Can Indonesia’s electric car, battery sector have a smooth ride beyond China?

US offers tax rebate for EV buyers whose vehicles’ batteries use minimal metal from ‘foreign entities of concern’, in reference to China, Russia firms

A lot of nickel, used for EV batteries, is from Indonesia, but experts say sector must become greener to gain more global market share

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Stockpiles of nickel ore await shipment at the port in Pomala, Southeast Sulawesi province. Indonesia has the world’s largest reserves of nickel, at 21 million metric tonnes, and the supply is estimated to last for more than 30 years. Photo: Reuters

Published: 10:00am, 12 Sep 2022Updated: 10:17am, 12 Sep 2022

A new regulation in the United States offering incentives to buyers of electric vehicles with battery components only minimally made by “foreign entities of concern” has paved the way for Indonesia to expand its burgeoning EV battery industry beyond the Chinese market.

However, the nation’s lacklustre green energy revolution may dampen that prospect in the future, analysts said.

The US Inflation Reduction Act (IRA), passed into law last month, offers a tax rebate of US$7,500 for EV consumers whose vehicles undergo final assembly in North America, and if their batteries use minimal metal components from “foreign entities of concern”, in a veiled reference to Chinese and Russian companies.

Visitors throng an auto show in Indonesia last month. New US regulations pave the way for Indonesia to expand its burgeoning EV battery industry beyond the Chinese market. Photo: EPA-EFE

At least 40 per cent of the important metals in the EV battery, including lithium, nickel, cobalt and manganese, must also come from the US and its Free Trade Agreement partners. That percentage will rise to 80 per cent by 2026, according to Reuters. The new law will be effective until at least 2032.

There will be implications for Indonesia, “directly or indirectly, considering that China-made batteries imported by the US use Indonesian nickel”, said Putra Adhiguna, a Jakarta-based energy analyst in the transport sector at the Institute for Energy Economics and Financial Analysis. “But at this point in time, it’s unclear what the magnitude of that implication will be.”

While currently the largest markets for EV batteries are China and the European Union, “the Chinese market is still twice or three times bigger than the US market now,” Putra said.

But, Putra said that in the future, the US will be a “significant market” for nickel producers.