and to generate 34% of its electricity from renewable sources by the end of this decade.
In a recent opinion piece, American Indonesia Chamber of Commerce director Wayne Forrest described Indonesia’s path to an EV future as “simultaneously logical and confounding.”
Logical, in the sense that it has abundant raw materials for value-added manufacturing, he says, but confounding if it can’t be done at affordable market prices and without distorting international markets.
He notes that while Indonesia is the world’s second-biggest producer, it has never put an export ban in place for rubber, which has been just as important to gasoline-powered cars as nickel and other minerals are now to electric vehicles.
Forrest says apart from its central role in vehicles, rubber continues to play a crucial role in the health-care industry where newer uses of the material in protecting nurses and doctors would not have been widespread if exports were restricted.
Last year, Indonesia earned more than $5 billion from its export of 3.14 million metric tons of natural rubber, which is mostly grown in North Sumatra, West and East Java and Kalimantan and employs 1.3 million workers.