Tesla battle | Why did India lose out to Indonesia?

Irked with India, Elon Musk is exploring other nations in Asia — including Indonesia — for setting up a Tesla factory. 

The high import duties and lack of an ecosystem for electric vehicles (EVs) have prompted Musk to shy away from India despite Union minister Nitin Gadkari assuring all help to Tesla. 

Inside Tesla Model S -- Source: Tesla.com.

Musk has been eyeing India via the completely-knocked down (CKD) route for a long time to bring Tesla cars into India and asked the central government for a duty cut.

Under this route, cars are brought into a country and just assembled. For this, India attracts a 100 per cent duty for cars costing above $40,000. And, for cars priced below that, it is 60 per cent.

The government, instead, wanted Musk to set up a Tesla factory in India to sell domestically and export as well. 

Why Indonesia 

Musk will meet Indonesian president Joko Widodo to set up the Tesla factory. Indonesia is giving a fillip to its nickel industry to supply batteries for electric cars. 

Musk’s team from Tesla Inc recently visited the nickel-making hub of Morawali at Sulawesi Island in Indonesia. 

Indonesia, a mega supplier of the key battery metal, is aiming to buoy its EV sales with a new regulation that will give tax breaks to hybrid cars.

Battery-powered electric vehicles will pay zero per cent luxury tax, while plug-in hybrids will see their tariff increase to 5 per cent from 0 per cent, says a draft regulation issued by Indonesia’s finance ministry recently. 

Full and mild hybrid types will attract a tax of 6-12 per cent, compared with the earlier 2-12 per cent. 

These fresh rates will apply only to locally-made vehicles. Also, after nickel, the country hopes to build a complete supply chain for extracting battery chemicals from the metal rather than just exporting them.

Indonesia has also inked multi-billion dollar deals with South Korean and Chinese firms to take advantage of its nickel resources. 

For instance, LG Energy Solution, along with other firms, is investing a whopping $9 billion to set up a supply chain from mining to manufacturing in Indonesia. 

Along with Hyundai Motor, the firm is also developing a battery facility. Meanwhile, the world’s largest power-pack maker Contemporary Amperex Technology is also pumping in $6 billion into a battery project. 

Also, Zhejiang Huayou Cobalt Company from China is believed to be working on a nickel project in the country. Hyundai is making new EVs at its new plant in Cikarang and will also construct a battery cell factory with LG Energy Solutions. 

This month, the country announced $15 billion investments for EV battery infrastructure. So, a lot of funds are being injected into Indonesia.

Taxes in India

India slaps a goods and services tax (GST) of 28 per cent and GST cess of 22 per cent on car manufacturers. So, taxes are highly unattractive for car makers. 

Also, according to a car expert, on every car worth Rs 40 lakh (Rs 40,00,000) being sold, the state and central governments make Rs 18 lakh (Rs 18,00,000), the dealer Rs 1 lakh (Rs 100,000) while the manufacturer makes only Rs 40,000.

The country needs to alter this math, even though its production-linked incentive (PLI) scheme for the auto sector looks attractive to some extent.

Conclusion

India seems to have lost the Tesla battle to Indonesia but to strike other deals, it will have to cut its GST component substantially and offer higher profit per car to manufacturers.