What does the 2024 Indonesia Election mean for the EV battery supply chain?

On February 14, 2024, Indonesians will head to the polls to elect a new president. It will mark the beginning of the end for current President Joko “Jokowi” Widodo’s ten-year reign as the leader of the world’s largest mined and refined nickel producer.

Jokowi’s tenure was marked by ambitious infrastructure development goals as well as resource nationalist policies, including the 2020 export ban on unprocessed nickel in an effort to develop a downstream battery industry, generate more local added value, and move up the electric vehicle (EV) battery supply chain.

Global policymakers and investors are closely watching this election given Indonesia’s grip on nickel supply.

According to Benchmark’s Nickel Forecast, Indonesia was the world’s biggest mined and refined nickel producer last year, accounting for 54% and 50% of global output in mined and refined supply, respectively.

Who are the contenders?

The main contenders for the presidency are:

According to the polls, Prabowo, who has the implicit backing of outgoing President Jokowi, is in pole position but may not have enough support to secure a majority in the first round. If no candidate secures a simple majority in the first round, then the election will go to a runoff vote on June 26. Given current polling, a runoff is looking increasingly likely.

What can we expect for downstream policy?

All of the current candidates for president are generally expected to continue with implementing the commodity downstreaming policy that has been a hallmark of the Jokowi years, although Baswedan has been the most vocal about environmental implications of the policy.

Indonesia attracted controversy in recent years over the nickel ore export ban that it instituted with the goal of attracting mid- and downstream investments.

The export ban has been the most extreme example of Jokowi’s commodity downstreaming policy, but the government has used additional tools to pursue this goal that include the establishment of tax holidays and special economic zones.

Indonesia is attracting major players to partake in its value chain. Already Chinese companies Brunp and CATL are active in the mining and refining sector with Ford and LG Energy Solution planning to join. LG Energy Solution and Hyundai are slated to begin producing cells this year, with the latter also planning to manufacture EVs, along with Volkswagen. Meanwhile, BYD is planning to manufacture and sell EVs in Indonesia this year as well.

Geopolitical engagement with China, the US, and the EU

The current Indonesian government sees the importance of having good relations with both the US and China and is, therefore, tactfully balancing between the two amid the US-China geopolitical competition. Presidential frontrunner Prabowo has reaffirmed this aim during the campaign, stating that the ideal Indonesian foreign policy is one of “non-alignment” and active cooperation with all countries.

China is Indonesia’s largest trading partner and a massive source of investment. Political and corporate leadership in Indonesia have cultivated very close ties with Chinese players. As a result, there is no reason to believe that Indonesia would turn away from Chinese capital.

US President Biden and Indonesian President Widodo agreed in November 2023 to develop a critical minerals action plan aimed at addressing the labour and environmental issues in the nickel industry and to increase investment standards in view of future negotiations on a critical minerals agreement.

At the same time, the FEOC guidance in the US Inflation Reduction Act (IRA) may dampen the appetite for battery and EV makers to source nickel from Indonesia. As a means of overcoming the restrictions from Washington, there was discussion last year of a limited trade agreement, similar to the one the US has with Japan, but it failed to materialise.

The Biden administration’s reticence to make a deal may have been influenced by distaste for Indonesian export controls as well as a bipartisan group of US senators, including Joe Manchin, who expressed concerns over Indonesia’s ESG issues and China’s deep involvement in the Indonesian nickel industry and warned against concluding a critical minerals agreement, giving access to the IRA’s tax credits.

Finally, Indonesian-European ties have been bumpy lately. Presidential frontrunner Prabawo has been critical of engagement with the EU, largely due to the EU’s stringent anti-deforestation regulation, preventing imports of goods driving deforestation globally, and the dispute over Indonesia’s 2020 full ban on unprocessed nickel.

In 2022, the World Trade Organisation (WTO) ruled in favour of the EU confirming that the export ban and the domestic processing requirement were inconsistent with WTO law, prompting Indonesia to file an appeal, which is pending. This has cast doubt over the successful outcome of free trade negotiations between the EU and Indonesia, launched in 2016.

What are the implications for EV supply chain sustainability?

While notably limited, there has been some conversation around ESG issues during the campaign. For instance, the Baswedan camp stated Indonesia’s downstreaming policy has been reckless, considering the high environmental costs and the insufficient benefits to local workers.

Indonesia faces serious challenges in developing an EV supply chain in a sustainable way. Benchmark’s recent Nickel ESG report highlights that nickel concessions in the country have led to 76,301 hectares of tropical forest clearance in the country. Moreover, in terms of GHG, electricity for RKEF and HPAL projects in Indonesia is sourced from coal-fired power plants.

While Indonesia welcomed the Just Energy Transition Partnership (JETP), aiming to raise the share of renewables in the country grid to 34% by 2030, there are real concerns and barriers around the costs of the energy transition which would affect Indonesia’s global competitiveness in nickel production and threaten to raise energy costs for Indonesian citizens. VP candidate Gibran has given voice to these concerns on the campaign trail.

Pivotal moment for Indonesia

The election will have far-reaching implications for the future of Indonesian politics and the economy.

While we expect the commodity downstreaming policy to continue, the business environment cultivated by the new leader could impact the volume of investment in the country’s mid- and downstream industries and thus Indonesia’s goal to generate more domestic value in the EV supply chain.

Indonesia’s deep engagement with China is likely to continue. How the new leader is able to balance the sustainability and geopolitical concerns of the US will be critical to watch as it will have ramifications for demand for Indonesian minerals.