• Indonesia holds nearly half of the world's nickel reserves and aims to become the global hub for electric vehicle battery production by 2027.
• But weak domestic demand for electric vehicles and the rise of alternative battery technologies are undermining this goal.

Karawang, located about 70 kilometres from the Indonesian capital Jakarta, has been a key hub of the archipelago's automotive industry for decades, hosting plants belonging to major brands such as Yamaha and Toyota. Last July, the industrial area marked a new milestone with the inauguration of Southeast Asia's first electric vehicle battery factory. The plant, the result of a joint venture between Hyundai Motor, LG Energy and the state-owned Indonesia Battery Corporation, has an annual capacity sufficient to produce cells for 150,000 electric vehicles.

This investment represents an important step for Indonesia, which aims to become a global hub for electric vehicle battery production by 2027. The country, in fact, holds nearly half of the world's nickel reserves, a mineral that is essential for battery production. It is a mineral that Indonesia appears intent on guarding jealously: in 2020, the government banned its export to incentivise local production and attract international investors. Within a decade, the country went from supplying 6 per cent of refined nickel globally to 61 per cent in 2024. "This means Indonesia now controls more of the world's nickel supply than OPEC controlled of oil production at its peak in the 1970s," the Financial Times wrote.

The nickel paradox, between electrification and deforestation

Yet this protectionism does not aim to make Indonesia more sustainable. The nickel industry stands at the centre of allegations of deforestation, pollution and violations of workers' rights. Paradoxically, electric cars are almost non-existent in the country. In reality, Indonesia is not building its own green technology supply chain, but is instead becoming a vassal of China in the production of nickel for batteries. Yet another case of economic colonialism.

The nickel market is in China's hands

Nickel may be present in large quantities in Indonesia, but it is China that controls it. Over the past ten years, China has invested more than 65 billion dollars in Indonesia's nickel sector, coming to control around 90 per cent of mines and processing facilities. This has made it easier for Chinese industries to obtain permits and launch projects, but for Indonesian territory it has meant weaker environmental oversight and a series of accidents at local mines and smelters, with dozens of workers killed.

Restrictions imposed by the United States on trade with Chinese companies have also penalised Indonesia. The Inflation Reduction Act, now suspended by Donald Trump, offered incentives to accelerate the adoption of electric vehicles, but excluded those with batteries produced in China, Russia, North Korea and Iran. This has made Indonesia less competitive in the American market.

Complicating matters further, major companies such as Basf and Tesla have chosen to halt investments in the country. The German chemical company abandoned a project for a nickel refinery due to its environmental impact on indigenous communities, while Elon Musk rejected the idea of building a battery factory in Indonesia due to logistical difficulties.

Very few electric cars are sold in Indonesia

Despite the efforts of the Jakarta government, local demand for electric vehicles remains low. In 2024, electric car sales accounted for less than 5 per cent of total car sales in the country. This translates not only into an ageing vehicle fleet, but also reduces the appeal of the industrial ecosystem: car manufacturers therefore prefer to turn to China, where the workforce is more skilled.

Moreover, battery technology is also evolving towards solutions that do not use nickel. Lithium iron phosphate (LFP) batteries, which are safer and more affordable, have seen a surge in production, rising from 20 per cent of the market in 2020 to 40 per cent in 2023. This trend puts Indonesia's nickel-based strategy at further risk.

In an attempt to counter the collapse in nickel prices, which fell by 45 per cent in 2023 due to oversupply, Indonesia is considering cuts to mining production. A measure that could cause job losses and cost the country market share to the benefit of other producing nations.

Surface-level protectionism

Beyond batteries, Indonesia continues to push technology companies to invest in the country. Among the most recent examples is Apple, which appears to have yielded to demands from the Indonesian government and is reportedly preparing to manufacture the iPhone in the country. More than a request, what Jakarta put forward was the condition for allowing the Cupertino company to distribute the latest model of its smartphone in the world's fourth most populous country, reports Nikkei Asia. According to Indonesian regulations, established to compel foreign companies to invest in the country by transferring technology and creating high-skilled jobs, smartphones sold in Indonesia must contain at least 35 per cent locally produced components.

On one hand, the attempt to use access to the domestic market to secure better investment conditions prompts reflection on the current evolution of the global economy, in which middle powers with rapidly expanding economies, such as Indonesia, feel stronger in their bargaining power than in the past. A decade ago, it would have been unthinkable for Jakarta to adopt such an assertive stance towards Apple. Today, however, Indonesia no longer fears the consequences of adopting protectionist policies, thanks to higher purchasing power and an economy significantly larger than it was ten years ago.