Indonesia Tightens Nickel Grip as Global EV Battery Tech Shifts

Indonesia’s recent move to tighten state control over its nickel industry marks a critical inflection point in the global race for energy transition minerals. By seizing over 4 million hectares of mining and plantation land and levying $1.7 billion in fines, Jakarta is signaling a transition from a period of rapid, often unregulated expansion to one of consolidated state authority. This maneuver is designed to force the hand of international investors, ensuring that the country’s vast mineral wealth—which now accounts for roughly 60% of global nickel supply—is used to build a comprehensive domestic electric vehicle (EV) ecosystem rather than merely serving as an extraction point for raw materials. The foundation of this strategy was laid during the administration of former President Joko Widodo, whose 2020 ban on raw nickel ore exports successfully forced foreign firms, primarily from China, to invest billions in domestic smelting and refining.

According to S&P Global Market Intelligence, this policy drove Indonesia’s share of the global nickel market from 31.5% in 2020 to its current dominant position. However, this dominance has come at a significant environmental and social cost. Analysts from the Energy Shift Institute note that vast tracts of tropical forest have been cleared to make way for mines and processing plants, often under the banner of the green transition, creating a paradox where the production of clean energy components drives localized ecological destruction. The current crackdown on illegal exploitation, which targets licenses tainted by bribery or lack of proper approval, may be an attempt to address these reputational risks as Indonesia seeks to integrate more deeply into Western supply chains.

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According to S&P Global Market Intelligence, this policy drove Indonesia’s share of the global nickel market from 31.5% in 2020 to its current dominant position.

Despite Indonesia’s commanding market share, the economic payoff for this aggressive downstreaming strategy is facing an unexpected headwind: technological evolution. The global EV market is increasingly shifting toward Lithium Iron Phosphate (LFP) batteries, which do not require nickel or cobalt. This shift is led by Chinese automakers who prioritize the lower cost and thermal stability of LFP designs over the higher energy density of nickel-based chemistries. As the industry pivots, Indonesia risks being left with stranded assets—massive refining infrastructures dedicated to a metal that may see softening demand in the high-volume budget EV segment. This technological shift complicates Jakarta’s ambition to move from mining to manufacturing finished electric cars, as the battery market is no longer a monolith dependent on nickel.

Geopolitically, Indonesia finds itself in a precarious balancing act between the United States and China. While Chinese capital has been the primary engine behind Indonesia’s nickel refining boom, the United States is actively seeking to diversify its supply chains away from Chinese-linked entities through initiatives like the Inflation Reduction Act (IRA). Because much of Indonesia’s nickel processing is funded or operated by Chinese firms, Indonesian nickel currently faces hurdles in qualifying for US tax credits. Jakarta’s tightening of control may be a strategic attempt to clean up the sector’s regulatory and environmental record to make its output more palatable to Western markets and the US Department of Energy, potentially paving the way for a limited free trade agreement on critical minerals.

Looking ahead, the success of Indonesia’s nickel gamble depends on its ability to diversify its battery-tech partnerships and mitigate the environmental fallout of its mining boom. The government’s threat to seize an additional 4.5 million hectares of land this year suggests that the regulatory crackdown is far from over. Investors should watch for whether Jakarta can successfully attract non-Chinese investment to balance its portfolio and whether it can pivot its industrial strategy if LFP batteries continue to gain market share at the expense of nickel-dependent chemistries. The next phase of Indonesia’s strategy will likely involve stricter ESG (Environmental, Social, and Governance) enforcement as it attempts to secure its place in the high-standard supply chains required by European and American automakers.