LG's Withdrawal from Indonesia's US$7.7 Billion EV Battery Project Driven by US Inflation Reduction Act
Jakarta — Deputy for Investment Promotion at the Ministry of Investment and Downstreaming/BKPM, Nurul Ichwan, has revealed the reasons behind LG's withdrawal from an electric vehicle battery investment project in Indonesia. The project was valued at 11 trillion won, or US$7.7 billion (Rp 129 trillion).
Nurul explained that LG's withdrawal was prompted by the United States Inflation Reduction Act (IRA), a policy that could potentially exclude Indonesian-processed nickel from the US market. The IRA aims to address inflation and climate change through various incentives and investments, particularly in the clean energy and environmental sectors. The legislation was signed into law in 2022 during the Joe Biden administration, whilst the initial agreement between LG and Indonesia was reached in 2020.
"When LG initially wanted to invest in Indonesia, Biden's IRA policy did not yet exist. Their investment target in Indonesia was based on the fact that Indonesia is the world's leading nickel producer, and they possess some of the best battery product technology — so they planned to invest here," he said during the detikcom Indonesia Investment Talk Series in Jakarta on Wednesday (30 April 2025).
Initially, LG planned to carry out downstreaming operations up to producing precursors and cathodes, which were to be exported to the US to meet electric vehicle demand. However, the introduction of the IRA forced LG to recalculate, thereby affecting the realisation of its investment in Indonesia.
"But then the IRA came out, providing incentives for car purchases and incentives for those investing within America," said Nurul.
"This prompted a response from the company that if they were to invest in Indonesia with the US as their target market, but then the US imposed restrictions on that, it would no longer make sense to invest at the originally planned capacity in Indonesia," he added.
Nurul assessed that LG's decision to withdraw from the project in Indonesia was purely based on rational calculation and had no connection to the domestic investment climate. He noted that had LG pressed ahead with the investment in Indonesia, the company would have been unable to fulfil its target market in the US.
"How could they maintain the same investment capacity in Indonesia whilst simultaneously needing to invest in America — because without a presence there, they could not serve the American market? So they ended up investing US$4.3 billion there, funds that could originally have been used for investment in Indonesia," he concluded.
Nurul explained that LG's withdrawal was prompted by the United States Inflation Reduction Act (IRA), a policy that could potentially exclude Indonesian-processed nickel from the US market. The IRA aims to address inflation and climate change through various incentives and investments, particularly in the clean energy and environmental sectors. The legislation was signed into law in 2022 during the Joe Biden administration, whilst the initial agreement between LG and Indonesia was reached in 2020.
"When LG initially wanted to invest in Indonesia, Biden's IRA policy did not yet exist. Their investment target in Indonesia was based on the fact that Indonesia is the world's leading nickel producer, and they possess some of the best battery product technology — so they planned to invest here," he said during the detikcom Indonesia Investment Talk Series in Jakarta on Wednesday (30 April 2025).
Initially, LG planned to carry out downstreaming operations up to producing precursors and cathodes, which were to be exported to the US to meet electric vehicle demand. However, the introduction of the IRA forced LG to recalculate, thereby affecting the realisation of its investment in Indonesia.
"But then the IRA came out, providing incentives for car purchases and incentives for those investing within America," said Nurul.
"This prompted a response from the company that if they were to invest in Indonesia with the US as their target market, but then the US imposed restrictions on that, it would no longer make sense to invest at the originally planned capacity in Indonesia," he added.
Nurul assessed that LG's decision to withdraw from the project in Indonesia was purely based on rational calculation and had no connection to the domestic investment climate. He noted that had LG pressed ahead with the investment in Indonesia, the company would have been unable to fulfil its target market in the US.
"How could they maintain the same investment capacity in Indonesia whilst simultaneously needing to invest in America — because without a presence there, they could not serve the American market? So they ended up investing US$4.3 billion there, funds that could originally have been used for investment in Indonesia," he concluded.