Indonesia is building a battery industry and an EV ecosystem as part of its broader nickel downstreaming agenda. The objective is that downstreaming should not stop at smelters. It must move deeper into industrial components, machinery, batteries and, eventually, electric vehicles. Indonesia’s largest battery industrial hub reflects this ambition.
But the battery industry itself is changing rapidly. Nickel-based batteries, such as NMC and NCA, have one key advantage: higher energy density. Yet the global EV market is not driven by performance alone. In the mass market, price is often more decisive.
This is where non-nickel batteries, especially lithium iron phosphate, or LFP, pose a serious challenge. LFP batteries do not use nickel or cobalt. They are cheaper and rely on more abundant raw materials.
The International Energy Agency noted that in 2025, LFP batteries were around 40% cheaper than NMC batteries. They also accounted for more than half of global EV batteries and more than 90% of battery energy storage systems.
This means nickel-based batteries are no longer the dominant force in the market. Non-nickel batteries are.
China’s EV industry has accelerated this shift. Chinese producers rely heavily on LFP because it fits their industrial model: producing affordable EVs for the global market. As China’s EV giants expand, they also expand non-nickel battery technology.
This creates a dilemma for Indonesia. On the one hand, Indonesia needs to control nickel production to keep prices from collapsing and preserve natural resource rents. On the other hand, stronger nickel governance can raise global nickel prices, weakening the competitiveness of the nickel-based battery industry.
This is where recommendations from global industry actors and mainstream economic institutions usually emerge. Indonesia is often urged not to exert too much control over nickel. The argument is that mineral supply should remain cheap, stable and predictable to support battery production.
From the perspective of the battery and EV industries, this argument is understandable. If Indonesia reopens the production tap, nickel prices will fall. Battery production becomes cheaper, and nickel-based batteries may still compete, at least partially, with non-nickel batteries.
But if Indonesia follows this logic too far, it could become trapped in a cheap-nickel ecosystem.
Nickel would be kept cheap so battery investment can survive. Yet the battery industry supported by cheap nickel may still fail to withstand competition from technologies with stronger cost advantages. Indonesia would risk sacrificing nickel rents for an industry whose technology may not endure.
Many countries have tried to build industries with large subsidies, cheap energy, cheap land, low taxes and high protection, yet still failed because their comparative advantage was weak. Subsidies are useful only if they generate technological learning and build adequate comparative advantage. Without those outcomes, subsidies merely transfer rents from the state to investors.
If domestic nickel is kept cheap to support battery producers, Indonesia loses part of its resource rent. Reserves are depleted faster, fiscal revenue is reduced, environmental costs rise, and the largest benefits may be captured by downstream investors, EV producers and final consumers outside Indonesia.
More importantly, batteries are not the main use of nickel. Data from the Nickel Institute and the International Nickel Study Group show that batteries account for only around 16 percent of nickel use; the rest goes mainly to stainless steel, alloys and other applications.
Battery applications are also more price-sensitive because they face stronger substitutes. In metal applications, by contrast, nickel is much harder to replace because it is tied to essential material properties: corrosion resistance, strength, heat resistance and durability. In many of these uses, there is still no comparable substitute.
This means metal applications have a stronger natural comparative advantage. Stainless steel, alloy steel, nickel-based alloys, plating, industrial components, chemical equipment, pipes, food-processing equipment, automotive components, marine components and materials for the energy and geothermal industries all require nickel as a key input. In these sectors, nickel is not a temporary technological choice; it is part of the material requirement.
Understanding the structure of nickel demand is essential for designing Indonesia’s nickel strategy. The battery industry remains important, but it should not become the center of gravity. Indonesia needs to separate nickel policy from battery policy.
Nickel policy must serve broader national interests: controlling production, maintaining strategic prices, extending reserve life, increasing value added, raising state revenue, improving environmental standards and strengthening Indonesia’s global bargaining position.
Production must not simply follow smelter capacity or the needs of the battery industry. Industrial capacity must follow resource strategy, not the other way around.
The battery industry should adopt a more rational strategy. It should not rely on cheap nickel to compete in every battery segment. Nickel-based batteries in Indonesia should target premium segments only: long-range vehicles, high-performance vehicles and applications requiring high energy density. This segment is narrower but more rational.
For Indonesia, the more sensible strategy is to develop nickel-based metal and component industries. This is where demand is larger, substitution is harder and industrial value added can go deeper. Downstreaming should continue from smelters to stainless steel, alloys, intermediate products, industrial components and advanced manufacturing.
Nickel is Indonesia’s strategic strength. It should not be sold cheaply for the sake of batteries, especially when other market segments are larger, more stable and more promising.
Abdurrahman Arum is executive director of Transisi Bersih, an Indonesia-based policy research organization. His research focuses on natural resource governance, industrial policy, and strategies to manage nickel, coal and palm oil for national economic interests.
