Indonesia’s electric dreams could become reality. The country is itching to make the most of its rich natural resources by developing an electric-vehicle supply chain within its own borders. As battery-powered vehicles made up less than than 1% of its auto sales last year, it has been a hard sell. Momentum is now building, though.

A consortium led by battery behemoth LG Energy Solution (373220.KS) read more is investing $9 billion in a vertically integrated manufacturing project including everything from nickel smelting to assembling finished products, the Financial Times reported on Tuesday. On Friday, rival CATL (300750.SZ)announced it and partners would invest $6 billion in a similar, separate project.

The government’s ultimate goals are far more ambitious. Jakarta wants to make some 140GW of batteries in 2030 – close to global output in 2020, according to the Center for Strategic and International Studies. That’s bold: policymakers’ plans hinge on selling two-thirds of those batteries in Indonesia itself, where they hope to have 2.2 million electric cars on the road by the end of the decade. Indonesians bought fewer than 1 million cars last year, almost all gas guzzlers. Electric cars also compete with hugely popular electric scooters. Nearby countries like Thailand and Vietnam are only just beginning their own efforts to foster sales of greener vehicles.

Recent global events have given the Indonesian government’s plan another, unexpected catalyst. A potent mix of war in Ukraine and Covid-19 in China snarled supply chains and inflated raw material prices, bloating battery costs by as much as a fifth according to Bernstein. Meanwhile a financial crisis at major nickel producer Tsingshan triggered a market meltdown that doubled the metal’s price to $100,000 per tonne, forcing the London Metal Exchange to halt trade. Indonesia is the world’s largest nickel producer, so even with the price dropping back somewhat since, having a base there suddenly looks a lot more enticing for battery makers. It can offer secure supplies of a key ingredient and the chance to diversify beyond traditional manufacturing hubs such as China.

For investors, more developed markets like China and the United States still overshadow opportunities in Southeast Asia. That may explain why shares in LG Energy Solutions and CATL hardly budged following news of their plans. Getting ahead of the pack in Indonesia, though, is still smart driving. 

Source: https://www.reuters.com/breakingviews/indonesias-ev-dream-gets-15-bln-spark-reality-2022-04-20/