Hyundai and LG Energy Solution have opened a $1.1 billion battery cell plant in Indonesia as the Southeast Asian nation actively works to establish a comprehensive electric vehicle (EV) ecosystem.
Indonesia’s EV Ambitions
The launch of the country’s first battery plant on Wednesday represents a significant step in Indonesia’s efforts to climb the global EV supply chain. Indonesia possesses the world’s largest reserves of nickel, a critical component in EV batteries and steelmaking.
Jakarta has intensified its efforts in recent years to attract investments in nickel processing, battery manufacturing, and car production. Notably, Chinese automaker BYD and Vietnam’s VinFast announced earlier this year their plans to manufacture EVs in Indonesia.
Plant Location and Capacity
Hyundai and LG have established the factory in Karawang, a city east of the capital Jakarta. This pioneering facility in Indonesia boasts an annual production capacity of 10 gigawatt hours.
At the launch event, Indonesian President Joko Widodo emphasized the significance of this development, stating, “We have an abundance of natural resources, but for decades we only exported them as raw materials with no added value.
Now, with the construction of smelters and the EV battery cell factory, we will become an important global player in the EV global supply chain.”
Investment in Indonesia’s EV Ecosystem
President Widodo further revealed that Hyundai and LG plan to invest a total of Rp160tn ($9.8bn) in Indonesia’s EV ecosystem in stages.
Investment minister Bahlil Lahadalia disclosed that the South Korean companies are set to begin construction of the second phase of the battery cell factory. This expansion will increase the annual production capacity to 20 gigawatt hours, requiring an investment of $2bn.
Battery Cell Usage and Export
The battery cells produced at the Indonesian plant will be utilized in Hyundai and Kia’s EV models. Indonesian officials have also indicated that approximately 90% of the factory’s output will be exported to South Korea and India.
The project, first announced in 2021, is a 50-50 joint venture between the two companies. Hyundai also operates a car manufacturing plant in Indonesia with a capacity of 250,000 units per year.
Chung Eui-sun, executive chair of Hyundai, underscored the significance of Indonesia’s mineral resources, stating, “Mineral resources in this country, such as iron and nickel, are key components for batteries that will mobilize millions of EVs worldwide.”
Government Incentives and Foreign Investment
President Widodo’s ban on nickel ore exports in 2020 compelled foreign companies to invest within the country.
While most of this investment has come from Chinese companies in the nickel processing sector, Indonesia has been offering incentives like tax breaks to attract nickel and EV-related investments from around the globe.
Hyundai confirmed in 2021 that the Indonesian government had agreed to “offer various incentives and rewards to support the stable operation” of its battery cell plant.
EV Demand and Long-Term Benefits
Since the initial announcement of the battery cell plant, demand for EVs has slowed down. However, analysts maintain that Indonesia stands to gain from the global shift towards cleaner transportation.
Indonesian officials have revealed that CATL, the world’s largest EV battery manufacturer, has also begun constructing a battery plant in the country.
Kai Wei Ang, an ASEAN economist at BofA Securities, expressed optimism about Indonesia’s future in the EV sector, stating, “Indonesia is at the very early stage of EV manufacturing and stands to benefit from incremental gains over the long term, regardless of whether EV moves in the fast or slow lane.”