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
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.
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.
But, Putra said that in the future, the US will be a “significant market” for nickel producers.
Jakarta still on the hunt for Tesla
Nickel is one of the key materials used for lithium-based EV batteries, as it can reduce their overall cost by limiting the amount of cobalt required. Indonesia has the world’s largest reserves of nickel, at 21 million metric tonnes, a supply that is estimated to last for more than 30 years.
Last year, Indonesia produced one million metric tonnes of nickel, or 37.04 per cent of global output, retaining its title as the world’s top nickel producer, according to the US Geological Survey.
Even then, Indonesia still relies on foreign companies, mainly from China and South Korea, to realise its ambition to be an EV batteries manufacturing hub.
Currently, Tsingshan is planning to build a new industrial estate for metal smelting, including iron ore, nickel ore, and copper, in North Kalimantan, run by a hydropower plant.
South Korea’s LG Chem and China’s Contemporary Amperex Technology (CATL) have also been tapped by Jakarta to help it develop the EV batteries industry in Indonesia.
Last month, Tesla reportedly agreed to purchase US$5 billion worth of Indonesian nickel produced by China’s Zhejiang Huayou Cobalt and CNGR Advanced Material, according to Luhut Binsar Panjaitan, the Coordinating Minister of Maritime and Investment Affairs. Tesla has yet to confirm the report.
But what Jakarta really wants is for Tesla to set up EV plants and EV battery plants, something the company is still hesitant to commit to.
“I will go to the US next month and I will meet with Elon again to ask, ‘hey, what do you really want?’” Luhut said last month during a speech at a university.
The US’ new regulation may work in Indonesia’s favour as it may help Jakarta to entice Tesla, and other non-Chinese companies, to consider setting up nickel processing facilities in the country, said Fabby Tumiwa, executive director at the Jakarta-based Institute for Essential Services Reform.
“Indonesia now has other market options [for its nickel], not just China. Global EV players will also compete to invest in Indonesia to comply with the IRA. I think, considering that this industry just evolved in the US, the next two to three years will be critical to Indonesia to secure access to the US market,” Fabby said.
“But, to attract investments from US and European companies, Indonesia’s nickel producers will have to ramp up [environmentally-friendly] production processes, from the mining stage all the way to the nickel ore production at the smelters.”
‘Refining relies almost entirely on coal’
Kevin O’Rourke from the political risk consulting firm Reformasi said in a newsletter last month that Indonesia “will not qualify” to sell its nickel in the European Union, as the bloc will soon “require all EVs to source batteries from environmentally friendly production processes”.
“The refining processes rely almost entirely on coal-fired power plants for energy, while employing high pressure acid leaching (HPAL), which produces large quantities of environmentally hazardous tailings,” O’Rourke wrote.
“Thus, while Indonesia’s new EV battery industry is registering dynamic growth at present, it also entails environmental consequences and, increasingly, doubts about its future market scope.”
Fossil fuels currently make up around 60 per cent of the country’s electricity needs, while Jakarta aims to increase the renewable energy portion to 23 per cent of its total energy use by 2025, from the current 12 per cent.
Among the policies the agency recommended was for Jakarta to introduce transparent and competitive tariffs and to slash the price of solar projects, which in Indonesia cost more than twice the amount in similar emerging economies.
Additional reporting by Reuters