The United States is desperate to move the supply chain for electric vehicles especially battery materials back onshore after 50 years of offshoring every facet of American manufacturing, mostly to China. The new Inflation Reduction Act is a big step forward on the path to reconstituting domestic production. But other countries want in on the fun, too. Indonesia is a major world supplier of nickel to the world, a metal that is vital to the production of lithium-ion batteries.
Last week, the government of Indonesia announced a long-term agreement to supply $5 billion worth of nickel to Tesla over the next 5 years. It is also a major source of other metals, as well as coal and palm oil, and is willing to use taxes and export bans to coax companies to invest in its manufacturing base.
To help realize his vision of a full-fledged domestic EV manufacturing industry, President Joko Widodo is considering a new tax on nickel exports, a move that would have big ramifications for automakers. Despite the latest agreement with Tesla, Indonesian officials are still conducting talks with Tesla and other leading automakers to encourage them to invest in manufacturing plants.
Widodo said last week in an interview with Bloomberg News editor in chief John Micklethwait, “What we want is the electric car, not the battery. For Tesla, we want them to build electric cars in Indonesia. We want a huge ecosystem of electric cars.” Jokowi, as he is known, said he has similar expectations of Ford, Hyundai, Toyota, and Suzuki as he seeks to ensure his nation isn’t relegated to simply being a raw material supplier or component maker. A Tesla team visited several sites in Indonesia in May, including Morowali Industrial Park, a hub being developed as a key nickel industry site in Central Sulawesi, according to Indonesian officials.
Talks with Tesla about potential investments in the country are ongoing, according to Jokowi. “It’s still a discussion,” he said when asked what’s holding back a deal with Tesla. “Everything needs time. I don’t want to be quick with no result. It needs intense communication, and the result will show.” Jokowi met with Elon Musk in Texas earlier this year. Musk has said he is considering a visit, “hopefully in November,” to Indonesia to explore opportunities. The government has held talks about various potential partnerships with Musk in recent years, including the possibility of a SpaceX rocket launch site in the country, but no agreements have been reached.
Indonesia’s plans for a possible levy on nickel a critical material for powerful and long-range EV batteries lifted prices of the metal last week. Nickel has jumped almost a third since the start of last year. While the new tax could crimp sales in the short term, Jokowi has an eye on future benefits. Refining nickel at home to feed EV component makers, rather than shipping raw materials overseas, could create up to $35 billion of added value.