Last month, the U.S. EV manufacturer agreed to set up a regional headquarters and service center near the capital, Kuala Lumpur, and invest in a local charging network.

The company also started selling its cars directly to Malaysian consumers, unique in a market where local middlemen still dominate. 

Malaysia sees Tesla’s move as the first step toward capturing more of the increasingly lucrative EV supply chain. 

“EV happens to be our priority,” Malaysian Prime Minister Anwar Ibrahim told CNBC in an interview recorded last Friday, suggesting the country has “the capacity to produce parts of the battery required in the car.”

Waiving the rules

Tesla is the first manufacturer to sell in Malaysia under the country’s Battery Electric Vehicles Global Leaders initiative, which provides special concessions to EV manufacturers. 

Normally, foreign-made cars can only be sold through a local partner, and sellers must comply with Malaysia’s affirmative action policies toward the so-called Bumiputera, members of the Malay majority and indigenous groups. 

But Tesla, under Malaysia’s scheme, can sell directly to consumers without a local partner.

The deal “is as good as putting 30% equity,” Anwar said on CNBC, referring to Malaysia’s rule that demands foreign ventures have at least 30% Bumiputera ownership.

“In fact, in terms of real advantage returns to the economy—that is better,” he continued.

Tesla is not the only Musk-led outfit to get an exemption.

Malaysia has also granted SpaceX the right to operate its Starlink system in the country while being wholly foreign-owned, despite rules saying that internet providers could have a maximum of 49% foreign ownership.

Anwar noted that Malaysia has offered some sectors, like IT, similar exemptions in the past. “It’s not just Elon Musk,” he said.

Malaysia has implemented an affirmative action policy toward the Malays since the early 1970s, following deadly riots between the majority and the Chinese minority.

Malays now benefit from preferential access to employment, university admission, and other services.

Yet the policy has been attacked for enriching a smaller population of wealthier Malays rather than the population as a whole. 

Anwar echoed these criticisms in his interview with CNBC, saying that previous regimes used the policies to “enrich their children and their families.” Instead, Anwar said he wanted to shift the policy to “create new entrepreneurs.”

The prime minister has previously suggested shifting the policy to focus on need rather than race, which he characterized as a matter of “refocusing” rather than “dismantling” on CNBC.

The race to host Tesla

Malaysia’s success in winning over Tesla is the latest move in an international race to woo the EV maker. 

Indonesia and its president, Joko Widodo, have lobbied Musk personally to set up operations in the large Southeast Asian country.

Jokowi, as the Indonesian president is commonly known, is trying to leverage the country’s stocks of nickel—a metal key to batteries—to capture more of the EV value chain.

South Korea is also vying to host a Tesla factory, with President Yoon Suk Yeol offering tax breaks to Musk during his state visit to Washington earlier this year.

Tesla has long hoped to sell cars in India, yet negotiations have stalled owing to disagreements on waiving the country’s high import duties. Recently, government officials say that Tesla is now open to building a factory in India, after the company earlier said it wanted to sell cars first to test domestic appetite for EVs. 

Italy, France, and Spain have also expressed interest in hosting Tesla’s next European factory. 

Musk suggested to a Wall Street Journal audience earlier this year that the company was unlikely to announce a new location before the end of 2023, yet told reporters in late June that he hoped to invest in India “as soon as humanly possible.”

Tesla currently has gigafactories in the U.S., China, and Germany, and is currently building a plant in Mexico.

Tesla is accustomed to special treatment from foreign governments.

The carmaker was allowed to open its gigafactory in Shanghai without a local partner, making it the first wholly foreign-owned plant in the country. 

Cars from Tesla’s Shanghai plant now make up half of the company’s sales.