Indonesia’s strategic value means that it can position itself as a one-stop source from mine to precursor chemicals.
Lacking sufficient domestic extraction and processing capacity for many critical minerals, the United States faces an urgent need to secure reliable battery supply chains. One promising pathway is through a deeper partnership with a nation that has quietly emerged as central to the future of battery technology: Indonesia. The country holds the world’s largest nickel reserves and, in recent years, has become the largest producer of nickel worldwide, transforming from a raw nickel exporter into a major processing and manufacturing hub.
This shift was driven by industrial policy—rooted in resource nationalism—that prioritized strategic control over raw materials. In 2014, the government banned exports of unprocessed nickel ore, prompting foreign investors to establish smelters and midstream facilities on Indonesian soil.
Indonesia’s Nickel Export Trajectory
The results have been dramatic. Indonesia’s nickel export earnings soared more than ten-fold in a decade, reaching $30 billion in 2022.Much of this growth came from exporting value-added nickel products (such as ferronickel, nickel pig iron, and stainless steel) instead of raw ore. For example, Indonesian nickel used in stainless steel saw exports surged to $11.9 billion in 2022. As Warburton writes, in Indonesia, “new extractive frontiers and industrial hubs are emerging at a startling speed.”
Battery supply chains, however, initially lagged behind the stainless-steel boom. Until recently, Indonesia’s nickel industry was geared toward producing “class two” nickel (nickel pig iron and ferronickel) for steel-making, not the high-purity “class one” nickel compounds needed for batteries.
As a result, Indonesia’s exports of battery-related nickel products actually declined in the early years of the export ban – from about $307 million in 2014 to $196 million in 2022 – reflecting the absence of midstream capacity to make battery-grade materials. To resolve this issue, the Indonesian government has planned to become one of the world’s top three EV battery producers by 2027, with a projected capacity of 140 GWh by 2030. Generous incentives – such as tax holidays of up to twenty years for major projects – were offered to attract investors.
Chinese companies led in foreign direct investment, and Korean and Japanese firms followed. By 2021, Indonesia commissioned its first high-pressure acid leach (HPAL) plant, closing a critical midstream gap in the supply chain that was aimed at producing battery-grade nickel chemicals. As of 2023, six HPAL projects have been initiated.
It means Indonesia can supply not just raw ore, but the refined materials needed for cathodes in lithium batteries. In other words, Indonesia is positioning itself as a one-stop source from mine to precursor chemicals, which is exactly the part of the supply chain the United States and its allies find most challenging.
Yet, this industrial transformation is occurring with almost no meaningful U.S. participation, despite the fact that nickel, cobalt, aluminum (NCA) chemistry—which relies heavily on nickel—is used in Tesla vehicles and other American-made electric cars. Nickel is not only vital for achieving the high energy density required in long-range EV batteries; it is also essential for reducing dependence on cobalt, which poses cost and sourcing challenges.
A Fully-Integrated EV Battery Supply Chain
From a U.S. perspective, Indonesia’s nickel sector offers vital strategic value in building more resilient and diversified battery supply chains. Tapping into Indonesia’s resource base is a way to meet the soaring nickel demand for EVs while reducing dependence on China, which controls up to ninety percent of the global lithium-ion battery supply chain. While China produced approximately 480 GWh worth of battery packs in 2023, the U.S. manufactured just fifty-eight GWh. Partnership with Indonesia offers a chance to narrow those gaps.
Many of the joint ventures shaping Indonesia’s battery ecosystem are being negotiated now. Hyundai, LG, Mitsubishi, and CATL are starting to play a role in Indonesia’s nickel-to-battery value chain. For instance, a consortium of South Korea’s Hyundai and LG Energy Solution with Indonesian partners recently opened Southeast Asia’s first large EV battery cell plant (ten GWh capacity) in West Java. That same consortium plans to double capacity and integrate with a local EV factory. Indonesia is also developing other parts of the battery ecosystem (including lithium refining, anode materials, etc.)
Strategically, Indonesia is building a comprehensive EV supply chain hub in the Indo-Pacific. If the United States continues to sit this out, it will have little influence over the standards, pricing, or supply flows that emerge from one of the world’s most strategically situated hubs.
Good for Business, Good for the Environment
Indonesia’s model is imperfect. The country’s nickel industry is mostly driven by coal-fired power. It has been estimated that “each ton of nickel produced emits about 58.6 tons of CO₂.” Captive coal plants, with 10.8 GW operating and another 14.4 GW proposed or under construction, prop up the sector. Environmental groups have rightly criticized the mismatch between Indonesia’s battery ambitions and its carbon footprint.
This is a growing vulnerability for the global nickel industry, as buyers of minerals are increasingly concerned with sustainability. But that tension also provides an opportunity. The United States can assist Indonesia in developing “green nickel” production by using alternatives to blast furnaces, integrating renewable or low-carbon energy sources, and leveraging carbon capture technology. There is good reason to anticipate the rising demand for “green steel” and other low-carbon battery materials because European and Japanese markets will increasingly require them for export compliance.
For U.S. firms with global ambitions—or those seeking to secure off-ramps from China’s cleantech dominance—Indonesia is not just another investment opportunity. It is one of the few remaining frontiers where strategic leverage is still up for grabs.
About the Authors: Dr. Anna Broughel and Selma Khalil
Dr. Anna Broughel is a Lecturer in Sustainable Energy Transition Policy at the School of Advanced International Studies (SAIS) at Johns Hopkins University and a member of the executive council of the United States Association for Energy Economics (USAEE). She worked as an energy economist at Tetra Tech and as a science and technology fellow in the U.S. Department of Energy. She holds a Ph.D. in economics and policy, conferred by the State University of New York in association with Syracuse University.
Selma Khalil is an MBA-MAIR Candidate at INSEAD & Johns Hopkins SAIS. She has also interned at the Carnegie Endowment for International Peace as a climate specialist and at the SNF Agora Institute as a research assistant. She was an Albright Fellow at Wellesley College, where she studied neuroscience and philosophy.
Image: Shutterstock/balnyes
