Oz-Indonesia Tie-Up Could Break China's EV Battery Supremacy

Such an alliance could serve three strategic purposes - advancing
Australia's ambitions
to ascend in the global battery supply chain, building Indonesia as an
EV and battery hub , and supporting the US-led
Mineral Security Partnership .

The pressing questions that emerge are whether this partnership can effectively mitigate the urgent challenges posed by climate change and positively affect recovering relations between Australia and China.

There are many hurdles to overcome for such an alliance to succeed, including long setup times, regulatory and environmental issues and investment needed for capabilities and infrastructures. Currently, only China has managed to establish a complete supply chain to overcome all these hurdles.

An uncertain technological trajectory has added another dimension to the complexity of minerals geopolitics. To mitigate environmental and supply risks, the industry is exploring alternatives to nickel and cobalt, two relatively rare elements in battery minerals. Top Chinese battery manufacturers are developing
lithium iron phosphate
(LFP) batteries that eliminate the need for cobalt and nickel.

Compared to
nickel-manganese-cobalt
(NMC) batteries, which have higher energy density but are more expensive and less tolerant of higher temperatures, LFP batteries have seen improvements in energy density and are increasingly used in EVs.

Their
market share
in China grew from 38% in 2020 to 66% in the first half of 2023. This shift not only alleviates security concerns over cobalt and nickel but also diminishes the geopolitical leverage of countries rich in these minerals.

Battery minerals, including nickel and cobalt, are commodities whose value is determined by the dynamics of supply and demand. While
resource depletion
is not an immediate concern, there is a perceived scarcity. This scarcity stems more from a race to stockpile reserves as a strategy to minimize geopolitical and supply chain risks, rather than an actual shortage.

From a geopolitical standpoint, China's lead in clean energy technology is perceived as a challenge to global energy security. This viewpoint has caused concern among US policymakers.

Geopolitical tensions and distrust among nations with different ideological values are exacerbating a race to secure these materials. This race could disrupt the global supply chain and potentially hinder global efforts to meet the
carbon reduction targets
set by the Paris Agreement.

In this context, a prospective alliance between Australia and Indonesia holds special appeal for the United States. Given the uncertain future of battery technology, the proposed alliance also raises substantial concerns.

Both Australia and Indonesia lack the key technologies necessary for minerals refinement, waste management and battery manufacturing. In addition to considerable investments in infrastructure and manufacturing facilities and high environmental costs, the alliance raises more questions than solutions concerning its efficacy in addressing pressing climate change issues without China's involvement.

Initiating such an alliance could also potentially strain the recuperating relations between Australia and China. This is largely due to China's extensive investments in the mineral processing industries of both Australia and Indonesia, coupled with its strong desire to maintain its established position.

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China's lead in battery technology, on the other hand, could be a global asset in facilitating decarbonization. Contrary to common belief, China's lead in the battery supply chain is more a result of private sector innovation than state-backed investment.

Leading companies like Ganfeng , Tianqi , CATL and BYD are non-state enterprises and have thrived in intense domestic competition.

The BYD K12A, the world's longest pure electric bus, uses lithiu-ion batteries. Photo: Handout

While establishing an alternative battery supply chain would enhance diversity and strengthen the resilience of the existing supply infrastructure, there is a risk that such initiatives might be weaponized in a way that could destabilize the unified global approach to decarbonization.

To promote a successful alliance between Australia and Indonesia in creating an alternative battery supply chain, it is crucial to involve all tech-forward nations,
including China , as key players. Open global trade and investment stand as
pivotal strategies
in the fight against climate change.

But achieving this requires transcending prevailing political and ideological differences to foster cooperative alliances, rather than pursuing partnerships based strictly on
like-mindedness.

Marina Yue Zhang is Associate Professor at the Australia-China Relations Institute, University of Technology Sydney.

This article was originally published by East Asia Forum and is republished under a Creative Commons license.

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