As Indonesia Powers Up EV Battery Dream With Australian Lithium, China Set To Benefit

Lithium is a key component of electric vehicle batteries, and importing more of this product will help Indonesia achieve its goal of becoming an electric vehicle manufacturing hub.
Analysts said that while the move reduces its dependence on China, the latter will continue to benefit as Chinese companies in Indonesia still handle lithium exports.

Indonesia is moving closer to its dream of becoming an electric vehicle (EV) battery manufacturing hub after signing a deal to import lithium from Australia, a move that analysts say could help the Southeast Asian country reduce its dependence on China.

On February 21, the Indonesian Chamber of Commerce signed an agreement with the government of Western Australia, where most of the lithium mining is concentrated.

Jakarta's intentions were relayed to Australian Prime Minister Anthony Albanese in Canberra recently by Indonesia's Coordinating Minister for Maritime Affairs and Investment, Luhut Panjitan.

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“To achieve our goal of becoming the largest manufacturer of lithium batteries in the world, we hope to increase our imports of lithium from Australia,” Luhut said.

In Australia, we combined lithium and nickel to make an electric car battery

Joko Widodo, President of Indonesia

Indonesian President Joko Widodo also made an offer to Albanians at the G20 summit, the business-oriented G20 meeting in Bali in November. "In Australia you have lithium, we have nickel, and when combined it becomes an electric car battery," said Widodo.

According to the US Geological Survey, Indonesia is the world's largest producer of nickel and also has the largest nickel reserves at 21 million tons. The country was also the world's second largest producer of cobalt last year, overtaking Russia and Australia. Both metals are important components of electric vehicle batteries.

In 2020, Indonesia stopped exporting nickel ore to increase domestic refining of the commodity. After that, bauxite export will be stopped in June.

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But just being rich in nickel is not enough to make a country a major player in the global battery supply chain. For example, electric car giant Tesla has not announced any investment in Indonesia, despite several attempts by Jakarta to attract it.

Australia is the world's largest lithium producer, contributing 52% of total global production, ahead of Chile at 25% and China at 13%, according to World Economic Forum data. However, Chinese companies occupy 60% of the world's lithium battery refining capacity.

China also benefits

Andre Satrio Nugroho, director of the Center for Industry, Trade and Investment at the Jakarta-based Institute for Economic Development and Finance, said that if Indonesia's plans succeed, China may be "angry".

"But this must be done, we must not depend too much on one country. We are already counting on China to develop nickel smelters here," Andrey said.

Putra Adiguna, a Jakarta-based transportation energy analyst at the Institute of Energy Economics and Financial Analysis, argued that the move would also benefit Chinese companies, as they have long held a lead in Australia's lithium mining industry, as well as nickel refining. Owns . in Indonesia.

For example, Tianqi Lithium, a Chinese mining and manufacturing company that controls nearly half of the world's lithium production, is a major shareholder in the Kwinana lithium processing plant in Western Australia, which it operates through a joint venture with Australia's IGO. Limited mining.

The plant produces lithium hydroxide monohydrate (LHM), or battery-grade lithium, in commercial quantities, according to its website.

More than 90% of Australian lithium exports go to China. [Lithium exports to Indonesia] are also handled by Chinese companies that process nickel in Indonesia. "This will not greatly affect Indonesia's relations with China," Putra said.

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Adding lithium to the mix could add value to Indonesia, he said, as it would "deepen" the country's electric vehicle battery supply chain beyond the usual nickel products.

Lewis Black, managing director of Almanty Industries - which operates reinforced metal tungsten - said he wouldn't be surprised if major battery makers opened plants in Indonesia.

"Obviously, you'll probably find Chinese manufacturers going there first because China has the potential to be smarter ... because their access to capital is more government-centric," Black said.

Currently, most of the nickel production in Indonesia is grade II nickel, which is mainly used in stainless steel. Jakarta has announced that it could start producing first-class lithium-ion batteries as early as 2024 as the company aims to become one of the world's top three battery makers by 2027.

To achieve this, Indonesia has partnered with battery and electric vehicle manufacturers to develop its ecosystem, signing deals worth more than $15 billion over the past three years with companies such as Hyundai Motor, LG Group and Foxconn.

The country also recognizes the need to move away from fossil fuels in order to maintain its supply chain. The company is working with Chinese stainless steel giant Tsingshan Holding Group to build a new hydroelectric industrial complex in North Kalimantan.

Contemporary Amperex Technology (CATL), a Fujian-based supplier of Tesla and the world's largest producer of electric vehicle batteries, signed a cooperation agreement with Indonesia's sovereign wealth fund in November to invest in a $2 billion fund to create a "green battery industry." investment.” CATL has also partnered with state-owned companies in Indonesia, investing $6 billion in six planned battery projects.

A worker processes nickel at a smelter on Sulawesi, Indonesia. Photo: Reuters/File

alternative components

While analysts expect demand for nickel to continue to grow due to increased reliance on electric vehicles, they also warn that manufacturers may look for alternative components in batteries as nickel prices rise. .

In the first half of 2022, nickel globally averaged about $27,860 a tonne, up nearly 60% from the same period last year, when London GlobalData added to a supply shortfall in Indonesia.

Manufacturers have switched to lithium iron phosphate (LFP) batteries in their products, which do not use nickel or cobalt. China's Tesla and BYD, also an electric vehicle giant, have used LFP batteries in their cars in recent years. The market share of LFP batteries increased from 17% in January 2021 to 31% in September 2022, according to consulting firm Adamas Intelligence.

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LFP batteries are easier to build and cheaper than lithium-nickel-manganese-cobalt (LNMC) and lithium-nickel-cobalt-aluminum oxide (LNCA). They also take less fire. But LFP batteries have 30% lower energy density than NiMH batteries, which means they are not suitable for long-distance cars.

"China has recently developed low-nickel batteries that don't use nickel at all, but both still need lithium," Putra said, adding that the development should and "must" be a wake-up call for Indonesia. Please note that supply and demand for batteries will be affected by nickel prices.”

To increase the demand for Indonesian nickel products in the future, Andry from Indef Jakarta recommended focusing not only on the development of nickel-based batteries for electric vehicles, but also on the energy storage system. which can be used to store electricity produced by renewable energy. energies. , such as solar panels.