Hello dear reader,

Long time no see. Today, we’ll discuss Indonesia and its rapid emergence as a key player in shaping the future of energy.

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To understand why Indonesia is a key player in the world’s push for a greener future, we first need to look at one of the most critical pieces in this sustainable puzzle: batteries.

Since battery chemistry can get quite complex and I’m not about to pretend to be a chemistry guru, I’ll keep the explanation of different battery types simple and (hopefully) error-free.

Let’s start with the components of a battery. Every battery has six major components:

At its core, a chemical reaction between the anode and electrolyte causes electrons to build up in the anode. These electrons want to move to the cathode but can’t pass directly because of the separator and electrolyte. Instead, they travel through an external circuit.

For our purposes, let’s focus on the cathode and anode, which make up 30–40% and 10–15% of the cost of a lithium battery cell, respectively.

A good cathode material:

A good anode material:

Depending on the type of battery and the compatibility of various material chemistries:

That’s the foundation of how batteries work. Next, let’s dive into the types of batteries in use today and explore Indonesia’s role in this evolving story.

There are two broad battery categories: primary and secondary. The difference is straightforward: primary batteries cannot be recharged, while secondary ones can. But that’s where the simplicity ends. While there are two main categories, there are dozens of battery types, each with different chemistries, applications, advantages, and disadvantages.

Only about ten battery types have been widely used historically or are actively in use today.

Lithium-ion and lead-acid batteries dominate the market, accounting for 85.7% of total share. Both are widely used in vehicles. However, while lead-acid batteries powered the cars of the past, lithium-ion batteries are meeting the needs of the future—particularly in electric vehicles (EVs). Although lithium-ion batteries are not exclusively used in the automotive sector, they are projected to grow in market share, rising from 42% to 60% within the next decade.

NMC is the dominant chemistry, holding a 60% share, followed by LFP at 30% and NCA at 8%. These chemistries each offer unique advantages and drawbacks. For example:

The surge in lithium-ion battery demand is primarily driven by the EV market. In 2023, the energy sector consumed 2,400 GWh of batteries, with 90% of that demand coming from EVs. This growth represents an addition of 2,000 GWh over the past five years.

Previously, prices were dictated by technological complexity and production scale. With R&D costs decreasing and production scaling up, the biggest driver now is raw materials. In 2022, rising metals prices caused battery costs to spike by 7%.

Despite these challenges, battery consumption is set to rise dramatically. By 2030, lithium-ion battery manufacturing capacity is expected to exceed 6,500 GWh. Some projections suggest that weekly EV battery demand in 2030 will equal the entire annual demand of 2019. In monetary terms, the market is expected to grow from $120 billion in 2023 to $500 billion—a staggering compound annual growth rate (CAGR) of 22.6%. For comparison, the digital advertising market, while larger at the time, grew at a 17.2% CAGR from 2017 onward and is dominated by tech giants like Google and Meta.

All of this positions Indonesia favorably as it aims to become the fourth-largest producer of green commodities. However, while the macroeconomic tailwinds are strong, the future remains uncertain. But let’s not get ahead of ourselves.

As previously discussed, nickel is essential for battery production, and Indonesia plays a pivotal role in meeting global demand. Between 2019 and 2023, global nickel ore production rose from 2.6 million tonnes to 3.6 million tonnes. Most of this growth has been driven by Indonesia, where mining output surged from 0.8 million tonnes to 1.8 million tonnes—a staggering 125% increase in just five years. Meanwhile, nickel mining outside Indonesia saw only a marginal increase, from 1.7 million tonnes to 1.8 million tonnes.

By 2025, Indonesia is projected to supply 65% of the global nickel market. To move up the value chain, the country banned nickel ore exports in 2020, requiring that all mined nickel be refined domestically. This strategy has driven the development of smelters: 30 out of 46 smelter projects slated for completion this year are dedicated to nickel refining.

Not all nickel is created equal. Nickel ores come in two forms:

1. Sulfide ores: Easier to extract and refine, with a lower environmental impact. They are the primary source of Class 1 nickel (≥99.8% purity), which is crucial for batteries.

2. Laterite ores: More abundant but harder to process. They primarily yield Class 2 nickel, which contains higher iron content and is used in stainless steel production.

Currently, 70% of Class 1 nickel comes from sulfide ores, while 73% of undeveloped nickel reserves are laterites. Only 3-5% of nickel is used for battery production, while 72% is still directed toward the steel industry. However, as demand for battery-grade nickel grows, laterites will become increasingly important.

Laterite ores are divided into:

HPAL is a promising technology for extracting nickel from limonite, as it:

However, HPAL has significant drawbacks:

Despite these hurdles, Indonesia is heavily investing in HPAL technology to extract value from its abundant limonite reserves. Mastering this process could solidify Indonesia’s dominance in the nickel supply chain and its critical role in supporting the global transition to electric vehicles.

Thanks to Chinese expertise, the High-Pressure Acid Leaching (HPAL) process is operational in Indonesia, marking a significant leap forward for the country in nickel refinement. Several major HPAL facilities are already active or under construction:

Indonesia is not stopping at nickel. The country is making bold moves to position itself as a significant cobalt producer. Currently, the Democratic Republic of Congo (DRC) dominates global cobalt supply, accounting for two-thirds of the market. However, given the DRC’s political instability, diversifying supply chains has become a priority for many industries. Indonesia aims to claim a 20% share of the cobalt market by 2030.

Indonesia has rapidly scaled up cobalt production in recent years:

Aside from its vast nickel reserves, Indonesia offers several strategic advantages for companies seeking to invest in its battery and EV industries.

Indonesia’s government has implemented robust policies to stimulate battery and EV production. These include:

We’ll explore these policies in greater detail later.

Indonesia’s unique geography, with over 17,500 islands, necessitates extensive port infrastructure. By some estimates, the country has over 100 commercial ports and 800 terminals dedicated to mining, oil, gas, and chemical industries. While challenges like limited road connectivity and inefficient port management persist, Indonesia has made significant strides:

Labour in Indonesia is significantly cheaper than in many competing nations. For example, as Wired reported, some nickel factory workers earn under $25 a month. While such figures highlight critical ethical and regulatory concerns that need addressing, from a purely economic perspective, low labour costs provide a significant cost advantage for companies operating in the country.

While Indonesia has not yet developed a substantial domestic EV market, its long-term potential is immense. Key factors include:

Indonesia is determined to shed its image as a raw material exporter and establish itself as a leader in the global battery and EV manufacturing ecosystem. The country has ambitious plans to dominate battery-cell production in Southeast Asia, aiming to reach a manufacturing capacity of 25 GWh by 2025 and expanding to 80 GWh by 2030. This push is a cornerstone of Indonesia’s strategy to climb the value chain, using its abundant nickel and cobalt resources as leverage.

Chinese companies have played an outsized role in Indonesia’s industrial expansion. Between 2012 and 2022, Chinese firms invested over $14 billion in Sulawesi and Halmahera, regions rich in nickel resources. In 2022 alone, $3.2 billion flowed into these areas, as reported by Bloomberg. Beyond building mining and refining facilities, Chinese players have also supported broader initiatives, such as creating a metallurgy school and establishing a nickel museum, further solidifying their influence.

To better understand the investment activity in Indonesia’s EV and battery ecosystem, I analyzed 17 non-mining projects. Although the list is not exhaustive, we can draw some conclusions from it.

It’s worth noting that over half of the projects are still in the planning stages, and some have seen little recent news. This could be a normal part of the development cycle, or it might indicate investor hesitation. Either way, it remains uncertain whether all these projects will come to fruition.

Since the nickel export ban, investors have rushed to establish processing facilities in Indonesia. Over the last two years, at least ten nickel manufacturing plants have either started operations or been announced. These projects often exceed $1 billion in investment, with some reaching up to $6 billion. Many include plans to expand capacity further after initial rollouts. This suggests the government’s strategy is working.

Investment geography is also notable. While much of the activity is concentrated near mineral deposits, downstream operations (e.g., battery production) are gravitating towards larger population centers, especially Java.

By 2025, Indonesia’s battery manufacturing capacity is expected to be in the 20-30 GWh range. In 2023, global EV battery demand was 750 GWh. Assuming a 30% growth rate in 2024, this would rise to 975 GWh. Even in a best-case scenario, Indonesia would supply just 2-3% of global EV battery capacity1.

Some automakers are expanding into EV manufacturing. Mitsubishi, for example, is investing $779 million to produce hybrids and EVs. There’s also Volkswagen. According to Reuters:

What that means exactly is yet to be determined, however there’ve also been reports that Volkswagen is investing €4.7 billion in building a factory. Yet, we still don’t know what type of factory (but presumably a battery cell plant), when and if it’s going to exist at all.

China accounts for 56% of global EV battery demand and 59% of EV sales. While the US and EU are embroiled in trade disputes with China, countries in Asia and Africa remain open to Chinese investment, and Indonesia is no exception.

Chinese companies bring the technology needed for Indonesia to transition from raw material exports to value-added production. For China, the partnership ensures access to resources while sidestepping geopolitical challenges and positioning itself in a growing market of 275 million people.

However, this dependence on China is a bit tricky. If Chinese companies like BYD succeed in developing alternative battery technologies that are safer, cheaper, and more sustainable, global investment might shift away from Indonesia.

As mentioned earlier, Indonesia aims to supply 20% of global cobalt. The HPAL process, while primarily focused on nickel, also produces cobalt as a byproduct. Depending on the project, the nickel-to-cobalt production ratio ranges from 5:1 to 10:1, much better than the global average of 15:1. From the projects analyzed, total cobalt production is projected to reach tens of thousands of tons annually, supplementing Indonesia’s growing role in the cobalt supply chain.

Indonesia’s ambitions in the EV sector have been clearly laid out by the government, starting with Regulation No. 55/2019, which mandates that two-wheelers and four-wheelers must have at least 80% locally manufactured components by 2026 and 2030, respectively. This regulation also sets goals for EV adoption and charging infrastructure. By 2030, the government aims to have 15 million EVs (cars and motorcycles) and over 90,000 charging and battery swap stations across the country.

In 2020, the government outlined a development roadmap for the EV and battery industry, specifying which components of electric vehicles should be produced locally by certain dates.

Grand plans didn’t stop in 2020. Further expanding its efforts, Indonesia’s government adopted a broader EV strategy in 2023. In the announcement, then President Widodo stated:

Indonesia plans to go beyond battery production and enter the EV manufacturing market. As stated by Jokowi in August of 2022:

That’s sounds logical. At the end of the day, there are a lot more marginal dollars in selling EVs, rather than batteries. The global EV battery market is valued at around $50 to $100 billion, while the EV car market reached $1 trillion in 2023. Those ambitions, however, have to meet reality on the ground, which we’ll get into in the next chapter.

For now, what is apparent in reading all the quotes and reports from the Indonesian side is that the country is determined not to become an appendage of the global EV industry. It doesn’t want to focus on the most basic parts of the value chain.

Rather, it is trying to find a way to break out of the commodity trap and striving to capture the most valuable part of the value chain. We can see this in the desire to build EV production capabilities, but it’s also true for upstream operations.

Additionally, the government has implemented measures to regulate nickel usage, such as limiting its use for steel production and reserving it for the EV industry. To further encourage the growth of the EV sector, Indonesia has also scrapped tax holidays for investments in nickel pig iron production and instead incentivized nickel processing for battery manufacturing.

To support the EV industry, Indonesia has introduced a range of policies to stimulate both supply and demand:

Indonesia’s government also sees battery technology as key to transforming the country’s energy sector. With the potential to generate 225 GW from solar energy, Indonesia aims to leverage batteries to address solar intermittency and improve the reliability of its energy grid, which often faces blackouts. The state-owned energy company, PLN, is working to convert 5,200 diesel power plants to renewable sources, primarily solar, though these plants only account for 2 GW of electricity.

However, Indonesia’s energy system remains heavily reliant on fossil fuels. According to the IEA, coal accounts for the majority of the country’s electricity generation—1,000 times more than solar. The share of coal in total electricity production has increased from 36.5% in 2000 to 61% in 2021. While there is significant potential for solar energy, the transition away from fossil fuels remains a significant challenge.

Indonesia’s goals for EV adoption face significant challenges, particularly in achieving the targets set for 2030. The country aimed for 125,000 electric cars on the road by 2021, but only managed to have around 12,000 EVs sold in 2023. Similarly, while the goal for two-wheelers (E2Ws) is 13 million on the road by 2030, the country is struggling to achieve the necessary growth.

There are three key barriers to EV adoption:

1. Charging infrastructure. Although there are 842 charging stations in Indonesia, this number is insufficient for the projected 200,000 EVs that should be on the road by now. A major issue is that most of these stations are concentrated in Java and Bali, with 88% of them located in these regions. Additionally, without strong incentives for infrastructure builders, the “chicken and egg” problem remains unsolved, where the demand for EVs cannot grow without the adequate infrastructure to support them.

2. Price. The cost of EVs remains a significant barrier, with most EVs costing twice as much as traditional internal combustion engine vehicles (ICEVs). For a country that relies heavily on two-wheelers, this price gap is particularly problematic, as motorcycles are generally more affordable than cars. While the government has introduced some financial incentives, the impact is limited, with Indonesia’s 10% VAT reduction being far less compelling than the up to 24% savings available to buyers in countries like Singapore or India.

3. Range. The issue of range is another limiting factor. While innovations in battery technology could improve range, they often lead to higher vehicle prices. As a result, those who want to buy EVs with longer ranges are forced to choose more expensive options, which creates additional financial strain on consumers.

For E2Ws, the situation is similarly challenging. In 2023, the number of E2Ws sold surged to 62,000, a 262% increase from the previous year, but the original target was 1.34 million by 2021. E2Ws are more expensive, with a price difference of $300-500 compared to their ICE counterparts, which is a significant financial burden for most consumers, especially considering that the monthly down payments and installments are higher for E2Ws. Additionally, most E2Ws have shorter ranges and slower speeds compared to ICE bikes.

For E2Ws the situation isn’t much better. In 2023 the number of E2W rose to 62,000 from 17,000 the year before. All the while the goal was to sell 1.34 million bikes by 2021. When it comes to E2Ws, their costs are higher with a $300-500 price difference with comparable ICE models. That’s a difference of one or two monthly salaries. Down payments and monthly installments are also higher for E2Ws. All the while most E2W models have less range and are slower than ICE bikes.

For heavy commercial users, such as delivery drivers, the solution is often to use battery swap stations. However, the number of these stations is also inadequate, with only 961 built by the end of 2022, far short of the 14,000 target set for 2020. These stations rely on imported batteries, which are expensive, and the lack of electricity subsidies for battery swap operators results in higher subscription costs for users. Consequently, the total cost of ownership for an E2W is often comparable to or even higher than an ICE bike.

To address these challenges, establishing local supply chains is essential. However, this requires substantial investment—an estimated $120-150 million is needed to build a facility capable of producing 400-500,000 bikes per year. Without sufficient demand, local supply chains remain underdeveloped, and the lack of competitive pricing for locally produced parts and high tariffs on imports further complicates the situation.

Nickel-based batteries, such as those using nickel manganese cobalt (NMC) chemistry, are still widely used in EVs, but they present several challenges that automotive manufacturers are working to overcome by seeking alternatives. But there are several issues with these batteries.

1. Price volatility. Both lithium and nickel prices are unstable, with these materials being expensive and subject to price fluctuations. For example, from May 2021 to May 2022, the cost of an NMC battery pack increased by 47%, reaching $177/kWh.

2. Supply chain risk. Nickel supply is highly concentrated, with Indonesia producing half of the global supply. Given that the battery costs account for about 30% of the total car cost, over-reliance on a single supplier can add substantial risk to the EV supply chain.

3. New alternatives. While nickel-based batteries dominate the market, manufacturers are exploring alternatives, notably Lithium Iron Phosphate (LFP) batteries. LFPs are especially prominent in China but have had limited adoption outside of the country. Their main issues have been lower energy density and poor performance in cold temperatures. However, advances have been made, such as BYD introducing an LFP battery with 27% more energy density than current models.

Despite some drawbacks, LFP batteries offer significant advantages:

Another alternative on the horizon is sodium-ion (Na-ion) batteries, which are being developed by companies like China’s CATL. Na-ion batteries are 30% cheaper than LFPs, and in turn, LFPs cost 20-30% less than NMC batteries. Although Na-ion batteries are less energy-dense, their low cost makes them suitable for affordable EVs, particularly in densely populated urban environments in regions like South and Southeast Asia.

Nickel-based chemistries remain dominant, with alternative chemistries mostly represented by China. However, their overall share is falling, and given China’s dominance in the EV market and their consistent search for alternatives, this doesn’t bode well for Indonesia.

Indonesia’s nickel industry has seen substantial growth in mining and refining activities, but the country’s focus on these sectors is limiting its potential to capture more value from the nickel supply chain.

Since 2015, Indonesia’s nickel mining has increased eightfold. As of July 2023, there are 43 operational nickel smelters, with another 28 under construction and 24 more in the planning stages. This highlights the country’s focus on the basic stages of nickel extraction and refining.

The value added by nickel mining is relatively low compared to battery manufacturing. According to some calculations, the value add of battery cell production is 67 times higher than that of raw nickel ore production and 17 times higher than basic refining. This makes battery manufacturing a far more lucrative sector for Indonesia to target than just mining.

Although Indonesia has opened its first gigafactory, it faces significant competition. There are currently 240 operational gigafactories worldwide, and this number is projected to rise to 400 by 2030. For Indonesia to become a competitive player in the global battery manufacturing market, it would need to overcome substantial challenges, including technology gaps, infrastructure, and attracting large-scale investments.

Another major challenge are environmental concerns. The Indonesian government has issued 1 million hectares of mining concessions, with three-fourths of those located in forested areas. This raises questions about the environmental impact of such large-scale resource extraction, and whether the push for a cleaner energy future might come at the cost of irreversible damage to the planet.

Indonesia is investing $30 billion in the nickel industry, with half of this investment directed toward building High-Pressure Acid Leach (HPAL) facilities. However, the waste associated with the HPAL process presents a major environmental risk. The country’s geography, with its high rainfall, steep topography, seismic activity, and soft volcanic soils, makes it challenging to store and safely dispose of the toxic waste generated by these operations. An earthquake or landslide could easily damage storage facilities, potentially exposing harmful substances to the environment.

The impact of mining operations on workers’ health is also a growing concern. According to the Bahodopi Community Health Center, located near a local industrial park, 52% of patients coming into the clinic were suffering from acute respiratory infections. Such poor health outcomes are unsurprising given the working conditions in mining areas, which often resemble the hazardous environments depicted in troubling images from the industry.

While Indonesia is rich in nickel and cobalt, it lacks lithium, a crucial component for electric vehicle (EV) battery production. To address this gap, the country’s coordinating minister for maritime affairs and investment, Luhut Pandjaitan, began searching for reliable lithium suppliers, focusing on Australia and certain African countries.

Pandjaitan succeeded in securing a shipment of 60,000 tonnes from Australia. However, two major challenges arise. First, the country requires far more lithium than this single shipment can provide. Second, while Australia could be an ideal supplier for Indonesia, 90% of the lithium concentrate produced there is already destined for China, leaving limited availability for other markets.

Indonesia may also secure additional lithium supplies from the Democratic Republic of Congo (DRC) and Zimbabwe, but these sources come with higher logistics costs. The political instability in the DRC further complicates supply stability.

Additionally, the supply of nickel itself isn’t as reliable as it might seem. Indonesia’s recent decision to delay mining quotas and halt operations at a crucial Aneka Tambang site due to a corruption investigation has deepened supply concerns. In response, several companies have started sourcing nickel ore from the Philippines, the world’s second-largest supplier, to prepare for potential delays in Indonesian mining quotas.

Indonesia has made significant progress in infrastructure development. In 2015, the government invested $15.5 billion in infrastructure, and by 2025, that number is set to grow to $24.4 billion, according to reports. However, much of this budget is earmarked for projects like building a new capital city, which takes up about 10% of the funds.

Despite these investments, Indonesia lags behind other countries in the region when it comes to road infrastructure. The country has lower road density than any other nation in Southeast Asia. Additionally, it has the worst expressway density in the region, except for the Philippines. While 65% of roads are paved, 38% of them are in poor condition. The country also faces significant challenges in its railroad infrastructure. Overall, Indonesia’s logistics infrastructure quality lags behind that of its regional neighbors, such as Malaysia, Thailand, and Vietnam.

The government acknowledges problems with infrastructure. Specifically, speaking on infrastructure as it relates to mining,  Widodo noticed:

In a now-defunct Doing Business ranking, Indonesia placed 73rd in 2020, but performed substantially worse in areas like dealing with construction permits and enforcing contracts, ranking in the second hundred.

The investment environment improved through the 2023 Omnibus Law on Job Creation. This law simplified business creation, permit attainment, and immigration policies, and simplified environmental assessments. While these changes have been welcomed by the business community, the same cannot be said about the labor movement. The law also introduced significant labor changes, including reducing severance pay, eliminating the mandatory two-day rest period during a five-day workweek, and allowing citizens to work up to 12 hours a day.

The new law has also faced criticism from environmental activists. It makes it easier for businesses to comply with environmental laws, but if a project occurs in a zone with a detailed spatial plan, there is no obligation to conduct an environmental impact assessment. Specifically, the existence of a spatial plan does not necessarily include a zoning map, potentially leading to increased environmental harm when the project is executed.

One more issue for investors is the requirement for foreign-owned mining companies to progressively divest 51% of ownership to the government or a national private entity. The timeline for this divestment, however, is unclear.

At the end of the day, I’m left with the feeling that while Indonesia is a vital player in the EV industry as a raw material supplier, it doesn’t have enough tools to overcome both internal and external pressures to transition from basic operations to a more mature and technologically advanced industry.

It lacks the technological edge, has yet to establish a strong local market for EVs, isn’t a recognized force in the automotive manufacturing space in general, and is reliant on the world adopting a battery technology that some are trying to replace.

Whether Indonesia is able to overcome all of that or will succumb to these pressures, we’ll see.