Indonesia shouldn't bet its nickel future on China's EVs alone

Indonesia is focusing on developing its electric vehicle (EV) battery industry as part of its broader nickel downstreaming agenda, aiming to increase the value added from its nickel resources. However, the competitiveness of nickel-based batteries, such as NMC and NCA, which boast high energy density, is being challenged by the price competitiveness of lithium iron phosphate (LFP) batteries. The International Energy Agency (IEA) projects that LFP batteries will be around 40% cheaper than NMC batteries by 2025. LFP batteries already account for over half of the global EV battery market and more than 90% of battery energy storage systems. This trend is accelerated by China's EV industry, which heavily relies on LFP technology to produce affordable EVs for the global market. This situation presents a dilemma for Indonesia. To prevent a collapse in nickel prices and preserve resource rents, production needs to be managed. However, excessive control can drive up nickel prices, further diminishing the competitiveness of the nickel-based battery industry. Recommendations from global industry actors and economic institutions often urge Indonesia to keep nickel supply cheap, stable, and predictable. Yet, if Indonesia leans too far into this logic, it risks being trapped in a "cheap nickel ecosystem." While trying to maintain battery investments by keeping nickel prices low, the industry might still fail to withstand competition from technologies with stronger cost advantages. This could lead to Indonesia sacrificing its nickel rents for an industry whose technology may not endure. More importantly, batteries are not the primary use of nickel. Data from the Nickel Institute and the International Nickel Study Group shows that batteries account for only about 16% of nickel usage, with the majority going to stainless steel and alloys. In these metal applications, nickel is difficult to substitute and possesses a stronger natural comparative advantage. Therefore, Indonesia's nickel strategy needs to consider broader national interests rather than focusing solely on the battery industry. Nickel policy and battery policy should be separated. The strategy should aim for production control, maintaining strategic prices, extending reserve life, increasing value-added, boosting state revenue, enhancing environmental standards, and strengthening Indonesia's global bargaining position. The battery industry itself should also adopt a more rational strategy, targeting premium segments like long-range or high-performance vehicles requiring high energy density, rather than relying on cheap nickel across all segments. A more sensible strategy for Indonesia is to develop its nickel-based metal and component industries. These sectors have larger demand, are harder to substitute, and offer deeper industrial value-added potential. Downstreaming should continue from smelters to stainless steel, alloys, intermediate products, industrial components, and advanced manufacturing. Nickel is Indonesia's strategic strength and should not be sold cheaply for the sake of batteries, especially when larger, more stable, and more promising market segments exist. Abdurrahman Arum is executive director of Transisi Bersih, an Indonesia-based policy research organization. His research focuses on natural resource governance, industrial policy, and strategies to manage nickel, coal and palm oil for national economic interests. Source: Asia Times Indonesia