Karawang (Indonesia) (AFP) – Rows of robotic arms move with precision to assemble nickel-based battery cells on the production line at Indonesia’s inaugural electric vehicle battery plant, the first in Southeast Asia. After being chosen by a joint venture of South Korea’s Hyundai and LG for the $1.1 billion factory, Indonesia is now looking to boost investment to give it an edge in the race to become a regional EV hub.
When he opened the West Java plant in July, then-president Joko Widodo stated that such investments would make Southeast Asia’s biggest economy an “important global player” in the EV supply chain. However, while the country boasts the world’s largest nickel reserves, analysts pointed out that it still faces a battle owing to its poor processing and refining capacity, environmental worries, and the rise of other types of batteries. It also has some way to go to rival Thailand, which Krungsri Bank indicated had a market share of 78.7 percent of Southeast Asia’s EV sales as of early 2023, with Indonesia following at eight percent.
AFP was given rare access to the factory floor to get a glimpse of the plant’s complex battery cell production, most of which will be shipped to Hyundai subsidiaries in South Korea and India. Hyundai stated that the new factory is a commitment to helping the archipelago become a supercharged Southeast Asian EV maker. “It shows we are ready to support the government’s desire to become a hub for Southeast Asia,” said Fransiscus Soerjopranoto, chief operating officer of Hyundai’s Indonesian subsidiary.
**Incentives**
The government has unveiled a number of incentives to boost the EV market, including a luxury goods tax exemption that has boosted sales and seen a flurry of key brands entering Indonesia’s 280 million-strong market, including China’s BYD and Vietnam’s VinFast. More than 23,000 battery-powered cars were sold to dealers between January and August this year, compared with 17,000 in all of 2023, according to data from the Indonesian automotive association.
Under the regulations unveiled last year, EVs imported to Indonesia are free of duties until 2025 if companies commit to building production facilities and producing as many cars in the country as they import by the end of 2027. Additionally, Chinese automaker Wuling announced a plan last month to produce EV batteries at its Indonesia factory by the end of 2024, local media reported. “We see a huge potential for EV purchase in Indonesia compared to other countries in Asia,” said BYD Indonesia official Luther Panjaitan.
Key to Jakarta’s strategy has been luring automakers before they establish plants elsewhere, said Rachmat Kaimuddin, a government official who departed in the transition to President Prabowo Subianto’s administration last week. “If they have already established factories in some countries, maybe they don’t need to build in Indonesia,” he explained. Rachmat also pointed to Indonesia’s nickel reserves as a unique advantage. “It is possible to make a battery industry in Indonesia. That is what Thailand and Vietnam don’t have,” he said.
**Challenges**
However, the burgeoning industry faces challenges. While Indonesia aims to become one of the world’s top three producers of EV batteries, investment in the sector remains relatively small. Realized nickel sector investment between 2020 and September 2024 was 514.8 trillion rupiah ($33.3 billion) against 19.14 trillion in the EV battery sector, according to investment ministry data.
Despite being number one for nickel reserves, Indonesia will be importing materials for the new factory, including processed nickel from South Korea and China, due to its lack of related industries, said Hong Woo-pyoung, president director of the joint venture, PT HLI Green Power. Environmentalists warn that nickel mining is one of the key drivers of Indonesian deforestation, while analysts suggest that the rise of cheaper lithium iron phosphate (LFP) batteries, widely adopted in China, could hurt demand.
Andry Satrio Nugroho, a researcher at the Institute for Development of Economics and Finance, argued that the policies were “not pro-nickel” because all carmakers received the same incentives. However, Rachmat noted that Indonesia has raw materials suitable for making LFP batteries as well. A global oversupply of batteries could also make it harder for Indonesia to attract more investment, said Putra Adhiguna, managing director of the think tank Energy Shift Institute.
Yet, as boxes of packed battery cells towered behind him, Hong remained optimistic about the future. “This factory and ecosystem are very important for Indonesia’s future,” he asserted, adding that in the “near future, the material will come from Indonesia to make a battery cell and to manufacture EVs.” He concluded, “Indonesia is growing and growing every year about five percent. The automotive market will be growing as well.”
© 2024 AFP