Michelle Anindya, Bali, Indonesia – Karawang county, located about 90 minutes by road from Jakarta, has been a major automotive hub in Indonesia for decades, housing factories of companies like Yamaha and Toyota. Last July, the industrial area added another feather to its cap when Southeast Asia's first electric vehicle battery factory was unveiled there.
Established as a joint venture between Hyundai Motor, LG Energy, and the state-owned Indonesia Battery Corporation, the factory has the annual capacity to make battery cells sufficient to power 150,000 EVs. The factory marked a key step in Indonesia's ambition to become a hub of EV manufacturing in the region, and one of the world leaders in EV battery production by 2027.
The country is home to nearly half of the world's production of nickel, a key mineral in manufacturing batteries. In 2020, Indonesia banned nickel ore export to stimulate domestic battery production and attract global investors to set up operations.
"The Indonesian government has been courting different countries, but the U.S. and Europe generally have more strict ESG requirements."
The ambition, however, remains a pipe dream as investors remain skeptical due to challenges like poor compliance with environmental standards and labor rights, Chinese companies' deep involvement in Indonesia's nickel industry, low domestic EV demand, and a global technological shift toward batteries that do not require nickel.
In 2024, German chemical company BASF dropped plans for a nickel refinery facility in Indonesia due to concerns over its impact on one of the world's last Indigenous tribes living in voluntary isolation. The same year, Elon Musk declined Indonesia's proposal to set up a battery factory in the country due to logistical challenges.
"The Indonesian government has been courting different countries, but regions such as the U.S. and Europe generally have more strict ESG [environmental, social, and governance] requirements, making investment [in Indonesia] slightly difficult," Tenny Kristiana, a researcher at the International Council on Clean Transportation, told Rest of World.
Over the last decade, China has reportedly poured over $65 billion into Indonesia's nickel industry. Chinese investors and companies control around 90% of Indonesia's nickel mines and processing plants.
The involvement of Chinese companies has led to a relatively minimal oversight of environmental concerns, Kevin O'Rourke, who analyzes policymaking developments that affect foreign investors at consulting firm Reformasi Information Services, told Rest of World. There has been a series of explosions and accidents reported at Indonesian nickel mines and smelters in recent years, claiming the lives of tens of workers and raising serious safety concerns.
"Chinese investors have strong ties with [the] Indonesian government, so it's easier for them to obtain permits and access to large projects," Djoko Widajatno Soewanto, a member of the mining advisory board at the Indonesia Nickel Miners Association, told Rest of World.
Chinese companies' involvement has also made Indonesia ineligible for U.S. government incentives – such as the now-halted Inflation Reduction Act – which would have allowed it to sell its products at competitive rates in the U.S. The Act offered incentives including grants, loans, and tax cuts to accelerate the adoption of clean vehicles, but these benefits were not extended to vehicles that used batteries from China, Russia, North Korea, and Iran.
"The U.S. is the biggest growth market for EVs, so it makes sense that the [Inflation Reduction Act] had made many producers... nervous," Putra Adhiguna, managing director at Energy Shift Institute, a think tank focused on energy finance, told Rest of World. Though the Donald Trump administration has halted funding for the Act, "there might be other impositions that we don't know yet, such as tariffs or other barriers... to incentivize EVs made in America," Putra said.
Indonesia's reliance on Chinese-made batteries seems to be only increasing.
The Indonesia Battery Corporation is in talks with China's Contemporary Amperex Technology to set up a nickel-based battery facility in the country, Bayu Yudhi Hermawan, vice president at Indonesia Battery Corporation, told Rest of World. "Materials that are needed for the EV industry can be found in Indonesia. We have copper, aluminum, tin, even cobalt," he said.
While there have been reports of Chinese companies trying to reduce their stakes in Indonesian nickel smelters to make the products eligible for U.S. tax credits, experts remain skeptical about this trend. "Chinese firms are not going to surrender 76% of their investment in these projects. That runs directly counter to what the Chinese want and how they operate," O'Rourke said.
Within Indonesia, EV adoption has remained low, making it an unattractive market for carmakers to set up factories. In 2024, EVs accounted for less than 5% of total car sales in the country.
"The Indonesian market is too small... so it doesn't make sense to justify the expense of the production facility."
"The Indonesian market is too small... so it doesn't make sense to justify the expense of the production facility," O'Rourke said. "If [the factory] is to export, it's much more efficient to do that from China. Their workforce has better skills, especially in terms of math and engineering, and there's an ecosystem that supports it because it's a giant economy."
Globally, battery technology has started slowly shifting toward non-nickel batteries, which could threaten Indonesia.
Over the last five years, lithium iron phosphate batteries – which do not use any nickel – have "moved from a minor share to the rising star of the battery industry, supplying more than 40% of EV demand globally by capacity in 2023, more than double the share recorded in 2020," said a report by the International Energy Agency, a Paris-based autonomous intergovernmental organization. Lithium iron phosphate batteries offer greater safety and have a longer life cycle at a cheaper price point. Chinese EV makers Wuling Motors and BYD use the batteries in some of their vehicles.
In 2023, nickel prices crashed by 45% due to an oversupply of the mineral, partly because of the rising popularity of the lithium iron phosphate batteries.
To boost nickel prices, Indonesia is considering deep cuts in mining operations, Bloomberg reported in December 2024. The move may destabilize the country's mining and processing industry as it "can lead to layoffs," Djoko said. "We might lose the international market, too, because other countries that halted their production could take over our market."
Chinese companies and the Indonesian government are reportedly working to improve their ESG compliance, but that might not bring the country enough investments to create a comprehensive EV ecosystem, O'Rourke said.
"There are too many types of minerals and elements that go into the production of batteries. That's high-value-added technology and intellectual property. It's something that would be difficult to replicate in Indonesia," he said.
[Michelle Anindya is a freelance reporter covering consumer technology, business, and politics. She is based in Bali, Indonesia.]
Source: https://restofworld.org/2025/indonesia-ev-nickel-ban-global-investors