Despite sitting on a nickel goldmine, a critical EV battery component, Indonesia’s electric vehicle ambitions face headwinds from policy inconsistencies, ESG concerns, and an underdeveloped domestic market.
Turbulence is building in Indonesia’s bold push to lead the global EV battery race.
Indonesia sits on more than half the world’s nickel reserves—but turning that into real electric mobility power is proving trickier than expected.
By 2030, the country aims to produce 140 GWh of EV batteries annually and put two million electric cars and 13 million electric two-wheelers on its roads.
The government has publicly committed to transforming the country into a regional, and potentially global, EV hub. This ambition was articulated by Dadan Kusdiana, Secretary General at the Ministry of Energy and Mineral Resources, during the 2024 IEA Global Conference on Energy Efficiency in Nairobi.
However, despite a strong start marked by robust foreign investor interest and sweeping policy declarations, Indonesia’s EV trajectory is proving more complex than initially imagined.
The early momentum was promising. The government implemented a bold export ban on raw nickel ore to force upstream industries to develop refining and processing capabilities domestically.
This policy sparked a wave of foreign direct investment particularly from Chinese and South Korean companies.
Indonesia saw early momentum in its EV push, with several high-pressure acid leach plants launched to produce battery-grade nickel. A standout was the USD 8.45 billion integrated battery project led by a South Korean consortium spearheaded by LG Energy Solution.
But LG’s recent exit from Indonesia’s EV space has rattled investor confidence, highlighting persistent concerns of investors.
Despite attractive incentives like 20-year tax holidays and VAT cuts for EVs with high local content, mixed signals—such as permitting duty-free imports of fully built EVs while pushing for local production—undermine these benefits. Add to that a tangle of overlapping bureaucracies and frequent policy shifts, and what was once seen as a promising opportunity now looks increasingly uncertain for long-term investors.
Beyond policy challenges, Indonesia’s nickel-based growth model has triggered growing concern over environmental and social governance standards.
Reports of alleged environmental degradation, deforestation, and labour abuses in mining regions have come to light. Several firms, including BASF and Eramet, have allegedly exited their Indonesian nickel processing ventures based on the above factors.
Indonesia’s access to key international markets remains uncertain too. The European Union’s upcoming battery passport regulation, set to take effect in 2027, may restrict entry for Indonesian-made batteries and EVs if sustainability standards aren’t met. Meanwhile, a limited Free Trade Agreement with the US remains elusive—partly due to environmental concerns and partly due to the dominance of Chinese investment in Indonesia’s EV supply chain.
While Chinese giant CATL has scaled back its investment citing an underdeveloped market, BYD continues to expand its presence—providing a much-needed boost to Indonesia’s foreign direct investment and helping keep its EV ambitions afloat.
However, the growing reliance on Chinese investment, while ensuring short-term progress, may expose Indonesia to geopolitical vulnerabilities, especially as Western nations seek to decouple critical mineral supply chains from China.
This dependence may limit Indonesia’s ability to secure diversified, long-term capital from global markets.
Indonesia’s domestic EV market also poses fundamental challenges. Battery costs continue to keep EV prices high for most consumers, while public charging infrastructure remains sparse. Without greater demand-side support, consumer adoption will remain sluggish, making it harder to build a self-sustaining EV ecosystem.
Public awareness of EVs is still limited, and without a strong domestic market to absorb production, manufacturing facilities may struggle to achieve scale and efficiency.
In light of these challenges, Indonesia’s vision of becoming a global EV and battery hub now hinges on its ability to transition from policy declarations to credible, coordinated execution.
