Putra Adhiguna | February 2024 | PRESS RELEASE
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The Energy Shift Institute (Energy Shift) foresees that this year, Indonesia will hold less than 0.4% of global battery manufacturing capacity. In absolute terms, that capacity is just 10 gigawatt-hour (GWh) out of the more than 2,800GWh the world has in total, not to mention the global figure is set to double by 2030. It is clear that Indonesia is falling significantly behind despite its nickel production rising more than eightfold since 2015.
The country’s nickel ‘downstreaming’ leans on the promise of moving up the value chain and capturing a significant part of the global battery and electric vehicle (EV) industry. The barrage of upbeat news on investments in the so-called Indonesian ‘EV battery ecosystem’ often obscures the actual scale of funding for battery production – as opposed to intermediate nickel products.
Indeed, progress has been noted in processing the raw nickel ore into intermediate products for the battery industry, though the majority of current nickel exports still pertain to stainless steel production. However, as Indonesia crawls from the ground up in the supply chain, the global race in battery and EV manufacturing is already well under way and becoming increasingly crowded.
It is important to note that global battery production capacity has been expanding faster than demand. In the first half of last year, China’s battery factories operated, on average, below 45% of their nameplate capacity. As the Chinese continue to overbuild production capacity, coupled with the US and EU’s aggressive push to expand their roles in the value chain, this will likely mean increasingly fierce competition for factory investors, even in a growing market.
Thus far, the value added of Indonesia’s various nickel products ranges from two to 11 times compared to raw nickel ore, but this is still far behind the government’s promised value added of more than 60 times, had battery production taken off.
More recently, public attention has shifted towards the growth of non-nickel batteries and its implication for the nickel industry outlook. Energy Shift holds the view that global demand for nickel used in batteries will likely continue to skyrocket along with EV adoption, despite alternative technologies. In a rapidly growing sector, the absolute growth figure matters more than market share.
Ongoing developments indicate that battery manufacturers largely place their factory investments following the EV market trends, yet Indonesia’s EV adoption remains sluggish. The recent entry of BYD into the Indonesian EV sector is welcomed but may bear limited benefits to advancing nickel-based battery factory development because the Chinese EV giant’s key models use non-nickel batteries.
Fierce competition between Indonesia and its ASEAN peers in rolling out incentives to secure investments in EV and battery manufacturing also raises questions about the effectiveness of Indonesia’s nickel downstreaming in propelling the country into the higher-value battery and EV industry.
Moving forward, investor scrutiny of environmental, social and governance (ESG) practices in the nickel supply chain will continue to climb, especially with the US and EU as the next EV growth markets, each with different supply chain expectations.
In addition to its nickel production, Indonesia also quietly continues its ascent as the world’s second-largest cobalt producer, further raising the stakes to ensure that the country is governing its natural resources at an optimum level.
Global competition for capital to develop minerals for batteries and EVs is rife, striving to fulfil long-term investor demand for investments required to meet 2050 net zero goals. If Indonesia is unable to convince investors of the country’s long-term value, it risks losing this pool of foreign capital.
The government needs to confront these questions as the various policy constructs deployed to boost Indonesia’s nickel competitiveness lean on the promise of developing the battery and EV industry – and lax environmental standards raise the stakes further.
In the current trajectory, Indonesia will likely merely shift from exporting nickel products associated with stainless steel to intermediate products for the battery industry. With the rapid growth of global nickel demand, stakeholders should not underestimate the speed and scale of the upcoming nickel rise, as the global EV revolution has only just begun.
Indonesia needs to ask itself whether it is obtaining the best outcome for its prized mineral resources. With negligible battery production capacity, the country seems to have reached the limits of leveraging its nickel downstreaming, and it is a fitting time to pause, reflect and realign the plan ahead.
Putra Adhiguna is managing director of the Energy Shift Institute
The Energy Shift Institute is an independent non-profit energy finance think-tank driving context, clarity and credibility for Asia’s energy transition pathways.
Contact: enquiry@energyshift.institute