New partnership opportunities for Indonesia and Australia: batteries and electric vehicles
By Nick Basan, Research Intern
Renewable energy, new transport technologies and increasing concerns about climate change are driving an emerging battery and electric vehicle (EV) industry. Australia and Indonesia have a shared interest in working together to establish this new industry, taking advantage of the rapid uptake of battery and EV technologies. An Australia-Indonesia partnership could unlock a “powerhouse” opportunity in the global battery and EV industry.
Mining-focused nations, such as Australia and Indonesia have long been cast as competitors in an attempt to increase their share of the global supply chain. However, an opportunity has emerged for both countries to leverage their complementarities in an EV and battery minerals value chain. They share trade and investment frameworks, such as the Indonesia Australia-Comprehensive Economic Partnership Agreement (IA-CEPA) and Regional Comprehensive Economic Partnership (RCEP), which would offer favourable trade mechanisms for the partnership.
With significant reserves of minerals critical to the production of batteries for EVs, Indonesia and Australia are present in the existing battery value chain. Australia is a major upstream supplier of battery minerals and also as an end-user of batteries. Meanwhile, Indonesia’s place in this chain is predominately as an upstream supplier of battery minerals, in particular its leading reserves of nickel. They also have complementary mineral endowments.
Australia is an ideal battery mineral partner for Indonesia. Australia must be proactive in developing an integrated supply chain with Indonesia to claim mutual economic benefit. Accounting for 60 percent of world production of lithium, Australia offers a crucial mineral missing from Indonesia’s domestic resource endowment. The partnership would employ Australia’s world-class technical and industrial capabilities. Australia has rapidly scaled resource production through innovation and could assist Indonesia in developing their nickel sulphate capabilities to successfully manufacture lithium-ion batteries.
This notional bilateral partnership positions Australia and Indonesia as active neighbours, working to support shared interest and fostering a secure and mutually prosperous region.
A number of Australian policies and programs at state and commonwealth levels are promoting battery industry development, including substantial focus on international collaboration. President Joko Widodo has taken similar steps implementing regulations related to Indonesian battery value chain operations. These regulations provide government incentives (fiscal and non-fiscal), charging infrastructure, and electricity tariffs for EVS, technical standards and requirements and environmental protection. The Indonesian Government has demonstrated interest in moving up the EV supply chain from mining the ore, refining it, and then manufacturing batteries and electric vehicles.
However, Indonesia must continue domestic economic reforms in order to become more attractive to international investment. Indonesia needs to increase ease of doing business and create stable ecosystems. Investment is key to supporting Indonesia’s integration into the EV and battery supply chain.
Australia is using a range of policy instruments to increase its participation in the battery value chain. Australia is leveraging its network of trade agreements to establish international partnerships, such as their agreement with Indonesia. IA-CEPA positions Indonesia to benefit from Australian consumers across a wide-range of industries. The agreement eliminates Australia’s tariffs on hybrid and electric vehicles from Indonesia, presenting a valuable trade opportunity.
Australia could support Indonesia’s ambitions of becoming a production hub for EVs and battery cells with secure access to Australia’s battery minerals and strong demand from Australian consumers for final products.
Under RCEP’s rules, a joint manufacturing process would mean Australia-Indonesia products could move throughout the 15-member RCEP bloc to potential markets such as China, South Korea, and Japan with favourable tariffs and customs regimes applied along the way.
To realise the potential partnership between Australia and Indonesia in this value chain there is a need for better coordination. The countries should utilise existing platforms, such as IA-CEPA’s institutional provisions for trade minister-level Joint committees to examine emerging trade opportunities.
Alternatively, Australia could coordinate with companies in other countries. Australia could partner with countries that are planning significant investment in Indonesia and Australia’s battery-related industries. The emergence of a “trilateral” partnership between Australia, Indonesia and South Korea is one possibility. Indonesia has signed a US$1.1 billion memorandum of understanding (MoU) with a consortium of South-Korean companies to establish an electric vehicle battery cell factory in West Java.
Envisaging how a bilateral battery value chain would function involves Australia sitting downstream, extracting, and undertaking initial processing before shipping to Indonesia for further processing and cell production. In a new age of geopolitical competition and the risk profile of battery materials, substantial attention must be taken in securing these strategic assets by governments.