Indonesian Nickel and the U.S. EV Market
Last week, we reviewed the string of bad headlines for the electric vehicle (EV) market. EV sales have slowed due to high prices relative to gas-powered vehicles and the suboptimal performance of EV charging stations.
Indonesia’s emergence as the new powerhouse of global nickel production is another developing factor expected to increase volatility in the U.S. EV market in 2024.
Nickel is used for lithium-ion batteries to power EVs.
Indonesia's mined nickel production jumped from under 800,000 tons in 2020 to 2.03 million tonnes in 2023, which accounted for 55% of global output, per Reuters. The influx in supply caused a sharp decrease in global nickel prices, down 22.1% over the last year.
While decreasing prices would typically benefit the U.S. EV market since EV companies could pass cost savings along to consumers, the problem is that Indonesia is not a U.S. Free Trade Agreement (FTA) partner.
U.S. EV companies need to source nickel from U.S. FTA partners to qualify for IRA tax credits, which help offset up to $7,500 of the cost for U.S. consumers who purchase EVs. U.S. FTA partners only account for 9.3% of the global nickel production, which does not cover the top three exporters – Indonesia, Russia, and the Philippines.
While $18,000 per ton of nickel is profitable for Indonesian nickel mines, this price compression has caused some U.S. FTA nickel mines to close operations.
As a result, the U.S. government is considering a limited FTA with Indonesia. However, some senators are concerned the deal would provide a backdoor for Chinese corporations, many of which have a heavy presence in Indonesia.
U.S. EV companies are at a crossroads. EV sales are already slowing due to high prices, and this latest development will only increase the burden on U.S. customers, who will not have access to the tax credits if U.S. EV companies have to rely on non-FTA partners for nickel.
