Although the country is rich in nickel, the country lacks sufficient processing and refining industries to supply the high-grade nickel required for battery production.
Indonesia has entered the electric vehicle (EV) race with the opening of Southeast Asia’s first EV battery plant, a key step toward its ambitions to become a regional EV hub. The $1.1 billion factory is the product of a joint venture between South Korea’s Hyundai Motor Company and LG Energy Solution. This facility focuses on the production of nickel-based battery cells, leveraging Indonesia’s abundant nickel reserves—one of the critical raw materials for EV batteries.
The robotic assembly lines signal Indonesia’s shift toward advanced manufacturing and technological investments. Despite Indonesia’s advantage in nickel reserves, significant challenges lie ahead in its quest to become a regional electric vehicle (EV) hub. While it has taken a key step with the launch of the Hyundai-LG joint venture battery plant, analysts point out several hurdles that may slow its progress such as limited processing and refining capacity, environmental concerns, and competition from Thailand, which is currently the dominant player in Southeast Asia’s EV market, holding 78.7 percent of market share as of early 2023, according to Krungsri Bank.
The Indonesian government is actively implementing policies to strengthen its EV market and attract investments, positioning the nation as a key player in Southeast Asia’s growing EV ecosystem. The policy has already provided a significant boost to EV sales, lowering costs and encouraging greater consumer adoption. The resulting surge in demand has also attracted major global EV players, including China’s BYD and Vietnam’s VinFast, into Indonesia’s market of 280 million people, further enhancing competition and consumer choice.
To attract automakers, Indonesia is offering a temporary duty exemption for imported EVs. However, this incentive comes with a strategic requirement—companies must commit to building production facilities in Indonesia. Furthermore, by 2027, companies are expected to manufacture as many EVs domestically as they import. This move aims to ensure that Indonesia not only serves as a consumer market but also establishes itself as a critical manufacturing hub.
Indonesia’s ambition to become one of the world’s top three producers of EV batteries faces several critical challenges. Although the country is rich in nickel, the country lacks sufficient processing and refining industries to supply the high-grade nickel required for battery production. As a result, the new Hyundai-LG plant will need to import processed nickel from South Korea and China, reducing Indonesia’s value-added role in the supply chain.
Building smelters and refining facilities will take time and require substantial investment, creating a bottleneck that limits Indonesia’s competitiveness in the near term. Nickel mining is a key driver of deforestation in Indonesia, contributing to significant environmental damage. Environmentalists have raised alarms over the ecological footprint of mining activities, which could attract global scrutiny and affect the sustainability of Indonesia’s EV industry.
