Indonesia woos Tesla, Chinese and South Korean firms, in bid for electric vehicle battery crown
As momentum grows for the adoption of electric vehicles in Asia, Indonesia is hoping to become a key part of the supply chain by becoming a major producer of lithium-ion batteries.
Southeast Asia's largest economy owns one-quarter of the world's reserves of nickel - a key material in the production of the batteries - and as a country controls the world's largest reserves, ahead of Australia and Brazil.
Indeed, the country is "a hinterland for many of the raw materials essential for the manufacturing of EV batteries", not only for nickel, but for cobalt and copper too, according to Andrey Berdichevskiy, director at Deloitte's Future of Mobility Solution Centre in Singapore.
Get the latest insights and analysis from our Global Impact newsletter on the big stories originating in China.
However, for its plan to succeed, Indonesia needs to address gaps in its own supply chains and "make a broad-based shift towards high-value manufacturing" by investing in advanced industrial technology and talent, Berdichevskiy said.
It also needs a massive injection of money to nurture its fledgling EV battery sector, invest in technology and talent to produce battery-grade nickel, and address a lack of renewable energy that could otherwise put off international carmakers from investing in the country.
Over the past year, Indonesia has pursued the American firm Tesla and explored deals with China's Contemporary Amperex Technology (CATL) and South Korea's LG Chem, two of the world's top producers of EV batteries.
CATL has announced an investment of US$5.2 billion to build integrated battery plants in the country, while LG Chem has signed a memorandum of understanding on a US$9.8 billion investment to produce EV batteries domestically, according to Indonesia's investment coordinating board, known as BKPM. Indonesia aims to boost investment in the EV battery sector to US$35 billion by 2033, double last year's total investment. LG Chem and CATL supply the batteries for Tesla's made-in-China models.
A furnace at Indonesian mining company PT Vale's nickel smelting plant in Soroako, South Sulawesi. Photo: AFP alt=A furnace at Indonesian mining company PT Vale's nickel smelting plant in Soroako, South Sulawesi. Photo: AFP
While it has not signed anything concrete with Tesla, Jakarta has stayed in close touch with the firm's mercurial chief executive Elon Musk.
When Luhut Pandjaitan, the country's coordinating minister for maritime and investment affairs, visited the United States in November, he met (then-president) Donald Trump and others in the White House's first circle. However, he failed to meet Musk, who was isolating because he feared he might have caught Covid-19.
Efforts to charm Musk continued the next month, when President Joko Widodo personally called him to discuss EVs and to consider Indonesia as a potential launch site for SpaceX, Musk's aerospace manufacturing and space transport venture.
Musk responded that he would send a team from Tesla to survey investment opportunities in Southeast Asia's largest economy and while no dates have been fixed, Jakarta stayed in touch with the company, which reported a blockbuster year for revenue in 2020 on the back of growth in China and growing adoption of electric vehicles internationally.
After six video calls, Tesla sent an investment proposal in early February to build a facility for an energy storage system (ESS) and lithium-ion battery plant in Indonesia, according to Luhut's ministry. Tesla runs an ESS unit called Powerwall, a home battery designed to store energy from solar or the electricity grid so it can be used at night or during a power outage.
There have been no updates since on Tesla's plans for Indonesia, though news reports have said it will build an EV plant in India and continue buying batteries from its long-time supplier, Japan's Panasonic, for the next two years until it can produce a cheaper alternative.
Luhut addressed Tesla's purported India plan on Thursday, saying the company's plan in Indonesia was never solely about establishing a manufacturing plant.
"The construction [of Tesla's Indian plant] will commence in 2025, we don't know whether it will be built or not," Widodo's top envoy said during a webinar. "At the end of the day we have nickel, copper, bauxite, and nickel ore. The future [of the EVs industry] is here."
CAN THE PLAN WORK?
In recent years, Indonesia has tried to encourage foreign investors to help it grow its downstream industries to add value to the economy, banning the export of raw commodities and requiring miners to construct smelter facilities in the country.
In 2015, Indonesia set up a 2,000 hectare nickel industrial estate in Morowali, Sulawesi, which has today become the country's nickel mining hub. The steel giant Tsingshan Holding Group, based in Wenzhou, China, has invested at least US$5 billion in the park and runs a factory there.
China's GEM, an EV battery material supplier, is building a US$700 million nickel processing plant in Morowali, but the launch of the project has been delayed until next year due to the coronavirus pandemic. Tsingshan is a minor stakeholder in the project.
At least four such plants are being planned by Chinese-led consortiums in Indonesia.
The nickel ore mined from the park is now largely used to make stainless steel slabs, but Widodo expects it to be used in lithium-ion battery production by 2024.
In the past year, Jakarta has released at least seven regulations to support the development of the country's EV industry. On Monday it announced a new presidential regulation that offers tax breaks for some industries including nickel smelting and coal gasification.
To boost the sector, Indonesia will set up a state-owned holding company called Indonesia Battery Corporation (IBC) in the first half of this year, which will include four state-owned enterprises - Mining Industry Indonesia, Aneka Tambang, energy firm Pertamina and electricity provider PLN.
Under the holding, new joint-venture companies will be established with seven multinational firms - China's CATL, BYD Auto, Farasis Energy, South Korea's LG Chem and Samsung SDI, Tesla, and Panasonic - to develop the country's US$17.4 billion EV battery sector, Agus Tjahajana Wirakusumah, head of the EV Battery Project Acceleration Team, told a recent parliament hearing.
With the joint-ventures, Indonesia hopes to address its talent and technological gap by learning how to produce battery-grade nickel from foreign partners.
"Since Indonesia has no experience in producing battery-grade nickel, state-owned enterprises under IBC will have to learn the technology from their Chinese and South Korean partners," Mamit Setiawan, executive director at Jakarta-based Energy Watch, said.
"The government must ensure that the foreign partners will be willing to transfer their technological expertise to their Indonesian counterparts, so the country and its people can benefit from [the EV battery projects]."
CLEAN ENERGY CHALLENGE
While cheap power and the low cost of labour in manufacturing will make Indonesia attractive as an EV battery production destination, analysts say it must rethink energy sources for its nickel smelters and charging stations. Conservationists have warned that coal-powered smelters in the resource-rich island of Sulawesi have caused environmental damage, and will hurt the carmakers' common goal of reducing their carbon emissions.
Last year, Musk said he would give "a giant contract for a long period of time" to any suppliers if they "mine nickel efficiently and in an environmentally sensitive way."
Multinational companies are also increasingly conscious of the environmental effects caused by their projects.
To adhere to its commitment in the 2016 Paris Agreement on climate change, Indonesia aims to ban the sales of internal combustion engine cars by 2040, a similar time frame set by South Korea, Singapore, and China.
However, there are obstacles to replacing fossil fuel as an energy source for nickel smelters and to providing enough public charging stations for EVs.
"Smelters need huge amounts of electricity, and the biggest and cheapest energy source in Indonesia is coal," Mamit Setiawan of Energy Watch said.
"[Indonesia has set] a target to use mixed energy to fuel 23 per cent of its total energy use by 2025, but I'm pessimistic we will reach that target. Now, only 11.4 per cent of Indonesia's total energy consumption is fuelled by renewable energy, and the rest is fuelled by coal or oil."
Pius Ginting, executive coordinator of the Jakarta-based NGO Association of People's Emancipation and Ecological Action, said that coal-fired nickel smelters in Sulawesi, one of the world's most biodiverse regions, had turned seawater in some fishing villages black.
"There are plans to dispose of nickel plant waste into the sea, this is not safe. The waste could enter seabed elements and they could come to the surface and enter the food chain, to later be accumulated in the human body," Pius said.
"The government should set a limit to nickel production, not get carried away with the goal of becoming the world's largest nickel producer. Floods have hit Morowali and Weda Bay [an industrial estate in neighbouring Maluku island] and this sort of event will become more frequent in the future as plant activities increase."
The government has not banned the method, called deep sea tailings disposal, but it plans not to issue new permits for it, which could essentially delay a project, Reuters reported in February, citing a government official and a corporate mining source. Some of the nickel projects being planned in Morowali have dropped their deep sea tailings plans, which will require them to consider land tailings instead, where mining waste is stored in land dams.
Mamit Setiawan of Energy Watch hoped that Indonesia could reduce its dependence on fossil fuels and shift to natural gas or renewable energy, such as solar, in the future. Indonesia has had a bill on renewable energy since 2018, to speed up its adoption, but it has been neglected until this year, when it was enlisted as one of 33 priority bills.
PLN, the country's electricity provider, has built 37 public charging stations for EVs so far, and aims to build 2,400 more by 2025. But Mamit predicted the country's charging stations would still be fuelled by coal and oil in the next few years.
"This is like a double-edged sword problem for the government. On one hand we are trying to reduce the number of fossil-fuelled vehicles on the road but on the other hand we will still be polluting the air as the charging stations will be fuelled by coal," Mamit said.
This article originally appeared on the South China Morning Post (SCMP).
Copyright (c) 2021. South China Morning Post Publishers Ltd. All rights reserved.
