Indonesia’s global electric vehicle ambitions require better green industrial policy

Indonesia is determined to capitalise on its world-leading nickel supplies to build a globally competitive electric vehicle (EV) industry.

But a new Lowy Institute Analysis by Robert Walker and Dr Hilman Palaon, entitled The future of Indonesia’s green industrial policy, reveals a serious gap between the Indonesian government’s ambition and the industrial policy needed to realise it.

Indonesia has emerged as the world’s largest producer and exporter of refined nickel, which is required to manufacture the most common type of EV battery.

Indonesia intends to leverage this strong position to become a leading EV manufacturer and exporter, while producing every part of an EV domestically.

While investment trends suggest the Indonesian EV industry is set to expand, Walker and Palaon argue the industry remains immature, with lacklustre domestic adoption, meagre exports, and questionable import-substitution industrial policies.

“Boosting Indonesia’s domestic demand for EVs is a necessary step towards developing a profitable EV industry,” write Walker and Palaon.

“Managing to stay ahead of other exporters is even more essential given that China — Indonesia’s closest trading partner — will almost certainly not be a significant export market for Indonesian EVs.

“Indonesia must look to export EVs into the European Union and the United States.

“To become a leading EV manufacturer and exporter, Indonesia needs to avoid protectionist and inward-facing policies. Further integration with global EV supply chains requires greater openness.”

KEY FINDINGS

• Indonesia now supplies more than half of the world’s nickel. Under its green industrial policy, it has also become a leading destination for foreign investment in critical minerals, electric vehicles (EVs), and the battery supply chain.
   
• While this strategy has offered some concentrated economic gains, rapid industry expansion has also been costly. Nickel processing has had damaging environmental, labour, and governance impacts, and has increased reliance on Chinese investment, technology, and demand, which presents vulnerabilities.
   
• Indonesia can strengthen its industrial policy by improving environmental and labour standards in the nickel industry, fostering a more competitive and export-oriented EV industry, and diversifying trade and investment partners.

The full Lowy Institute Analysis, The future of Indonesia’s green industrial policy, is available to read and download now.