India and Indonesia can build a resilient nickel-to-EV supply chain that secures affordable electric vehicles and sets a South-South model for sustainable transport.”
Image Source: Priya darshan/via Getty Image
India’s EV30@30 initiative to hit 30 percent electric vehicle penetration by 2030 is slackening due to slow adoption, most likely due to high upfront costs compared to traditional fuel vehicles. This can be traced back to the high input costs of manufacturing EV batteries in India. A large share of the production cost is associated with nickel, for which India is completely import-dependent. While domestic production and building of reserves is a long-term option, an immediate solution lies in directed economic engagement with India’s all-weather ally and the largest global producer of nickel, Indonesia.
A large share of the production cost is associated with nickel, for which India is completely import dependent.
India’s commitment to net-zero and achieving sustainable development relies largely on the capacity to accelerate EV penetration. The transport sector ranks as the third-largest emitter of greenhouse gases in India. With rising vehicle usage in the country, the electrification of this sector is an urgent priority. However, EV penetration in India faces both demand- and supply-side impediments, including high costs, limited charging infrastructure, high import dependence and fragmented value chains. One crucial aspect of this electrification effort can be addressed by reducing the critical mineral import dependency, especially that of nickel. Despite the rise of alternative compositions of batteries, the long-term outlook for nickel usage remains positive, and the metal will continue to be a key input in the EV value chain. In this context, given India’s limited nickel reserves, securing the value chain through agreements with Indonesia will be a favourable policy choice. To institutionalise this agenda, Delhi and Jakarta have agreed to hold the India–Indonesia Joint Economic and Financial Dialogue (JEFD), where critical minerals cooperation could be a top priority.
Figure 1: Composition of Different Batteries
Source: Visual Capitalist
Indonesia has the largest reserves of nickel and accounts for more than half of the global nickel supply. The Indonesian government banned exports of unprocessed nickel ore to capture the EV battery value chain and secure an absolute advantage in nickel production. This has resulted in significant foreign direct investment (FDI) inflow into the nation, especially from China, to set up nickel processing establishments with the end goal of dominating the EV supply chain. Collaborations with other nations and their large conglomerates have given Indonesia a stronger footing in the EV supply chain and turned it into one of the critical actors in the global green energy transition. However, Indonesia’s massive market size backfired when it increased the supply of nickel.
Linking Australian lithium, Indonesian nickel, and Indian cell-manufacturing scale would create an Indo-Pacific battery corridor.
The excess supply of processed nickel from Indonesia caused a global price decline. The fall in nickel prices initially made it difficult for other exporting countries to compete, but eventually the crisis affected Indonesia as well. Indonesian smelters are finding it difficult to sustain operations and might have to cut production soon. Moreover, dampening demand due to the surge in lithium iron phosphate batteries and the slow adoption of EVs might exert further downward pressure on prices. Another concern is the potential emergence of a Dutch disease-like phenomenon, where the country’s traditional exports are crowded out by the booming nickel sector. If Indonesia is unable to capitalise on its domestic EV production plan, its long-term growth may be derailed by sectoral inefficiencies.
During Indonesian President Prabowo Subianto’s state visit to India, where he held bilateral talks with Prime Minister Narendra Modi, the two leaders “expressed interest in joint exploration and downstream projects for nickel and other strategic minerals”. Under its Performance Linked Incentive (PLI) scheme, India is subsidising 50 GWh of battery-cell factories. These factories require significant amounts of nickel input and will sustain demand for a long period, even if production gradually shifts to nickel-free batteries. Indonesia can lock in forward contracts with Indian firms to secure demand and hedge the price risks. The ban on nickel ore exports was met with overwhelming Chinese investment in Indonesia’s nickel smelting and refining capabilities, which has driven down production costs over time. Concentration of investments from a single nation elevates risk, which can be hedged if Indonesia diversifies its funder portfolio.
Indian investors like Khanij Bidesh India Limited (KABIL) – the state-owned mineral procurement enterprise – and other key stakeholders in the value chain, particularly battery manufacturers, can help Indonesia secure diverse and more sustainable investment. A diversified investor mix will keep bargaining power with Jakarta, speed up technology transfer, and provide it with greater access to India’s EV market. A logical next step is trilateral supply chain cooperation with Australia—the world’s largest lithium producer—which already has a transport-decarbonisation pact with Indonesia. Linking Australian lithium, Indonesian nickel, and Indian cell-manufacturing scale could create an Indo-Pacific battery corridor.
Indian-made EVs with Indonesian-procured inputs could cruise on the German Autobahn.
Both New Delhi and Jakarta recognised the need for increased cooperation and launched a project to enhance connectivity between India’s Andaman and Nicobar Islands and Indonesia’s Aceh province. The development of the Sabang deep-sea port in Aceh could significantly lower trade time and cargo costs. The benefits of increased nickel trade should be factored into the return on investment calculation in India-Indonesia connectivity. On the sustainability front, both governments pledged at the G20 to align new mining projects with global environmental, social, and governance (ESG) norms – India’s “LiFE” initiative emphasises low-carbon supply chains, while Indonesia wants its “green-nickel” label recognised by Western buyers. Both capitals should further coordinate in emerging-technology forums such as the G20 Working Group on Critical & Emerging Tech and the Quad Critical Minerals Partnership, signalling room to co-draft ESG and traceability standards for battery supply chains. Joint India-Indonesia standards for EV battery supply chain will make it easier to tap concessional climate finance and further diversify the investment portfolio. Collaboration between the two countries will allow them to exercise their comparative advantage, maintain market efficiency, and show the world a South-South pathway to affordable, responsible electrification.
Indonesia’s need for stability with respect to nickel prices and India’s demand for domestically produced battery inputs go hand-in-hand. While Indonesian miners can secure contracts with Indian cell manufacturers, the Indian government can subsidise producers using Indonesian nickel and lower customs on cell-input imports from Indonesia. Collaborative financing, research and development, and capturing the value chain could shape the future of the global EV market. Indian-made EVs utilising Indonesian-procured inputs could soon cruise on the German Autobahn.
Arya Roy Bardhan is a Research Assistant with the Centre for New Economic Diplomacy at the Observer Research Foundation.
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Arya Roy Bardhan is a Junior Fellow at the Centre for New Economic Diplomacy, Observer Research Foundation. His research interests lie in the fields of ...
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