Indonesia and its EV ambitions

As the world gears up for the United Nations Climate Change Conference (COP-29) in November this year, nations which are most vulnerable to climate change are launching and executing strategies to mitigate the extreme variability and erratic fluctuations in global weather.

With the goal of downstream industry development and green energy investment in the country, Indonesia is increasingly attracting international interest. By 2027, Indonesia hopes to rank amongst the top three producers of EV batteries worldwide by positioning itself as an important EV hub in the supply chain and taking advantage of its abundant nickel reserves. It plans to attain 2.5 million EV users by 2025 and by 2030, it plans to produce EV batteries with a total capacity of 140 GWh annually, or around 4 to 9% of world demand.

In 2023, Indonesia's primary nickel production rose by a staggering 53% y-o-y as greenfield and brownfield capacity expanded.

The Indonesian government is offering subsidies and tax breaks to increase the use of electric vehicles (EVs) domestically.

These include VAT reduction from 11% to 1% for purchase of EV with 40% or more local content (until Dec 2024), local content requirement gradually increasing to 60% by 2027. There is a luxury tax exemption and import duty exemption for companies depending on the use of local components and/or other investment criteria. So far, most of the EV-related investment has come from South Korean and Chinese businesses. On the one hand, Western manufacturers' involvement is crucial to Indonesia's EV goals being successful. On the other, due to their dependency on critical raw materials, the United States and Europe will probably find it difficult to achieve their own EV goals without Indonesia.

Some of the most significant investments recently in Indonesia are the US$ 1.3 billion factory owned by Chinese automaker BYD which unveiled three new battery models for sale, becoming Indonesia's biggest EV brand and Vietnam's VinFast which has invested US$ 1.2 billion in Indonesia's assembly plant with a capacity to produce 60,000 electric cars per year. A recent joint venture between Hyundai Motor Group and LG Energy Solution (LGES) to produce up to 10 Gigawatt hours (GWh) of battery cells every year in Indonesia also underscores its ambition to become a global player in the EV supply chain.

Given the abundance of its nickel reserves and recent down-streaming policies, Indonesia is expected to remain at the forefront of nickel mining and refining in the future.

Despite challenges such as environmental woes, international scrutiny and stiff competition, Indonesia's calculated actions from upstream to downstream, including legislative modifications and tax advantages, highlight its dedication to an electric future.

Given the abundance of its nickel reserves and recent down-streaming policies, Indonesia is expected to remain at the forefront of nickel mining and refining in the future. It may seem intuitive that it would invest in the production of nickel-based batteries for either domestic or export market for electric vehicles. However, whichever direction it takes, it is important to note that companies and governments around the world are asking for increased capacity and energy at lower cost to achieve greenhouse gas reductions. This is leading to major investment in R&D and new production facilities in the lithium battery sector, directly linked to the development of electric vehicles. In this regard, nickel-containing cathodes make batteries lighter, smaller and provide higher energy density, resulting in more efficient EVs.