Indonesia is inching closer to its dream of becoming a manufacturing hub for electric vehicle (EV) batteries after signing an agreement to import lithium from Australia , in a move that analysts said could help the Southeast Asian nation reduce its dependence on China . Indonesia’s Chamber of Commerce on February 21 signed a pact with the government of Western Australia, where the bulk of lithium mines are concentrated. Jakarta’s intentions were conveyed to Australian Prime Minister Anthony Albanese in Canberra recently by Indonesia’s coordinating minister for maritime and investment affairs Luhut Pandjaitan. “To meet our target of becoming the world’s largest lithium battery producer, we hope to increase our imports of lithium from Australia,” Luhut said. In Australia there is lithium, we have nickel, when combined it becomes an electric car battery Joko Widodo, Indonesian President Indonesian President Joko Widodo also made an offer to Albanese during the B20 Summit, the G20 ’s business-focused meetings in Bali in November. “In Australia there is lithium, we have nickel, when combined it becomes an electric car battery,” Widodo had said. Indonesia is the world’s biggest nickel producer, and also has the largest nickel reserves at 21 million tonnes, according to the US Geological Survey. The country was also the world’s second-largest producer of cobalt last year, surpassing Russia and Australia. Both metals are significant components in EV batteries . In 2020, Indonesia banned the export of nickel ore to boost domestic refining of the commodity. It will next ban the export of bauxite in June . Will Indonesia finally win Elon Musk’s help to realise its EV dreams? But being nickel-rich alone is not enough to propel the nation to become a significant player in the global battery supply chain. EV giant Tesla , for example, has not announced an investment in Indonesia despite multiple attempts by Jakarta to entice it. Australia is the world’s largest lithium producer, contributing 52 per cent of the global total output, ahead of Chile’s 25 per cent and China’s 13 per cent, according to data from the World Economic Forum . However, Chinese companies operate 60 per cent of the world’s lithium refining capacity for batteries. China also benefits Andry Satrio Nugroho, head of centre of industry, trade, and investment at Jakarta-based Institute for Development of Economics and Finance (Indef), said if Indonesia’s plans panned out, China could be “upset”. “But this needs to be done, we can’t be too dependent on one country. We already depend on China in the development of nickel smelters here,” Andry said. Putra Adhiguna, Jakarta-based energy analyst in the transport sector with Institute for Energy Economics and Financial Analysis, argued that the move would also benefit Chinese firms, as they had a stranglehold on the lithium mining sector in Australia, as well as the nickel refining sector in Indonesia. For example, Tianqi Lithium, a Chinese mining and manufacturing company that controls almost half of the world’s lithium production, is a major shareholder of the Kwinana lithium processing plant in Western Australia, which it runs under a joint venture with Australian miner IGO Limited. The plant produces lithium hydroxide monohydrate (LHM), or battery-grade lithium, in commercial quantities, according to its website. “More than 90 per cent of Australia’s lithium exports are to China. [The lithium export to Indonesia] will also be processed by the Chinese companies who process nickel in Indonesia. This will not significantly affect Indonesia’s relations with China,” Putra said. Indonesia’s plans with China’s Tsingshan face heat to uphold green standards Adding lithium into the mix could also add value to Indonesia, as it would “deepen the supply chain” of EV batteries in the country, beyond the usual nickel products, he said. Lewis Black, the chief executive of Almonty Industries – which mines the hardening metal tungsten – said he would not be surprised if larger battery manufacturers opened facilities in Indonesia. “Of course you will probably find – because China has the ability to be much more nimble... because their access to capital is more state-oriented – Chinese manufacturers are heading there first,” Black said. Most of Indonesia’s nickel output is currently Class 2 Nickel, which is mostly used for stainless steel. Jakarta has said it hopes to start producing lithium-ion batteries, using Class 1 nickel, as early as 2024, as it vies to become one of the world’s top three battery producers in 2027. To achieve that, Indonesia has been teaming up with battery and EV manufacturers to develop its ecosystem, signing deals worth more than US$15 billion with firms such as Hyundai Motor, LG Group and Foxconn in the past three years. The country is also aware it has to ditch fossil fuels to make its supply chain more green. It is partnering with China’s stainless steel giant Tsingshan Holding Group to build a new industrial estate powered by a hydropower plant in North Kalimantan. Contemporary Amperex Technology (CATL), a Fujian-based Tesla supplier and the world’s top EV battery maker, in November signed a cooperative agreement with Indonesia’s sovereign wealth fund to invest in a US$2 billion fund to develop a “green” battery industry. CATL has also partnered with Indonesian state-owned companies by investing US$6 billion in six planned battery projects. Alternative components While analysts estimate that nickel demand will keep growing due to the rising adoption of EVs, they also warn that manufacturers may look for alternative components in batteries when nickel prices soar. In the first half of 2022, global nickel was priced around US$27,860 per tonne on average, a nearly 60 per cent increase from the same period the year before which London-based GlobalData, an analytics and consulting firm, contributed to lack of supply from Indonesia. Manufacturers have resorted to using lithium iron phosphate (LFP) batteries, which do not use nickel or cobalt, in their products. Tesla and China’s BYD, also an EV giant, have used LFP batteries in their vehicles in the past couple of years. The market share of LFP batteries jumped to 31 per cent in September 2022, from 17 per cent in January 2021, according to consultancy firm Adamas Intelligence. Southeast Asia sowing seeds to build new plant for China’s BYD LFP batteries are easier to build, and cheaper, than lithium nickel mangan cobalt (LNMC) and lithium nickel cobalt aluminum oxide (LNCA) ones. They are also less likely to catch fire. But LFP batteries pack 30 per cent less energy density than nickel batteries, which means they’re not suitable for long-range vehicles. “Recently China has also developed low nickel batteries, which don’t use nickel at all, but both of them still need lithium,” Putra said, adding that the development should be a wake-up call for Indonesia, and it “must be careful because the supply and demand for batteries will be affected by nickel prices”. To grow the demand of Indonesia’s nickel products in the future, Andry from Indef recommended that Jakarta not only focus on developing the nickel-based batteries for EVs, but also the Energy Storage System, which could be used to store the power made by renewable energy, such as solar panels.