LG Energy Solution, a major company in South Korea, has withdrawn its investment plan for a materials factory. The company cited a slowdown in the electric vehicle (EV) market and a diminishing competitive advantage in Indonesia, where nickel is widely produced, as reasons for the decision.
Battery production involves processes from material manufacturing to productization, and the withdrawn plans included the construction of a nickel smelter for the main cathode material, as well as the production of cathode precursors and other materials.
Announced in 2022 in collaboration with an Indonesian state-owned enterprise, the plan had an estimated total investment of $7.7 billion. According to the Indonesian government, China’s Huayou Holding Group will take over the plan, and LG Energy’s decision to withdraw is attributed to the slowdown in the EV market. LG Energy’s revenue for the fiscal year ended December 2024 decreased by 24% year-over-year to 25.62 trillion won (approximately 2.7 trillion yen), while operating profit plummeted by 73% to 575 billion won.
LG Energy operates a battery factory in Indonesia in partnership with Hyundai Motor Company of South Korea. However, Hyundai, LG Energy’s main customer, is facing intense price competition from Chinese companies, such as BYD. This has led to sluggish battery sales.
Hyundai Motor’s market share plummeted from 44% in 2023 to 6% in 2024. LG Energy is now exporting 98% of the batteries produced in 2024 — equivalent to approximately 93,000 electric vehicles (EVs) — to countries such as South Korea and India, as securing EV demand in Indonesia has proven difficult.
At the end of its April earnings conference, the company’s chief financial officer stated that it would “streamline operations to prepare for the risk of a downturn in demand.” The company also revealed that it would reduce its capital investment for 2025 by more than 30% from the previous year.
Regarding ongoing projects, the company said it would “adjust the scale and speed of expansion.” The battery factory that operates jointly with Hyundai Motor plans to invest $2 billion to increase production capacity, but the outlook is uncertain.
Plans for a battery factory being developed by China’s CATL in Indonesia are also uncertain.
The company plans to invest $1.18 billion with the state-owned Indonesia Battery Corporation (IBC) to build a factory with an annual production capacity of 15 gigawatt hours. Investment in half of the annual production capacity is already underway as the first phase.
CATL emphasizes that “there are no major changes to the plan at this stage.” However, in late April, an official from Indonesia’s Ministry of Investment and Downstream Industries stated that the production scale could be cut in half due to factors such as the slowdown in the EV market.
He also stated that the scale and speed of ongoing projects would be adjusted. There are plans to invest $2 billion at the battery factory jointly operated with Hyundai Motor to increase production capacity, but the outlook is uncertain.
Plans for a battery factory under construction by China’s CATL in Indonesia are also facing uncertainty.
CATL plans to invest $1.18 billion with the state-owned holding company Indonesia Battery Corporation (IBC) to build a factory with an annual production capacity of 15 gigawatt hours. Investment in half of the annual production capacity is underway in the first phase.
CATL emphasizes that “there are no major changes to the plan at this stage.” However, in late April, an official from Indonesia’s Ministry of Investment and Downstream Industries stated that the production scale could be cut in half due to factors such as the slowdown in the EV market.
Various companies are also revising their investment plans due to changes in the raw materials used for EV batteries. According to the International Energy Agency (IEA), the proportion of EVs sold worldwide equipped with nickel-based NMC batteries will drop to 50% by 2024. Meanwhile, the share of nickel-free LFP batteries will rise to 50%. Many of the Chinese companies that dominate the Southeast Asian EV market are adopting cheaper LFP batteries, and most EVs in Indonesia are equipped with them.
Battery companies have established factories in Indonesia because the country accounts for 60% of the world’s nickel ore production and was expected to become one of Southeast Asia’s leading EV industry hubs. However, as trends in battery raw materials change, the advantages of establishing factories in this “nickel-rich” country are diminishing.
Demand for NMC batteries is strong in the U.S. and Europe. Amid the Trump administration’s 25% tariffs on automobiles and parts, LG Energy is planning to increase battery production in the region.
Source: The Nikkei
PSR Analysis: As of the end of 2024, LFP (lithium iron phosphate) batteries accounted for 60% of EV battery packs in the Chinese market, where they are rapidly gaining popularity. Although adoption outside of China remains limited, nickel-free batteries are expected to gain further traction in the global market. Demand for the diversification of mineral supply chains in Europe and the U.S. is creating headwinds for batteries that rely on nickel and cobalt.
According to various reports, nickel-free batteries are expected to account for over half of the global market by around 2030. Currently, the battery industry is the most heavily invested sector, with rapid progress in development, including in human resources.
Indonesia produces about 60% of the world’s nickel and has tightened export restrictions, designating nickel a strategic material to foster domestic industries. However, achieving this goal appears challenging. PSR
Akihiro Komuro is Research Analyst, Far East and Southeast Asia, for Power Systems Research
