Indonesia’s electric vehicle battery industry is increasingly relying on Chinese companies including Contemporary Amperex Technology (CATL) as other investors withdraw amid a slowing EV market and changes in technology, potentially leaving it with vast nickel reserves it may find difficult to build an integrated EV supply chain.
At a groundbreaking ceremony for a CATL battery plant in Karawang, West Java, on June 29, Indonesian President Prabowo Subianto said the collaborative project between CATL and state-owned Indonesia Battery Corporation (IBC) will benefit all parties.
CATL, the world’s largest supplier of EV batteries, is investing in six projects in Indonesia, with total investments expected to reach USD 5.9 billion.
The West Java plant will initially have an annual production capacity of 6.9 gigawatt-hours by the end of 2026, enough to power approximately 100,000 EVs. The plan is to increase capacity to 15 GWh.
In North Maluku, CATL plans to build a nickel mine and smelting facility in collaboration with state-owned mining company Aneka Tambang. In 2028, facilities to make processed nickel products for EV batteries are expected to go online, as is a cathode materials plant.
These investment plans were originally announced in 2022, with the initial plan being to build a battery plant and smelting facility by 2026. Construction has now finally begun, several years late.
Battery-related investment in the country is starting to show the strain of the global EV market slowdown.
In April, South Korea’s LG Energy Solution announced it was withdrawing a planned USD 7.7 billion in investments in Indonesia facilities for battery materials, including cathode precursors.
Its earnings are deteriorating. Operating profit for the year ended December 2024 was down 70%.
The company will continue to improve operational efficiency to prepare for the risk of a decline in demand, said CFO Lee Chang-sil at an earnings briefing in late April. He added the company would reduce its planned capital investments for 2025 by more than 30% compared with the previous year.
Last year, European chemical multinational BASF and French mining company Eramet canceled the construction of smelting and other facilities planned in North Maluku. The supply of nickel materials rose while EV demand slowed, reducing the need for new investments.
Indonesia accounts for 60% of global production of nickel. Leveraging this strength, the previous administration of President Joko “Jokowi” Widodo moved to set up a one-stop supply chain in the country, covering everything from mineral to EV production, aiming to become a global industrial hub.
In 2020, the government banned the export of raw nickel and made domestic smelting mandatory. This led to a flurry of investment in smelting facilities using a high-pressure acid leaching method to process products for batteries. It also introduced several preferential EV policies, including exemptions from value-added and luxury taxes.
Drawn by the incentives, a number of countries expressed interest in investing at one point, but many eventually withdrew, increasing the country’s reliance on China. LG Energy Solution’s abandoned project is likely to be taken over by Chinese manufacturer Zhejiang Huayou Cobalt.
Chinese companies control about 75% of Indonesia’s nickel smelting capacity, US think tank Center for Advanced Defense Studies said in a February report, warning that “this substantial foreign influence could limit its ability to control and shape the industry for its benefit.”
As US-China tensions intensify under US President Donald Trump, the increasing reliance on China in Indonesia’s EV battery industry could pose a headwind for exports.
Changing technology is also a factor in making non-Chinese companies cautious about battery-related investments. The proportion of vehicles equipped with ternary batteries that use nickel, manganese, and cobalt (NMC) fell to 50% of EVs sold worldwide last year, according to the International Energy Agency.
Meanwhile, the share of nickel-free lithium iron phosphate (LFP) batteries has been expanding, reaching 50% last year. These batteries have been widely adopted by Chinese automakers, which dominate the Southeast Asian EV market.
Demand for NMC batteries is now centered in Europe and the US LFP batteries are the mainstream in Southeast Asia, diminishing the advantages of an integrated production system in Indonesia that leverages its nickel reserves.
An Indonesian battery plant opened by Hyundai Motor and LG Energy Solution last year produces NMC batteries, 98% of which are exported to countries like South Korea and India. Hyundai’s share of Indonesia’s EV market plummeted from 44% in 2023 to 6% last year.
The CATL battery plant that celebrated its groundbreaking in June is also meant to produce NMC batteries.
“With the majority of EVs sold in Southeast Asia equipped with LFP batteries, it will be difficult to capture demand with EV batteries in the region alone,” an executive at a Japanese manufacturer said.
This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.