The Real Reason Tesla Is Moving To Indonesia!

Let’s talk about why this much rumored expansion into Indonesia might be the smartest move that Tesla has ever made.

Bold statement, I know. But there is a lot of good information out there to back up the idea that Indonesia might just be the best place in the world for Tesla to fully implement their vertical integration philosophy for manufacturing - literally starting from underneath the ground, turning rocks into metals and metals into batteries and electric cars, all in one place.

The extremely credible but still unconfirmed rumors indicate that Tesla will enter a deal with the Indonesian government to source raw nickel, construct a battery production plant and a vehicle factory. And Tesla isn’t even the only company working on deals with the Indonesians, battery producers and electric carmakers are flocking to the Southeast Asian nation right now, and the Indonesians are rolling out the red carpets to welcome them. We could be looking at the epicenter of a whole new green energy boom. It’s pretty exciting.

So we’re going to dive into some way that Tesla could leverage this new opportunity to create their most ambitious manufacturing project yet.

Vertically Integrated

This idea of vertical integration is nothing new, but has become a bit of a buzzword concept lately. Basically this just means that a company is taking control of their own supply chain. If you make and sell a complex product, like an electric car, then it’s going to be made up of a whole lot of smaller components like seats and windows and batteries and stuff. Where do those components come from? A non vertically integrated company would just get all of these components from a supplier, probably some giant manufacturing plant in China that pumps out all kinds of generic crap and then sells it off to dozens or hundreds of different brands. That’s a perfectly fine business strategy, it’s an easy way to get cheap parts and run a business - but it can backfire also.

EV manufacturer Rivian recently got pulled into a lawsuit with their seat supplier, who is actually an American company, over the price of seats for the new Amazon Delivery van that Rivian is building. The supplier tried to double the asking price of the seats, Rivian sued them and now Amazon might not get their vans any time soon. Now what if Rivian had chosen instead to just make their own seats? Sure they’d have to hire a few more people and invest in some extra equipment for the factory and source some textiles and stuff - it would be more work in the short term - but if they *had* done all that, then they would still be making vans right now instead of going to court.

Tesla, on the other hand, makes their own seats. They make their own glass, their own sound systems, their own batteries and motors, they even write their own software and custom design their own microchips. This is vertical integration. And it works. Tesla has been the only automaker to drastically increase their production numbers over the past two years, while all of their competition has seen deliveries fall because of parts shortages and supply chain breakdowns.

Giga Indonesia

That vertical integration philosophy is going to be right at home in Indonesia where Tesla can source raw nickel ore, refine it into high quality metal for their 4680 battery cathodes, manufacture battery cells and then maybe even build the cars that will receive those batteries - all on the same island. It’s a really cool concept, and the Indonesians are going out of their way to encourage exactly this kind of new investment into their economy.

We know that Indonesia has a uniquely strong incentive when it comes to attracting companies from the electric vehicle industry - their nickel. I’m sure most people are familiar by now that Indonesia has the largest known nickel reserve in the world, 21 million tonnes. And we know that Elon Musk loves nickel because it is a key ingredient for Tesla's latest battery design, the 4680 cell. While half of all Tesla’s sold now use a lower energy, iron based cell that balances a decent amount of range for a reduced cost - there will always be a strong demand for long range, high performance vehicles from Tesla, and that means for the near future at least, there will continue to be a strong need for more nickel.

Elon Musk famously expressed his need back in mid 2020 when he made an open appeal to the nickel miners of the world, saying, “Tesla will give you a giant contract for a long period of time if you mine nickel efficiently and in an environmentally sensitive way.”

Remember though, we’re talking about vertical integration today, and that means taking charge of your own destiny. So while Elon Musk was waiting for those nickel miners to come to him, he was also going straight to the source of the ore and cutting his own deals directly. We’ve talked extensively about Tesla’s direct partnership in the Goro nickel mine on New Caledonia island - it’s a new approach to resource extraction that is done in collaboration with the island's indigenous people and puts the emphasis on Elon’s mandate to mine nickel efficiently and in an environmentally sensitive way. We’ve done a whole video on that, you can check it out after.

But even that New Caledonia nickel operation isn’t entirely vertical, that metal still has to spend a lot of time moving sideways on a long journey over land and sea to Tesla’s nearest battery plant - it’s a lot of wasted energy if you could instead do the whole process all in one location - mine to battery to car and then put the entire finished vehicle on a boat and ship it - one and done.

But there’s even more to Indonesia than just nickel, they do technically have the largest reserve but not exactly by a wide margin - Australia follows behind by just 1 million tonnes with a total of 20 million in known reserves. It’s actually the progressive approach of the Indonesian government that makes the country such a great fit for Tesla and other electric car makers. 

In 2019, Indonesia released a road map to make their country a regional manufacturing hub for electric vehicles and their associated ecosystem, including nickel processing as well as battery and EV production. The national government in Jakarta has also set a goal that by 2025, one fifth of all cars made in Indonesia will be electric vehicles. As part of this new EV strategy, Indonesia has opened up their nickel reserves to the world, but with one major caveat - all of the ore must be processed in the country, you can’t just dig it up and ship it out. Then it's like, well if we’re going to refine the ore here, then we might as well make the batteries here as well, and if we’re going to make the batteries, then we might as well just make the whole car here too.

And the Indonesians have just the place to do it - in December 2021 construction began on the Kaltara industrial complex, a manufacturing hub purpose built for the green energy industry. The new Industrial park will cover up to 30 thousand hectares of land in the country’s North Kalimantan province. I don’t know what a hectare is either, but it converts to about 115 square miles, if that helps for scale. One very appealing aspect of this project is that officials claim the area has the potential to produce 10,000 megawatts of electricity from hydropower, 10,000 megawatts of electricity from solar panels - so green energy powering green energy. The Kaltara complex is poised to become one of the largest industrial developments in the world. 

And if that wasn’t enough, the Indonesian government has also lifted import duties on EV parts to further aid in the development of the industry. President Widodo has made it his mission to ensure that his country becomes a key player in the global supply chain of the electric vehicle industry. Indonesia has set an ambitious goal to produce 140 gigawatt hours of batteries per year by 2030. And even with all of this manufacturing based economy, they plan to achieve net zero emissions by 2060.

If that all sounds like a perfect fit for Tesla, that’s because it is. But it’s not just Elon Musk who is having meetings with the Indonesians, we recently found out that battery producers CATL and LG Energy are setting up shop there as well - these are the world’s largest and second largest EV battery makers, respectively. These are also the same companies that Tesla China partners with to supply their battery cells at Giga Shanghai, CATL produce the LFP battery that powers all Standard Range Model 3’s made at both Shanghai and Fremont.

LG Energy struck their deal with a local mining company as well as the Indonesia Battery Corporation with a planned investment of about 9 billion US dollars. While CATL signed on to a similar project with a projected investment of 6 billion US dollars.

So not only would Tesla be able to set up their own shop on the island, they would have their long-time supply partners nearby as well.

And Tesla isn’t the only company with this idea - Hyundai has already made their move to carry out the exact plan that we’ve just been talking about. The Hyundai Motor Group, which also owns Kia, will be producing Indonesia’s first locally assembled EV in its newly launched manufacturing plant. The newly-built factory will produce Hyundai’s Ioniq 5 EV, with a projected annual capacity of up to 250,000 vehicles. The company is also building a network of charging stations on top of a battery cell factory in nearby Karawang in partnership with LG Energy, which is expected to be completed in the first half of next year before being operational in 2024. 

Speaking at the factory’s opening ceremony, President Widodo said, “I hope Hyundai’s IONIQ 5 will become an important milestone in the development of Indonesia’s EV ecosystem. Moving forward, EVs should be our main mode of transportation.”

In a video posted to the Indonesian President’s official YouTube channel - which has over 2 million followers and mad views, this dude schools us at our own game - we can see President Widodo hanging with Elon Musk at the SpaceX Starbase launch site in Texas and the two of them seem to be hitting it off. Elon is not very good at pretending to like people, just look at how he gets along with US politicians and other billionaires, but he seems genuinely enthusiastic and happy about his time spent with Widodo. At the end of the meeting, Elon tells the Indonesian reporters that he is really fired up by the country’s enthusiasm and their positive vision for the future. Elon says specifically, “We’re going to look closely from the Tesla and SpaceX standpoint to try to do some partnerships in Indonesia.” And he says that he expects to visit the country later this year in November.