Indonesia shifts gear in EV battery push

Indonesia is stepping up efforts to develop a localised EV battery supply chain to take advantage of the projected growth of the EV battery market and its own mineral resources.

The country is betting that its huge reserves of nickel can help it become one of the world’s top three producers of EV batteries by 2027¹. It wants to produce EV batteries with a total capacity of 140GWh per year by 2030, which could account for 4-9% of global demand.

Indonesia is also developing lithium refineries and facilities to produce anode materials. Last year, the country opened its first EV battery plant², and is now seeking foreign investment to help it achieve its ambitions³.

The moves are part of Indonesia’s efforts to shift swathes of its domestic industry downstream, as the country seeks to move up the global value chain. Playing a larger role in the EV market would be an important and potentially lucrative part of this effort.

China dominates lucrative market

China is the world’s largest producer of EV batteries, representing around 70% of global capacity⁴, and is home to five of the top ten companies in the industry⁵. The country is expected to maintain this position until at least 2030. The US, Germany and Hungary are projected to be the next top producers, albeit remaining a long way behind China⁶.

On average, EV sales have grown by 45% annually over the past three years, and will continue to expand by 15% each year over the next decade⁷. This growth is partly due to the increasing sophistication of battery technology, which is allowing EVs to travel further between charges, making them more attractive to consumers. As such, demand for batteries is set to increase, with the market forecast to grow from USD 91.93 billion in 2024 to USD 251.33 billion by 2035, at a 9.6% annual growth rate⁸.

Although China dominates the industry⁹, including through the extraction and processing of key materials, Southeast Asian countries are home to rich mineral deposits and could have a big role to play. EV battery demand is an important contributor to the increasing global demand for critical metals like lithium, nickel, cobalt and aluminium.

Read more about our take about electrification in the near future, and how Japanese carmakers are committing the transition to 100% electric cars by 2035.

Resource-rich Southeast Asia looking for bigger role

Indonesia holds the world’s largest nickel reserves, with an estimated 21 million tons, accounting for around 22% of global reserves. The country is the world’s top nickel producer, having hit 1 million tons in 2021¹⁰, and is expected to account for half the global increase in nickel production by 2025. EV batteries account for over 10% of total nickel demand¹¹, and some forecasts suggest they will account for 41% of demand by 2030¹².

Other countries in the region are looking to get in on the act. Last year, the Philippines, itself a significant nickel producer, announced its first EV battery plant¹³, and Thailand has ambitions to produce lithium-ion batteries as part of efforts to move its EV battery capability from upstream to downstream¹⁴. Vietnam, meanwhile, is set to increase production of nickel and other minerals, and plans to produce battery cells¹⁵.

At Lombard Odier, we expect that between now and 2050, the world will move from 20% economy-wide electrification to 70%, as industries transition from fossil fuels to renewably generated electricity

With the global shift to clean electricity continuing at pace, it is easy to see why Southeast Asian countries are investing in their battery and minerals industries. At Lombard Odier, we expect that between now and 2050, the world will move from 20% economy-wide electrification to 70%, as industries transition from fossil fuels to renewably generated electricity. A key driver of this shift is the plunging cost of EV battery production, which has fallen 90% since 2010. In turn, this is leading to further adoption of batteries in the power grid.

The risks – oversupply and technological innovation

For South and Southeast Asian countries, the road to establishing themselves in the EV battery supply chain will be bumpy. 

One key challenge will be oversupply. High levels of investment in mining and refining over the past five years have ensured that global supply can comfortably meet today’s demand, not only for EVs but also for portable electronics, ceramics, metals and alloys¹⁶. This makes markets for the relevant minerals potentially volatile.

Another challenge is technological evolution and new battery innovations. Last year, for example, at the Beijing auto show, Chinese group CATL unveiled a new lithium iron phosphate (LFP) battery which increases driving range to as much as 1,000km on a single charge¹⁷. The only critical metal input for an LFP battery is lithium and, although Indonesia is developing lithium refineries, it lacks rich deposits¹⁸. Australia supplies approximately half the world’s lithium, and while it can export the mineral to Indonesia, most of the country’s lithium exports currently head to China.

It remains to be seen whether Indonesia can achieve its ambitions to become a major EV battery producer, and whether other regional peers can make a dent in China’s market share. Whatever the outcome, Indonesia’s EV battery ambitions are a testament to its attempts to move up the global supply chain, and to lessen its dependence on other markets. At Lombard Odier, we believe this is a smart strategy, as the region adapts to a sustainable future.