Hanoi—Indonesia is tightening its grip on the world’s largest nickel supply, a move with potentially far-reaching consequences for the electric vehicle industry and the global competition for critical minerals between the United States and China. The shift comes as demand for nickel in EV batteries begins to plateau, with manufacturers increasingly turning to alternative battery chemistries.
Jakarta’s decision to exert greater state control over its nickel resources, which now account for approximately 60% of global supply—a significant jump from 31.5% in 2020, according to S&P Global Market Intelligence—is rooted in a long-term strategy to build a fully domestic EV industry. This ambition, however, has been accompanied by concerns over deforestation, environmental damage, and questions about the actual economic benefits realized.
The Indonesian government, under former President Joko Widodo, initially spurred investment by banning raw ore exports in 2020. This policy attracted a surge of Chinese-backed investment into refining, transforming Indonesia into a nickel processing powerhouse. However, a recent crackdown on illegal mining and plantation licenses, seizing over 4 million hectares (9.8 million acres) of land and levying $1.7 billion in fines, signals a new phase of asserting state authority. Authorities have indicated they could seize another 4.5 million hectares this year.
A Shifting Landscape for Nickel Demand
While Indonesia initially envisioned nickel as the cornerstone of its EV ambitions, the market is evolving. Many Chinese electric vehicle manufacturers are now adopting battery technologies that require significantly less nickel, favoring iron-based designs. This shift threatens to undermine the initial economic rationale for Indonesia’s aggressive expansion of nickel mining and processing.
“The forests have been exploited to the brim,” said Putra Adhiguna of the Jakarta-based Energy Shift Institute. “But you never got the electric-vehicle value chain.” This sentiment highlights a growing concern that the environmental costs of nickel extraction have not been adequately balanced by the development of a robust domestic EV industry.
China’s dominant role in Indonesia’s nickel sector is undeniable. The metal is crucial for both China’s stainless steel industry and its burgeoning clean-energy sector. Imports of nickel matte from Indonesia to China surged nearly 28-fold between 2020 and 2023, accounting for over 90% of China’s nickel matte imports, according to trade data. Simultaneously, the combined share of nickel output from North and South America fell from 16% to 7%, and Europe’s share dropped from 35% to 10%, according to the International Nickel Study Group.
Environmental and Social Costs
The rapid expansion of nickel mining in Indonesia has come at a significant environmental cost. An analysis by the World Resources Institute found that mining activities were responsible for the loss of approximately 370,000 hectares (914,000 acres) of Indonesian forests between 2001 and 2020—more than any other country. A substantial portion of this loss involved old-growth rainforests, vital for carbon sequestration and climate change mitigation.
The reliance on coal to power Indonesia’s nickel smelters further exacerbates the environmental impact. A 2024 analysis by the Institute for Energy Economics and Financial Analysis (IEEFA) estimated that major nickel producers emitted around 15 million metric tons (16.5 million U.S. Tons) of greenhouse gases in 2023 due to coal dependence.
Concerns extend beyond environmental damage to encompass social impacts. In a high-profile case last year, Indonesian soldiers, accompanied by media, took control of part of a nickel mine largely owned by Chinese metals giant Tsingshan Holding Group. A 2024 report by Climate Rights International detailed how the mine has contributed to deforestation, pollution, displacement of communities, and health risks for local residents.
Navigating Geopolitical Tensions
Indonesia’s nationalization drive is being closely watched by both the United States and China. Analysts suggest the move could potentially weaken Beijing’s control over parts of the nickel supply chain, creating opportunities for Jakarta to attract investment from the U.S.
Ongoing trade negotiations between Indonesia and the U.S. Administration of President Donald Trump may include a concession from Indonesia to lift its ban on raw nickel exports to the U.S. Indonesia has already extended an invitation for U.S. Investment in its critical minerals sector. However, Jakarta faces a delicate balancing act, as Li Shuo, director of the Asia Society Policy Institute’s China Climate Hub, noted: “How does Indonesia straddle between the two superpowers who both want to gain control of the national resource that Indonesia has?”
The land seizures and increased state control also carry risks. Bhima Yudhistira, with the Jakarta-based Center of Economic and Law Studies (CELIOS), warned that the uncertainty created by these actions could deter foreign investment in Indonesia’s nickel industry, stating, “This represents making the future of nickel, both mining and downstream processing, unknown. Uncertainty is very costly for investors.”
Despite early enthusiasm, Indonesia’s efforts to establish a thriving domestic EV industry have faced setbacks. While South Korea’s Hyundai Motor Group and LG Energy Solution opened Indonesia’s first EV battery-cell plant in July 2024, LG Energy Solution later withdrew from a larger $8.4 billion investment in April 2025, citing unfavorable market conditions. Chinese automaker BYD is still constructing an EV plant, and China’s CATL is building a battery factory in partnership with Indonesian state firms.
Indonesia’s EV market is growing, with over 43,000 electric vehicles sold in 2024, representing about 5% of total car sales, according to the Indonesian Business Council. However, the limited public charging infrastructure—around 1,500 stations nationwide as of 2024—remains a significant obstacle to wider adoption.
Even with ambitious production targets, the demand for nickel from Indonesia’s domestic EV industry is likely to remain relatively small. The Energy Shift Institute estimates that even if Indonesia produced 1 million EVs annually—equal to its total auto sales—it would consume less than 1% of its national nickel output.
The increasing adoption of lithium iron phosphate (LFP) batteries, which require less nickel and cobalt, by EV manufacturers further complicates the outlook for nickel demand. LFP batteries are now used in nearly half of all EVs globally, according to the International Energy Agency.
As Indonesia navigates these complex challenges, the outcome of ongoing trade negotiations with the U.S. And the evolving dynamics of the global EV market will be critical. The next key development will be the completion of trade talks with the U.S., expected in the coming weeks, which could reshape Indonesia’s access to international markets and investment.
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