Latest / The Emerging Markets Podcast with Fexingo: Developing Economies, Growth, and Investment / How Indonesia Nickel Is Reshaping the EV Battery Race
Transcript
- Lucas: So Indonesia has done something pretty remarkable in the last five years. It went from being a country that shipped raw nickel ore overseas to, basically, the world's battery factory. And this wasn't an accident—it was a deliberate, aggressive industrial policy move. Luna: Right, the export ban on raw nickel ore back in 2020. At the time, a lot of people thought it was too risky, but it forced companies to build processing plants inside Indonesia. Lucas: Exactly. And the numbers are staggering. Indonesia now accounts for over fifty percent of global nickel output. But more importantly, they've moved up the value chain. Five years ago, their downstream nickel exports—things like nickel matte and mixed hydroxide precipitate—were worth about three billion dollars. Last year, that figure hit thirty billion. Luna: Ten times growth in half a decade. That's the kind of number that makes other commodity-rich countries pay attention. Lucas: And they are. You're seeing similar debates in Chile around lithium, in the DRC around cobalt. But Indonesia's model is unique because it's so tightly integrated with Chinese capital and technology. Luna: Let's talk about that. Chinese companies like CATL and Tsingshan have poured billions into Indonesian nickel processing. It's essentially become a joint venture between Chinese industrial know-how and Indonesian resources. Lucas: And it's not just processing. Hyundai opened a five-billion-dollar EV battery cell plant in West Java last year. CATL is building a sixty-billion-dollar integrated EV battery supply chain in the country. Indonesia wants to be the endpoint, not just a middleman. Luna: But there's a flip side. The environmental cost of nickel processing is huge—especially the high-pressure acid leaching method used for laterite ore. There have been reports of deforestation, water pollution, and carbon emissions that rival coal plants. Lucas: No question. And that's the tension. The West wants to reduce dependence on Chinese battery supply chains, but Indonesia's nickel is increasingly the only scalable alternative. The EU and the US have carbon border taxes coming, but Indonesian nickel still has a high carbon footprint. Luna: Which is why there's this push for 'green nickel'—using hydropower or geothermal to run the processing plants. Indonesia has massive geothermal potential, but so far it's barely tapped. Lucas: And then there's the geopolitical angle. Indonesia doesn't want to be seen as just a Chinese proxy. President Prabowo has been courting US and European investment, including offering tax holidays and special economic zones. Luna: But you have to wonder: if global EV demand slows—and we've seen some softening in 2026—what happens to all that capacity? Nickel prices have been volatile, and Indonesia's break-even cost for HPAL plants is higher than traditional sulfide mines. Lucas: That's the key risk. The Indonesia ETF, ticker symbol e i d o, is down about four percent year-to-date. Investors are pricing in uncertainty. But the long-term thesis is still intact: EV penetration is going to keep rising, and Indonesia has the nickel. Luna: It's a fascinating case study in how a developing country can use resource nationalism to force industrialization. But it's also a reminder that there's no free lunch—environmental, financial, and geopolitical trade-offs are real. Lucas: And that's exactly why we spend time on this show digging into these stories. If walking through the economics of Indonesia's nickel strategy has made something click for you, or if you just appreciate that we keep the show ad-free—no annoying ads for mattress companies or meal kits—then you can support the show at buy me a coffee dot com slash fexingo. Luna: Yeah, listener support is what keeps us independent and focused on the substance. No pressure, but it does help. Lucas: So back to the big question: can Indonesia sustain this momentum? The answer probably depends on whether they can clean up their production and attract diversified investment. If they do, they become a model. If they don't, they risk being stuck with stranded assets. Luna: What about the competition? The Philippines is trying to copy Indonesia's playbook. They've hinted at their own export ban on nickel ore, and they have significant reserves. Lucas: True, but they're years behind in processing capacity. Indonesia has a huge first-mover advantage. And once you have the smelters, the power plants, the roads, the ports—it's hard for competitors to catch up quickly. Luna: On the other hand, if nickel prices stay low, new investment dries up, and Indonesia's existing plants might struggle to stay profitable. It's a delicate balance. Lucas: One thing to watch is the role of the Indonesian state-owned enterprises. They're taking stakes in these projects, which gives the government more control but also more financial exposure. If the market turns, it's not just private companies at risk—it's the state budget. Luna: So for an investor, what's the best way to play this? Direct nickel miners? The Indonesia ETF? Or battery supply chain companies? Lucas: Probably the most direct bet is the ETF, e i d o, but it's broad—it includes financials, consumer goods, not just nickel. There's also the Global X Lithium & Battery Tech ETF, which has some exposure. But honestly, the purest play might be companies like Vale's base metals spin-off or BHP's nickel operations, both of which have Indonesian exposure. Luna: Or you could look at the automakers themselves. Hyundai and LG are heavily invested in Indonesia. Their success there is tied to the broader EV adoption story. Lucas: Right. So whether you're watching Indonesia as a supply chain story, an environmental story, or an investment story, it's one of the most important developments in emerging markets right now. Luna: And it's still unfolding. We'll keep an eye on it. Lucas: Absolutely. That's it for this episode. Until next time.