Electric vehicles (EVs) have gained a lot of buzz recently. They are greener, sleek, and just as affordable as their gasoline-powered counterparts. This fuels EV’s global sales of new privately-owned vehicles, and with it, comes the opportunity for nations rich in natural resources such as nickel to become key players in the EV industry. Thanks to Elon Musk, nickel’s newest and now highest profile cheerleader, this topic is transcending mining circles and becoming common knowledge among investors. Countries like Indonesia, for example, have one of the largest nickel mines and reserves in the world and are a valuable untapped market for EVs. The fourth-most populated country in the world possesses the perfect hotpot of elements to play a key role in the vehicle revolution from both fences: as key adopters and as major nickel suppliers. Knowing that the energy transition revolves around nickel, and the global supply of nickel depends on Indonesia, why haven’t they risen to the forefront of EVs?
Indonesia and its Nickel
There has been significant increases in nickel prices over the coming year. However, there is a marked underappreciation for the challenges in supplying enough metal to satiate the anticipated battery-driven nickel demand. As estimated by MineSpans, only 46% of global nickel production is of sufficient quality and purity to be used in battery cathodes. This is referred to as Class 1 Nickel². To explore why Indonesia has struggled to become a key global EV player, let’s start by giving a bit of context. Indonesia is the world’s largest nickel producer. In 2021 alone, the country produced a staggering 1 million metric tons per annum (30% of total global production), and 22% percent of the world’s nickel reserves with 21 million tons located in the islands of Sulawesi and Halmahera (most of them being laterite ore)³. Laterite ore is a lower-quality Class 2 product compared to sulfide ore, a Class 1 nickel product native to Canada and Australia.
Battery cathode production needs “battery grade” or Class 1 products, and so requires further refinement which is mostly done at a 2,000-ha industrial complex in Central Sulawesi, known as the Indonesia Morowali Industrial Park (IMIP). This complex was born out of a 2021 joint venture between BintangDelapan Group, an Indonesian mining company, and Tsingshan, the world’s single largest nickel producer entity from China. There, they use a process called High-Pressure Acid Leach, or HPAL, discovered in 1961 which uses sulfuric acid to extract nickel and cobalt from laterite ores. Processes occurring in all of Indonesia’s nickel plants are powered by coal and are energy intensive. Due to its land being abundant with these materials, it has become Indonesia's new main bet for a commodity-led growth strategy, reinforcing nickel as part of a resource nationalism doctrine after what used to be steel. What sets nickel apart from steel is that nickel is a crucial component in EV batteries. This suggests a paradox of sustainability and represents one of Indonesia’s roadblocks in catching up to the forefront.
To a certain extent, their journey of becoming a key player is slow on the uptake. Why? Simply put, the IMIP complex and other facilities that use HLAP methods are major carbon emitters, and most EV companies are unlikely to compromise their green legacy⁴. HLAP emits up to four times the amount of CO2 produced from processing sulfide deposits, discharges toxic waste and air pollution to nearby areas, deteriorating the livelihoods of communities along the outskirts. Indonesia’s controversial 2022 Omnibus Law on job creation has also prompted environmental deregulation as it eliminates factors of ESG impacts when analyzing projects, all contributing to what seems to be a divergence from decarbonization⁵. It doesn’t add up and derelicts the fundamental purpose, hurting their future prospect. While most EV manufacturers might be looking for easy inputs, they are inherently sensitive to the scrutiny of negative environmental impacts of their overarching supply chain⁶. EVs are widely considered to be the agent of renewables, as such, most view its business risk somewhat inseparable from ESG risks. So unless there are more investments in renewable energy and proper circumstances to apply ESG standards throughout one’s supply chain, it would be difficult for Indonesia to persuade the masses⁷. Furthermore, the United States has recently introduced incentives in the form of tax rebates if one buys an EV with battery components sourced from ethical processes. While it won’t matter much, this sheds light on the conviction of the EV industry and the innate significance of sourcing sustainable battery-grade nickel.
In light of this, not all EV manufacturers have the same strict coal tolerance. In early August 2022, Tesla Motors’ CEO, Elon Musk, signed a $5 billion five-year deal with Indonesia to source battery-grade nickels for its EV battery production despite numerous protests from environmental groups⁸. It served as a precedent, but after the deal, both the Indonesian government and Tesla began to fall even harder under scrutiny from Indonesian environmental groups and US civil society organizations⁹. Most are shedding light on the environmental degradation and ecological cost caused by Indonesia’s coal-powered downstream industries, and have urged Tesla to concede on the new deal. Its public record of supporting cool green initiatives has been put in check and its credentials have been blemished. Others such as Ford and Volkswagen have also joined the party and all received negative backlashes from environmental groups. These kinds of incidents have always been important factors for the majority of EV companies to avoid in their process to source sustainably – and, of course, it is widely justified.
Given these roadblocks, why can’t Indonesia just send its nickel to an intermediary? More importantly, why can't they move away from coal? Since 2014, the government has pushed its downstream segment to add the value of its raw minerals to boost the national economy¹⁰. One of the outcomes was an export ban of raw nickel ores in favor of refining domestically backed by investments, such as those of IMIP. While nationally justified, their over-reliance on coal has put its downstream industry and commodity-led growth strategy at risk and scrutiny. Despite existing renewable projects such as Pertamina’s solar power plants, SESNA’s upcoming solar power project in IMIP, and Vale’s hydroelectric plants in Sorowako, the country is still a long way from getting rid of coal, the main power source for the next three long decades¹¹. In short, it’s not moving fast enough.
So what now? A clear and important step that the government should take would be to revamp its policies on received investments for upcoming green-labeled projects. It will need to support Indonesia's target of becoming carbon-free by 2050, and knowing that coal would still be around, present-day efforts of environmental protection, rehabilitation, and ESG analysis need to be reinforced and concrete enough that it becomes verifiable by the people. Additionally, education, reskilling, and investment in technologies that could support decarbonization processes must be at the center moving forward¹².
How are they as EV Adopters?
On the other hand, we haven’t looked at Indonesia's EV adoption. With its abundance of nickel ores, Indonesia has one of the biggest market size potentials with already established demands.The local EV market is valued at US$440million and is estimated to grow 20% every year. Additionally, 70% of Indonesians have expressed interest in purchasing EVs. This seems like the perfect environment to cultivate an emerging industry and support its target of sustainable transportation. But why are EV penetration rates still at 0.3%?
Firstly, the infrastructure to support independent EV utilization is lacking and requires multiple stages of development. To be specific, this refers to the availability of charging or swapping stations and the battery compatibility between different brands. The number of active charging stations and its accessibility to smaller side roads are key to increasing accessibility and convenience of EV vehicles. According to the Ministry of Energy and Mineral Resources, the number of public EV charging stations reached a total of 700 units across Indonesia, however, this is still inadequate to offer a convenient charging experience¹³. Secondly, EV prices are too expensive. The average cost of gasoline-powered cars is around $45,000, compared to conventional gasoline cars at around $13,000¹⁴. Two-wheeled EVs are also on average double that of gasoline-powered vehicles, and while EV companies such as Gesits, Viar, and Wuling are willing to make EVs cheaper, without the right infrastructure, the general public won’t be ready to consume.
So it seems that despite the growing middle class, high demand, and the resources available at its disposal, EVs just don't seem to be that accessible yet to the general public. And also, while there have been efforts to bring the vehicle prices down out of boosting its downstream nickel processes, would now be the right time to adopt EV if most of its electricity is still derived from coal? EV pessimists would argue no, but proponents would argue otherwise. Here’s the thing, the process of adopting EVs has more to do with changing the general public’s behavior, than the readily available EVs and supporting infrastructure that might be presented to them. Like any other disruptive product, people will need to understand the benefits of using EVs and recognize the new routine of charging vehicles daily as a norm before actually purchasing one¹⁵. And that might take time considering the magnitude of the Indonesian market. Once that norm is established, and people understand its economic advantage and use case, penetration would increase exponentially in Indonesia. Not to say that it's all that matters, the source of electricity and its infrastructure definitely play a huge factor, too – but all these can be dealt simultaneously to fasten the process and realize the green revolution.
So what can the Indonesian government do? While they’re doing all it can to achieve net zero by 2050, it can ensure the adoption of EVs by fulfilling the pre-requisite, it needs to reach consumers’ minds fast. This can be achieved by boosting EV adoption within companies in logistics, e-commerce, on-demand services, and others alike. Why? Because these companies have a huge market presence on the road thanks to the plenty of delivery personnel it employs. What’s being used by these driver partners has become synonymous with Indonesia's mobility practices and image, so pushing the mobilization of EVs in that segment is the perfect touch point to instigate the spread of a sustainable initiative amongst the people about EVs, which presents an interesting opportunity if fully utilized.
In conclusion, while the newly emerging market of EVs might present Indonesia with great opportunities to take advantage of, such as becoming a key player in the supply chain attributing to its nickel production, or as a quick adopter due to its huge domestic market, things haven't worked quite well. Roadblocks to both paths relate to the primary use of coal-powered plants in its nickel facilities and substandard transportation infrastructure that chokes the EV revolution abroad and at home. In light of these circumstances, a clear step of action that can be upheld by the Indonesian government is to first establish the EV norms by boosting EV adoption in industries where these vehicles can be adopted quickly. The task is to establish the EV mindset and in conjunction, should also prioritize adopting renewable energy to realize the revolution and to become a key player in EV.
Sources:
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https://www.theassay.com/articles/investor-insight/the-great-laterite-challenge-why-scaling-class-1-nickel-production-wont-be-easy-cheap-or-environmentally-friendly/
“Top Six Countries with the Largest Nickel Reserves in the World in 2020.” NS Energy, 11 Feb. 2021, https://www.nsenergybusiness.com/features/nickel-reserves-countries/.
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