But to attract the investment needed to become an EV manufacturing hub, experts say Indonesia must avoid past environmental mistakes, when decades of unregulated mining turned parts of its main tin-producing islands into a lunar landscape.

In just three years, Jakarta has signed deals worth about US$15 billion for battery and EV production, while President Joko “Jokowi” Widodo has personally tried to persuade Tesla's Musk to invest.

But questions over environmental and legal safeguards could make investors wary as they seek to safeguard their reputations.

Danny Marks, assistant professor of environmental politics and policy at Dublin City University, said mining still faced significant environmental challenges.

He cited decades of unregulated tin mining in the Bangka-Belitung islands, off the southeast coast of Sumatra, that had destroyed forests and coral reefs, leaving piles of white tailings; large craters; and acidic, turquoise lakes.

"Indonesia should heed the lessons from its tin-mining experiences, which caused numerous deaths due to mining accidents, was linked to child labor and permanently scarred the island of Bangka's landscape," Marks said.

EV production and sales are surging globally, with the sector seen as key in the drive to curb climate change by cutting emissions from petrol and diesel, reducing oil imports and fuel subsidies and supporting investment in renewable energy.

But in Southeast Asia, EVs accounted for less than 2 percent of sales in 2022, according to consultancy firm McKinsey & Company, and governments were introducing incentives for auto and battery makers as well as tax breaks for buyers and setting ambitious targets to become EV manufacturing hubs.

Rahul Gupta, an associate partner at McKinsey in Singapore, said Indonesia had attracted investments in battery production and vehicle assembly, while Vietnam and Thailand had won business in EV assembly and components like power trains and motors.

Strengthen oversight

Besides nickel, Indonesia is also blessed with reserves of cobalt and copper, other essential materials for EV batteries.

But making battery-grade nickel produces high planet-heating emissions, so Indonesia needed to shift from coal power plants to renewable energy to lure the likes of Tesla and achieve its ambitious EV goals, analysts said.

Late last year, one of the largest-ever donor-led climate finance deals was clinched, known as a Just Energy Transition Partnership, to shutter its coal-fired power plants early and back renewables.

But analysts said those efforts must be accelerated.

Some nickel mines were also operating without permits and had caused deforestation in protected areas, contaminated the soil, polluted the ocean and hurt the livelihoods of local fishermen, Marks said.

"Indonesia needs to significantly strengthen its environmental safeguards," he said. "It generally needs to strengthen its oversight of these mines."

Jokowi banned exports of nickel ore in 2020, but allowed exports of higher value nickel products, forcing companies to process and manufacture onshore.

Risk for Tesla?

Waste management was also important for EV investors, as battery makers needed to dump by-products in a contained area with limited ecosystem damage, said McKinsey & Company's Gupta.

Deep-sea tailings waste disposal and air pollution linked to nickel mining were other challenges for EV manufacturers seeking to prove their green credentials, said Albidin Linda, climate change and sustainability partner at consultancy EY Indonesia.

"Mining is an industry that is prone to sustainability risks and reputation risks, in which heightened efforts to alleviate these potential problems are needed by corporates that are making sustainability a business priority," Linda said.

While Malaysia and Thailand were the region's traditional auto-manufacturing hubs, Indonesia was its largest vehicle market and was along major shipping and supply lines for importing materials and exporting final products, said Nicholas Wagner, a program officer at the International Renewable Energy Agency in Bonn, Germany.

But new technology from foreign investment must also be accompanied by relevant training for workers to ensure the long-term sustainability of the EV business, he added.

Bill Sullivan, senior foreign counsel and a mining expert at Christian Teo & Partners in Jakarta, said a lack of regulatory and fiscal certainty, owing to the government's tendency to change the rules of the game, could hinder major EV investments.

Foreign investors in Indonesian EV manufacturing need to ensure, as part of their environmental, social and governance (ESG) responsibilities, metals came from mines that minimized their impact on the environment, Sullivan said.

EV makers looking to invest in Indonesia are likely to be keen to avoid the backlash electronics companies have faced over the last decade, when linked with the environmental destruction caused by unregulated tin mining on the Bangka-Belitung islands.

"We really are in a race against the clock to save the climate, and one leg of that race is to 'electrify everything', but it mustn't be at the expense of human rights, forests and clean water," said Arie Rompas, a forest campaigner for Greenpeace Indonesia in Jakarta.

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