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Indonesia aims to grab EV supply chain with CATL and Hyundai

From mines to batteries and cars, country to shoot for ASEAN hub status

Electric buggies like this are used at the international arrivals terminal of Soekarno-Hatta Airport, near Jakarta.   © Reuters

JAKARTA -- Indonesia is inching toward building an industry to supply nickel for batteries and electric vehicles. The government last month acquired a major stake in a nickel miner, following basic agreements with top South Korean and Chinese battery makers for domestic joint ventures totaling $12 billion. It is also looking to eventually become a regional hub for manufacturing electric vehicles, starting with a future partnership with Hyundai Motors.

The chain begins with Indonesia's nickel reserves, the world's largest. Recently, state-owned holding company Mind Id, previously known as Inalum, acquired a 20% stake in nickel miner Vale Indonesia, the country's largest nickel producer by output, for 5.52 trillion rupiah ($374 million).

Another link is a lithium-ion battery industry that Indonesia expects to start developing next year. Here, the country has won agreements from the world's two largest lithium-ion battery makers, South Korea's LG Chem -- which will spin off its battery business, LG Energy Solution, on Dec. 1 -- and China's Contemporary Amperex Technology, better known as CATL, to produce the power packs on the archipelago.

The next step, years away, is electric vehicle manufacturing that calls Indonesia home. Here, Hyundai has expressed an interest.

Vale Indonesia, the local unit of Brazilian mining giant Vale, operates four nickel mines on the island of Sulawesi. Its stake in the Indonesian unit now stands at 44%, down from 59%, and the stake of Japan's Sumitomo Metal Mining is at 15%, down from 20%, according to Vale Indonesia's stock exchange filing on Oct. 7.

Erick Thohir, Indonesian state enterprise minister, applauded Mine Id's 20% acquisition of Vale's local unit. "This is a good step to strengthen Indonesia's value chain and for the development of the battery industry for electric cars as part of the energy system transformation," he said.

Nickel is a key material in lithium-ion batteries, which power smartphones, personal computers, electric vehicles, even some jetliners. Indonesia holds the world's largest nickel reserves at 21 million tons, and its estimated mine production of 800,000 tons in 2019 led the globe, according to January data from the U.S. Geological Survey.

In January, the Indonesian government reinstated its ban on exports of nickel ore, two years ahead of its planned date. The embargo, meant to support the development of a downstream nickel industry, has been criticized as "resource nationalism."

Mind Id and subsidiary Aneka Tambang, or Antam, control 30% of Indonesia's total nickel reserves, more than enough to support a local battery industry, expected to materialize by 2024, according to Mind Id Group CEO Orias Petrus Moedak.

Indonesia envisions a li-ion battery manufacturing that supplies electric carmakers elsewhere before the country gets its own EV industry on the road.

The government already has CATL and LG Chem on board. The Chinese and South Korean powerhouses are Tesla suppliers, and one or the other supplies General Motors, Hyundai Motor and BMW Brilliance Automotive.

Luhut Pandjaitan, coordinating minister for maritime affairs and investment, last month said, "We hope by 2024, we will have started producing the latest type of lithium batteries, the [NMC] 811."

Moedak on Thursday said Mind Id and Antam will be part of the planned separate joint ventures with CATL and LG Chem. He said two potential locations have been prepared for what will be Indonesia's first li-ion battery factories. Both are near Antam's nickel mines in eastern Indonesia.

A source at the ministry of state-owned enterprises told Nikkei Asia talks with CATL are more advanced, with the factory construction expected to start next year.

The CEO said the projects are estimated to cost a combined $12 billion, with Indonesia targeting up to $20 billion if a third partner materializes. In that regard, Moedak said Indonesia has been in talks with Japanese companies for a similar partnership but no agreement has been reached.

The number of electric vehicles stock around the world last year soared to 7.2 million, up from about 17,000 in 2010, according to data from the International Energy Agency. And most global carmakers are keen to produce these easier-on-the-environment autos.

Indonesia is Southeast Asia's largest automobile market, with sales of 1.03 million units in 2019. It is the second-largest producer after Thailand, at 1.28 million units in the same year. This compares to the 2.01 million units produced in Thailand, according to the ASEAN Automotive Federation.

Indonesia, with the world's largest nickel reserves, is starting to use that resource to build a value-added industrial supply chain.   © Reuters

With its rich nickel reserves and plans coming together for li-ion battery factories, Indonesia over the longer term has its sights set on becoming a regional production hub for electric vehicles. Looking in that direction, the government and Hyundai last November entered into an agreement to build the company's first vehicle manufacturing plant in Indonesia. The total investment is estimated to reach $1.55 billion through 2030.

President Joko Widodo in an independence day speech before the parliament in August said the country is ready for value-adding in nickel and it is now being developed into a main component for batteries. He added, "That will narrow our current account deficits, increase job opportunities and reduce the dominance of fossil energy. And it will give Indonesia a very strategic position in the global electric car industry [so it will] become a producer of future technology."

In a news release, Hyundai said it "is also currently exploring the production of ASEAN-specific electric vehicles in its Indonesian plant." Hyundai added that it "is committed to helping nurture Indonesia's EV ecosystem."

Hyundai has a big electric car goal for itself, too: "Together with sister company Kia Motors Corporation, [we] aim to make Hyundai Motor Group the world's third-biggest EV manufacturer in the world by 2025."

Indonesia is also eyeing a partnership with Tesla, the world's top electric vehicle maker. "I just received a call from Tesla in America," Pandjaitan, the investment minister, said in early September. "They're interested in developing Indonesian lithium batteries -- because they see that Indonesia owns the world's largest nickel reserves."

The government is already encouraging purchases of electric vehicles. It has reduced taxes for low-emission vehicles and plans to gradually replace government officials' cars with electric models. It has also eased lending rules for electric vehicle purchases and continued to push for the construction of more charging stations. There were just 14 last year, with a target to build 150 more this year and over 1,500 by 2024.

However, Southeast Asia's largest economy is unlikely to have a sizable domestic electric vehicle market in the medium term.

Mind Id predicts Indonesia will start adopting the cars in 2022, when it sees demand for 17,500 units. In comparison, China last year had 3.35 million electric cars, 47% of the world's total.

Analysts from Fitch Solutions think the government's incentives are still not enough and that prices will remain high compared with internal combustion engine-powered vehicles, "which will push the vast majority of the country's population out of the potential market for electric vehicles."

Also citing the limited charging infrastructure, Fitch said in a September note that the short-term growth prospects for Indonesia's electric vehicle market will "be capped." 

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