Indonesia’s EV battery bet falters amid global, local pressure

Backed by the world’s largest nickel reserves, Indonesia once hoped to become an electric vehicle battery powerhouse. But that dream is looking fragile.

In April, South Korea’s LG Energy Solution pulled the plug on a 142 trillion rupiah (US$8.6 billion) deal to build an EV battery supply chain – just four years after signing.

LG’s departure follows that of European players Eramet and BASF, which shelved plans for a US$2.6 billion nickel and cobalt processing facility in North Maluku last year. The proposed project was supposed to produce 67,000 tons of nickel and 7,500 tons of cobalt annually.

Even China’s CATL has scaled back its investment in Indonesia. The world’s largest EV battery producer cut its US$1.2 billion commitment for a battery cell manufacturing plant by more than half, per local media reports.

All is not lost: one player is mulling a return to the country. Still, considering Indonesia’s ambitious downstreaming goals, these reversals have sparked serious doubts over whether it can still deliver.

An expensive place to invest

Global EV battery trends aren’t working in Indonesia’s favor. 

Nickel-based batteries, once considered essential for long-range EVs, are losing ground. Lithium iron phosphate (LFP) batteries – which are cheaper, more stable, and easier to recycle – now power 40% of EVs sold globally in 2024, up from 32% in 2023.

It’s a critical shift. Andry Satrio Nugroho, an executive from the Institute for Development of Economics and Finance (INDEF), argues that the existing global supply of nickel-based batteries already meets current demand.

This weakens appetite for new nickel-refining projects.

But the roadblocks go beyond market dynamics. Indonesia’s business environment, long plagued by red tape, suffers from structural inefficiencies. 

That’s evident from the country’s incremental capital output ratio, which measures how efficiently capital turns into economic output. The lower the ratio, the more efficient the country. 

A glimmer of hope?