LG Energy signs $9 billion electric vehicle supply chain deal in Indonesia

A South Korean consortium will invest $9 billion in Indonesia to build an electric vehicle supply chain from mining to manufacturing, as battery makers seek to reduce their dependence on Chinese suppliers and mitigate rising commodity prices after Russia invaded Ukraine.

The group led by LG Energy Solution, the world’s second largest manufacturer of batteries for electric vehicles, has signed an agreement with local mining company PT Aneka Tamban (Antam) and Indonesia Battery Corporation.

The project will manage the entire battery production process, including nickel smelting and refining, manufacturing of precursors, materials and cathode cells, and assembly of finished products in the South Asian country. -East.

Indonesia is the world’s largest nickel producer, with around 21 million tonnes of reserves, according to data from the US Geological Survey.

The deal comes as South Korean battery makers have increased investment in chemicals and materials used in electric vehicle batteries to reduce their dependence on China, the world’s largest processor. of most of the minerals needed for production.

The war in Ukraine has added pressure to improve supply chain security. Russia accounts for 11% of global nickel production, and prices for key raw materials have risen dramatically since the invasion.

The three-month nickel price on the London Metal Exchange has risen about 60% this year to $33,175 a tonne as of April 14, heightening concerns about the growing cost burden on battery makers.

The auto industry’s plans to move away from fossil-fuel vehicles have been complicated by its heavy reliance on refineries and factories in China, where about 80% of battery materials are processed.

“Stable raw material supply has become much more important for battery producers amid the worsening crisis in Ukraine,” said Yoon Hyuk-jin, an analyst at SK Securities. “Korean battery makers need more of these upstream investments for their long-term competitiveness to reduce their dependence on Chinese materials.”

The consortium includes LG Chem, the parent group of LGES, the steelmaker Posco, the commodity trader and miner LX International, and the Chinese company Zhejiang Huayou Cobalt.

“We expect the project to improve the capacity and profitability of our battery business by securing competitive raw materials on a stable basis,” LGES said.

The company is also building a $1.1 billion battery cell factory in Karawang Regency, 65 km southeast of Jakarta, in a joint venture with Hyundai Motor Group.

The consortium’s investment was announced days after China’s Contemporary Amperex Technology (CATL), the world’s largest electric vehicle battery maker, signed a $6 billion deal with Indonesian companies including Antam, to produce a similar project.