Tesla wins $5 billion contract to supply nickel from Indonesia
US automaker Tesla has signed contracts worth about $5 billion to purchase materials for its batteries from nickel recycling companies in Indonesia.
The largest economy in Southeast Asia is trying to force Tesla to open production in a country with large reserves of nickel. Earlier this year, President Joko Widodo met with Tesla founder Elon Musk to raise investment. Tesla has reportedly signed a five-year contract with nickel refining companies operating in Morowali on the island of Sulawesi. Nickel materials will be used in Tesla’s lithium batteries.
Indonesia is keen to develop electric vehicles and battery production at home and has stopped exporting nickel ore to secure supplies for investors. The move attracted investment from Chinese steel giants and South Korean companies such as LG and Hyundai.
As for South Korea’s LG Energy Solution (LGES), the company began building nickel refineries in Indonesia, part of the company’s $9.8 billion investment in electric vehicle batteries.
The company will build a $3.5 billion steel smelter with a capacity of 150,000 tons of nickel sulfate per year. It will also build a $2.4 billion plant in Batang Park to produce 220,000 tons of precursors and 42,000 tons of cathodes per year. This will provide the main feedstock for a planned $3.6 billion, 200 gigawatt-hour battery plant in the West Java industrial city of Karawang.
LGES and Indonesian state-owned mining company Aneka Tambang signed an agreement to jointly invest in a $300 million nickel mine on the eastern island of Halmahera to produce 16 million tons of nickel ore. Earlier, South Korean Hyundai Motor Co and LG Energy Solutions agreed to build a $1.1 billion battery plant in Indonesia.
The enterprise is planned to be built by 2023 and will start producing products a year later. It will be located in Karawang, near Jakarta, the capital of Indonesia.
The Indonesian strategy to become a battery manufacturing hub
Indonesia’s plans for nickel are part of the country’s commodity-oriented development strategy. The country is seeking to attract investment in smelters and refineries to thereby increase the value of its nickel reserves compared to simply exporting nickel ore. It has developed a fully integrated steel supply chain in recent years and now wants to become a battery manufacturing hub.
With the start of construction of the country’s first EV battery plant, a project by South Korea’s LG Energy Solution and Hyundai Motor Group, Indonesia has already taken the next step in the EV supply chain and will eventually be able to use its nickel to produce batteries domestically.
How was the supply of nickel to Indonesia reduced?
Indonesia first imposed a ban on the export of nickel ore in January 2014. Following a budget deficit in 2016, a sharp decline in Indonesian nickel production, and the construction of nine new nickel smelters, the export ban was eased in early 2017 with plans to fully reinstall it in 2022. However, in 2019, the government pushed back the reimposition of the export ban to January 2020. While the export ban meant a loss of export earnings, jobs, and government revenue in the short term, Indonesia won its bet on attracting investment in nickel refining and thereby increasing the value of its nickel resources in the long term: Chinese companies invested and allocated about $30 billion in the Indonesian nickel supply chain. There has been explosive growth in the production of refined nickel products, mainly nickel pig iron for the domestic and Chinese steel industries.
TopForex.trade experts believe that Indonesia is likely to become not only the world’s largest producer of nickel ore but also the largest producer of refined nickel and batteries.
Indonesia’s nickel strategy is now becoming part of the country’s goal of building an integrated electric vehicle supply chain from mining and refining to battery production and eventually electric vehicle production. This is evidenced by the above-mentioned investments from Korean and Chinese companies. The Ministry of Energy and Mineral Resources, following nickel, also announced an ambitious coal and minerals strategy aimed at developing processing industries.
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