On the sidelines of the 2022 G20 summit in Bali, Musk was interviewed by Anindya Bakrie, CEO of Bakrie and Brothers, and said he was ‘bullish’ on Indonesia. Despite these sentiments, Tesla has not made a big move in the country. This lack of progress probably stings a little bit more given that Tesla opened a sales office in Malaysia and will be opening a showroom in Thailand. Indonesia may be beginning to wonder if it is being passed over by Tesla and the reasons behind this decision.

The first aspect to consider is Tesla’s objectives in Indonesia and Indonesia’s motivation for collaboration with Tesla. Indonesia is not currently a major market for electric vehicles. There are few charging stations and the national road system is underdeveloped. Government subsidies intended to encourage the uptake of electric vehicles have been hotly debated. In the short term, Indonesia is more likely to be a bigger consumer of electric scooters — which Tesla does not make — than electric cars.

If the goal is to sell four-wheeled electric vehicles in Southeast Asia in the near future, Tesla seems to believe Malaysia is a more attractive market. They have higher per capita income, meaning more people are likely to have the financial means to afford a Tesla. Malaysia also has better road infrastructure and has a plan in place to set up 10,000 electric vehicle charging stations by 2025.

On the other hand, Indonesia does not just want to be a market for Tesla, but also to play a role in production by building the batteries and assembling the battery packs for Tesla cars. Indonesia wants to move up the value chain and assemble and produce Tesla vehicles, either for domestic consumption or export.

The main obstacle to these plans is that Tesla already has a regional production hub in Asia — the Shanghai Gigafactory. The company has sourced its batteries from Japan’s Panasonic for many years. This means that, while it is not impossible for Indonesia to integrate into Tesla’s production networks, it will be a challenge, as the automaker already has well-developed supply chains with long-established suppliers.

Even if Tesla were planning to build a production hub in Southeast Asia, Indonesia is not necessarily the most likely candidate. While Indonesia’s automotive manufacturing industry has been growing on the strength of domestic demand, Thailand remains the regional leader in automobile exports. Even if Tesla felt that it needed another Asian production hub, Indonesia would face tough competition from Thailand for such a project.

The most likely place where Indonesia could fit into Tesla’s ecosystem is in batteries. Indonesia has been leveraging its control of global nickel supplies to invest in downstream industries. This includes nickel smelting and the use of refined nickel to make batteries. Chinese battery giant CATL has committed to investing billions of dollars, along with the state-owned Indonesia Battery Corporation, in Indonesian battery manufacturing. Tesla has started sourcing batteries from CATL, creating potential inroads into Tesla’s supply chains.

But there are complications in this area as well. The US Inflation Reduction Act of 2022 contained a provision that makes electric vehicles produced using Indonesian nickel ineligible for tax credits in the United States. The Indonesian government is exploring ways to circumvent this, for instance through a bilateral trade deal, but for the time being automobile makers including Tesla face an additional layer of uncertainty in integrating Indonesia into their supply chains.

It is also worth noting that Tesla is not the only, or even the biggest, game in town. South Korean and Japanese car makers like Toyota and Hyundai already have large manufacturing footprints in Indonesia and decades of experience and business ties in the country. Chinese firms like Wuling also already produce cars in Indonesia. These auto makers are well-positioned to produce electric vehicles using critical minerals and batteries produced in Indonesia. They can also likely scale up faster than Tesla since they do not have to build facilities from scratch.

It would be surprising if Indonesia and Tesla never do business together. But the form of this relationship is likely to extend beyond Indonesian consumers buying Tesla vehicles. Indonesia is likely to end up involved in the production of these vehicles too, with the most likely entry point being the use of Indonesian nickel and batteries.

James Guild is Adjunct Fellow at the S Rajaratnam School of International Studies, Nanyang Technological University, Singapore.