A view of “HLI Green Power,” the battery cell plant in Indonesia jointly built by Hyundai Motor Group and LG Energy Solution. (Image provided by Hyundai Motor and Kia)
JAKARTA, April 29 (Korea Bizwire) — A major electric vehicle (EV) battery value chain project in Indonesia has been thrown into uncertainty after a consortium led by LG Energy Solution withdrew its investment plans, the Jakarta Post reported on Tuesday, delivering a setback to the Southeast Asian nation’s aspirations of becoming a global EV hub.
LG Energy Solution had signed a memorandum of understanding (MOU) with the Indonesian government in 2020 to pursue a sweeping “grand package” project — encompassing nickel mining, processing, precursor and cathode production, and battery cell manufacturing — with a total estimated investment of 129 trillion rupiah (approximately 11 trillion won). The project aimed to establish a complete domestic battery value chain.
The South Korean company had joined forces with LG Chem, LX International, POSCO, and Chinese battery materials firm Huayou Cobalt to advance the initiative. However, facing deteriorating global market conditions, LG Energy Solution has decided to exit the project.
The Jakarta Post cited several reasons for the decision, foremost among them a slowdown in global EV demand and growing uncertainty amid trade tensions and an increasingly volatile investment environment. The so-called “EV chasm,” a period of stagnating demand, has hit the battery market hard, leading firms to reassess high-risk ventures.
Indonesia’s chronic infrastructure shortcomings and inconsistent policy direction also undermined the project’s viability. Although Indonesia has abundant raw materials and has sought to attract massive investments to build a downstream processing industry, logistical challenges in remote regions such as Sulawesi and the Maluku Islands — where LG’s targeted nickel mines are located — made investment difficult.
Adding to investor unease, the Indonesian government extended EV incentives not only to nickel-based batteries but also to electric vehicles equipped with lithium iron phosphate (LFP) batteries, which do not use nickel.
Analysts said that this diluted support for the nickel ecosystem, causing domestic demand to shift toward the cheaper LFP vehicles and diminishing the appeal of Indonesia’s nickel resources.
Disagreements over the project’s equity structure further strained relations between LG and the Indonesian government. While Jakarta sought LG’s equity participation across the full value chain — from mining to battery manufacturing — LG preferred to limit its risk exposure and leaned on its Chinese partner, Huayou Cobalt, to lead the mining operations.
Indonesia, wary of increasing Chinese influence amid U.S.-China tensions, pushed back, and the two sides failed to bridge their differences.
Internal dynamics within the consortium also complicated matters. POSCO, which had been in charge of producing anode and cathode materials, reportedly began pursuing separate projects with Chinese companies, leading to reduced cohesion and commitment within the group.
Despite the setback, Indonesian officials maintained an optimistic outlook. President Prabowo Subianto emphasized that LG’s withdrawal does not undermine Indonesia’s long-term investment prospects, stating, “Indonesia is vast and full of opportunity.” Coordinating Minister for Maritime Affairs and Investment Luhut Pandjaitan and Minister of State-Owned Enterprises Erick Thohir echoed similar sentiments, with Thohir noting that the government is actively courting new investors from Saudi Arabia, the United Arab Emirates, Japan, the United States, and Qatar.
Minister of Investment Bahlil Lahadalia stressed that changes in investors are “commonplace” in large-scale projects, reaffirming that the project’s fundamental plans remain intact. Huayou Cobalt is expected to continue as a strategic investor, working alongside Indonesian state-owned enterprises.
As Indonesia presses forward, the fate of its EV dreams will hinge on its ability to adapt to shifting global dynamics — and to rebuild trust among investors.
M. H. Lee (mhlee@koreabizwire.com)
