Indonesia is tightening state control over the world's largest nickel supply after years of positioning the metal as the foundation of a domestic electric vehicle (EV) industry, as global demand shifts away from heavy reliance on nickel.

The move may affect global EV supply chains, particularly as the United States and China compete for critical minerals.

Indonesia accounts for approximately 60% of global nickel supply in 2024, up from 31.5% in 2020, according to a market research firm. This followed the decision by former President Joko Widodo to ban raw ore exports, which led to increased Chinese-backed investment in domestic refining capacity.

Jakarta intended that control over nickel would support a domestic EV industry, including mining, battery production and finished vehicles. However, experts state that this objective was cited in support of forest clearance and mining expansion linked to the energy transition, while climate-related risks increased.

In 2025, Indonesia intensified action against what it described as illegal exploitation of natural resources, stating that many mining and plantation licences were affected by bribery or lacked proper approval.

Authorities reported the seizure of more than 4 million hectares (9.8 million acres) of mines, palm oil plantations and processing facilities, the imposition of US$ 1.7 billion in fines, and the possible seizure of an additional 4.5 million hectares within the year.

Analysts state that this crackdown coincides with a period in which demand growth for nickel in EV batteries may slow, as many Chinese EV manufacturers shift to battery chemistries that require less nickel and rely more on iron-based designs.

"The forests have been exploited to the brim," stated Putra Adhiguna of the Jakarta-based Energy Shift Institute. "But you never got the electric-vehicle value chain."

Indonesia and environmental impact

China has a major role in Indonesia's nickel sector, using the metal in its stainless steel and clean energy industries.

Large nickel reserves are located on the Indonesian island of Sulawesi, which accounts for more than half of global nickel mine production, according to the U.S.-based Institute for Energy Economics and Financial Analysis (IEEFA).

China has sourced nickel from Indonesia for decades, and the relationship expanded after Jakarta imposed the raw ore export ban in 2020, leading to increased Chinese investment in smelting facilities.

Nickel shipments to China increased. Imports of nickel matte, a semi-processed material used in battery chemicals and alloys, rose nearly 28-fold between 2020 and 2023, with more than 90% originating from Indonesia, according to trade data. Over the same period, North and South America's combined share of global nickel output declined from 16% to 7%, while Europe's share fell from 35% to 10%, according to the International Nickel Study Group, a Lisbon-based intergovernmental organisation.

Mining activities contributed to the loss of approximately 370,000 hectares (roughly 914,000 acres) of Indonesian forests between 2001 and 2020, according to an analysis by the World Resources Institute. More than one-third of this loss involved old-growth rainforests, which store significant carbon.

Coal is widely used to power Indonesia's nickel smelters, contributing to additional fossil fuel demand. A 2024 analysis by the IEEFA found that major nickel producers emitted approximately 15 million metric tons (16.5 million U.S. tons) of greenhouse gases in 2023, largely due to coal use.

Last year, Indonesian soldiers, accompanied by a local television crew, took control of part of what is reported to be the world's largest nickel mine.

The mine, predominantly owned by Chinese metals company Tsingshan Holding Group, has been linked to deforestation, air and water pollution, coal-fired emissions, community displacement and reported health risks, according to a 2024 report by the non-profit organisation Climate Rights International.

Bhima Yudhistira of the Jakarta-based Center of Economic and Law Studies (CELIOS) stated that the action was not primarily intended to strengthen environmental protection or forestry safeguards.

"There is no guarantee things will get better," he said, adding that conditions could worsen.

Indonesia's EV battery plans and market developments

Indonesia's effort to develop a domestic EV industry based on its nickel reserves attracted investment interest from South Korea and China but has not progressed as initially expected.

In July 2024, South Korea's Hyundai Motor Group and LG Energy Solution opened Indonesia's first EV battery cell plant, with annual capacity to supply more than 150,000 electric vehicles. In April 2025, LG Energy Solution withdrew from a larger US$ 8.4 billion battery investment, citing market and investment conditions.

An EV manufacturing plant is under construction by Chinese automaker BYD. China's CATL is building a battery facility in partnership with Indonesian state-owned enterprises. Indonesia's EV market is growing but remains limited in scale.

More than 43,000 electric vehicles were sold in 2024, representing approximately 5% of total car sales, according to the Indonesian Business Council. Public charging infrastructure totalled around 1,500 stations nationwide in 2024.

According to the Energy Shift Institute, even if Indonesia produced 1 million EVs annually, equivalent to its total annual vehicle sales, and prioritised nickel-based batteries, this would account for less than 1% of national nickel output.

EV manufacturers are increasing the use of lithium iron phosphate (LFP) batteries, which reduce demand for nickel and cobalt. The International Energy Agency reports that LFP batteries are used in nearly half of all EVs.

Indonesia between the United States and China

Analysts state that Indonesia's nationalisation measures could reduce China's role in parts of the supply chain and provide Jakarta with greater flexibility in engaging with U.S. buyers and investors. One possible outcome of trade negotiations with the administration of U.S. President Donald Trump could involve lifting the ban on raw nickel exports to the United States.

Indonesia has invited the United States to invest in its critical minerals sector as part of tariff discussions between the two countries.

"How does Indonesia position itself between the two superpowers that both seek control of the national resource that Indonesia possesses?" asked Li Shuo, Director of the Asia Society Policy Institute's China Climate Hub.

Other Southeast Asian countries in similar positions are monitoring Indonesia's approach, Li said.

"It is going to be very difficult," he stated.

Yudhistira of CELIOS stated that land seizures could affect the stability of Indonesia's nickel industry. Foreign investors monitoring the developments may delay new commitments to mining and processing projects in Indonesia.

"This is making the future of nickel, both mining and downstream processing, uncertain," Yudhistira said. "Uncertainty is very costly for investors."