Explained: Elon Musk shifts focus to a new Asian production hub; what he wanted from India

Indonesia, which has already inked deals with South Korean and Chinese companies to take advantage of its nickel resources, has been trying to woo Tesla for some time. Indonesia is offering a host of incentives, hoping to have investment across the supply chain. Backed by the policy push from the government, a number of manufacturers have started committing billions of dollars in Indonesia.

LG Energy Solution along with Hyundai Motor Co is developing a battery plant in Indonesia, even as the former invests about $9 billion with other companies to set up a supply chain starting from mining to manufacturing in the country, Bloomberg reported.

Contemporary Amperex Technology Co, the world’s largest powerpack maker, is working on a battery project with state-backed PT Aneka Tambang Tbk and PT Industri Baterai Indonesia for an investment of $6 billion.

Since the outbreak of the COVID-19 pandemic, companies across the EV supply chain have realised that proximity to sources of raw materials is key to manufacturing. As the pandemic slowed down operations at all levels, it resulted in a major global supply chain crisis. Realising the necessity to stay close to raw materials, Tesla set up large manufacturing hubs in China and Germany, both credited for their prowess in industrial production and policies.

Musk wanted India to lower taxes on Tesla cars to popularise the high-performance EVs here. At present, India levies 100 percent tax on imported EVs. Lowering the taxes would help Tesla sell vehicles built elsewhere at competitive prices.

In February, Vivek Johri, chairman of the Central Board of Indirect Taxes and Customs, turned down the demand for tax breaks, saying present legislations already permitted bringing in partially-built vehicles and assembling them locally at lower rates.

"We looked at whether the duties need to be re-jigged, but some domestic production is happening and some investments have come in with the current tariff structure," Bloomberg quoted Johri as saying in February. There is no hindrance from the tax side, Johri said.

However, last month Minister for Road Transport and Highways Nitin Gadkari invited Musk to manufacture e-vehicles in India, highlighting present conducive environment for automobile manufacturing in the country. However, he said building cars in China and selling them in India cannot be a "good proposition".