Indonesia's flip-flops and indecision stall investment say analysts, after LG pulls out of $11b nickel project

Straits Times

27-04-2025

Data from Indonesia's automaker association showed that EVs comprised 12.46 per cent of Indonesia's total new vehicle sales of 70,892 for March. PHOTO: AFP
Indonesia's flip-flops and indecision stall investment say analysts, after LG pulls out of $11b nickel project
JAKARTA -- The decision by South Korean company LG to exit a US$8.45 billion (S$11.1 billion) plan to build an electric vehicle battery supply chain in Indonesia has sparked debate over Jakarta's inconsistent policies and slow decision-making .
LG Energy Solution, the world's third largest EV battery maker, disclosed its decision on April 21, citing 'market conditions and investment environment'.
LG led the consortium that was meant to develop a nickel mine, build smelters and construct a battery cell plant in Karawang, West Java, under a memorandum of understanding signed with Indonesia in Dec 2020. Indonesia holds the world's largest nickel reserves.
Some industry observers have described LG's move as a setback to Indonesia's plans to build an EV ecosystem, and its ambitions to develop downstream industries around its mineral resources.
But the government has insisted the mega project is on track.
On April 23, Energy and Mineral Resources Minister Bahlil Lahadalia said development and production would continue as planned, with China's Zhejiang Huayou Cobalt as the new lead company.
'There is no change in our plan to make Indonesia a global EV production base,' Mr Bahlil said.
On the same day , Investment Minister Rosan Roeslani said that it was the Indonesian government who had decided to terminate the partnership with LG on Jan 31, after years of stalled negotiations.
Questions have arisen over the surprise entry of Huayou, and whether LG pulled out or was ejected by the government.
Industry analyst Fabby Tumiwa said the Indonesian government should explain what had really happened behind the scenes, and its reasons for selecting Huayou, which makes EV battery raw materials.
'For the sake of public accountability and transparency… we need to know what really was going on and what basis was used to go with Huayou, after spending long years of negotiation with a different party,' Mr Fabby told The Straits Times.
At a forum in Parliament on April 24, economist Drajad Wibowo explained that five years ago, LG and its partners were invited by the government to invest in the EV battery project. This was in anticipation of South Korean carmaker Hyundai launching its Ioniq EV, which uses nickel-based batteries and is produced locally, in 2022.
But the government unexpectedly introduced a new policy in early 2024 that exempted imported EVs from tariffs for two years. This led to the quick entry of other EV brands, including China's BYD, which ate up the market share of Hyundai and others that had invested in building assembly plants in Indonesia.
BYD cars use batteries powered by cheaper iron phosphate, a mineral that is not abundant in Indonesia.
The Indonesian government had also offered BYD reductions on luxury goods tax normally imposed on vehicles with a high price tag , said Mr Drajad.
'With the same specifications, the price of an Ioniq car is about 50 to 60 per cent above the BYD car here,' Mr Drajad told the forum, pointing out that the Ioniq's market share in Indonesia has been on the decline.
Data from Indonesia's automaker association showed that EVs comprised 12.46 per cent of Indonesia's total new vehicle sales of 70,892 for March. BYD had the lion's share of sales that month at 54 per cent, followed by other Chinese makes Wuling (13.6 per cent) and Cherry (11.2 per cent). Hyundai falls outside the top five selling brands, with just 3 per cent of total EV sales.
Analysts also point the finger at slow processes and indecision at Indonesia's state-owned enterprises, which usually partner with foreign investors and take a stake in these projects.
Such management indecision is partly caused by previous cases in which SOE executives have been prosecuted for losses arising from the usual course of business, and received sentences akin to those meted out for fraud, financial mismanagement or abuse of power. The law was only amended in February to shield directors from personal liability for decisions 'made in good faith and with reasonable care'.
On the heels of the LG decision, the world's largest battery maker CATL was reported to be scaling back on its Indonesian EV battery project. It will slash more than half of its planned US$6 billion investment due to weak global demand and shifting market projections, according to an April 23 report by Bisnis.com.
CATL was allowed to buy about a half of a large nickel mine in North Maluku province in December 2023, on condition it invests in building processing facilities to turn nickel ore into intermediate products and EV battery cells. CATL has started building a battery cell plant in Karawang and expects to complete it by mid- 2026 .
Mr Nurul Ichwan, a deputy minister in charge of promotions at the Investment Ministry, told Bisnis.com that the government and CATL are discussing how the Chinese company should adjust its funding, taking into account how many years it will take to recover its investment.
'We understand, the new calculations (investment spending) would remain promising,' Mr Ichwan said, adding that latest developments showed global EV demand is not as strong as expected.
Wahyudi Soeriaatmadja has been Indonesia correspondent at The Straits Times since 2008, and is based in Jakarta
Join ST's Telegram channel and get the latest breaking news delivered to you.