Driving Change: The Story of Electric Vehicles in Indonesia

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Driving Change: The Story of Electric Vehicles in Indonesia

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The EV transition is taking the world by storm. While emerging markets remain the last bastion of legacy automakers, they will soon also embrace the transport industry's electrification. And Indonesia promises to be among the best examples of the EV revolution.

14 March 2023 – by Viktor Tachev   Comments (0)

While the shift to electric vehicles is gaining momentum worldwide, real progress is lacking in Indonesia. However, the country has very ambitious plans for electric vehicles in Indonesia. Not only does it aim to electrify its transport sector, but it also wants to become a key cog in the EV manufacturing value chain. While challenges remain, with the proper policies, Indonesia can lead Southeast Asia’s EV transition.

Growing Global Momentum For Electric Cars

According to the IEA’s annual Global EV Outlook 2022 report, EV sales doubled in 2021 to 6.6 million. The trend extended in 2022 and 2023 as well. The biggest growth was in China, Europe and the US.

Global Passenger EV Sales by Market, Source: Bloomberg NEF
Global Passenger EV Sales by Market, Source: Bloomberg NEF

According to Bloomberg NEF, the number of EVs in use will triple by 2025. By 2040, EVs will dominate roads all across the world.

Several factors drive the growing momentum. Among them are more ambitious policy support, increased public spending on EV subsidies and incentives and a broader range of available models.

However, EV sales are still lagging in other emerging and developing economies. According to Bloomberg NEF, the trend will also continue in the future.

Indonesia is a prime example of this, with just 0.5% of the vehicles on the road being electric. However, the country highlighted how much it values the EV transition as a part of its decarbonisation strategy.

Indonesia’s Electric Vehicles Roadmap and Strategy

Indonesia is among the world’s top 10 leading CO2 emitters. The transportation sector and automotive industry account for the biggest amount of energy use and a quarter of the total energy emissions in the country.

Indonesia recognises switching to electric vehicles as an efficient strategy to reduce emissions. EVs are way more efficient in energy use than internal-combustion engine cars (60-75% compared to just 12-30%). Furthermore, the life-cycle emissions of EVs are lower, even with coal-dominant power grids.

Fully Electric Vehicles Will Be the Predominant Powertrain by 2040, Source: Bloomberg
Fully Electric Vehicles Will Be the Predominant Powertrain by 2040, Source: Bloomberg

Besides, currently, Indonesia’s transportation sector uses mostly imported oil. The EV transition would help protect against the energy dependence and financial risks associated with fossil fuel imports.

Stimulating Local EV Production and Mass Adoption

Indonesia aims to have 13 million electric two-wheel (2W) and 2.2 million electric cars by 2030. Starting from March 20th, the government will be providing subsidies for purchasing electric vehicles and motorcycles. The incentive will cover sales of 200,000 electric motorcycles and 35,900 electric cars, alongside the conversion of 50,000 combustion engine motorcycles.

The stimulus for EVs would come in the form of tax incentives, while for motorbikes, it would come as cash. Such initiatives aim to also help attract foreign automakers like Tesla.

But above all, the government has strategically focused on battery and EV production.

Adoption Gap For EVs, Source: Bloomberg NEF
Adoption Gap For EVs, Source: Bloomberg NEF

The country currently has a production target of 600,000 electric light-duty vehicles and 2.45 million electric two-wheelers by 2030. To hit it, the government plans to provide import incentives to EV producers that build their factories in Indonesia. Furthermore, the country aims to ensure that a certain percentage of Indonesian-sourced EV components and nickel are used in EV production.

Thanks to granting tax breaks and nickel concessions to Tesla, Indonesia is now in the final stages of closing a deal with the company for a manufacturing hub.

During the 2022 G20 meeting, the country also received funding to launch a green fund focusing on upstream and downstream EV value chain investment. The fund will likely grow to USD 2 billion.

Becoming a Key Player in EV Battery Production

Indonesia has the largest share in global nickel production, holding almost 40% of the total supply. Furthermore, its territory has rich raw material resources, including manganese sulphate. Projects for their extraction and processing are already underway.

The government has banned nickel ore exports and plans to do the same with bauxite from June 2023. The country aims to stimulate foreign investments in local production and processing facilities by preventing the export of critical minerals.

Furthermore, in 2021, the Ministry of State Owned Enterprises, alongside other partners, launched the Indonesia Battery Corporation. It already has partnerships with companies from China and Korea. The state-owned battery manufacturer aims to produce up to 140 GWh of battery cells by 2030. Meanwhile, current global battery production capacity is about 871 GWh.

Private companies like PT Huayou Nickel Cobalt and PT Vale Indonesia plan to expand local nickel mining. CATL, LG Energy Solutions, Tsingshan, BASF, Zhejiang Huayou Cobalt and Posco will invest in nickel and cobalt refining and processing facilities. CATL and LG Energy Solutions plan to set up at least 25 GWh of lithium-ion cell manufacturing capacity in Indonesia by 2025. If there is sufficient demand, it can expand to 80 GWh by 2030. 

Manufacturing Capacity in Southeast Asia, Source: Bloomberg NEF
Announced Lithium-Ion Battery Cell Manufacturing Capacity in Southeast Asia, Source: Bloomberg NEF

Indonesia also aims to develop EV-supportive industries, such as energy storage systems and battery recycling. 

Chinese conglomerate Envision Energy also plans to enter Indonesia’s EV battery industry. Foxconn and Hyundai have also promised investments.

Indonesia is stepping up its policy to attract investment in the EV supply chain, from mineral processing and battery manufacturing to carmakers, in a bid to become a global hub for EV manufacturing and exports.

Indonesia Has Ambitious Targets But Challenges Remain

Indonesia is often renowned for its ambitious decarbonisation targets, and its EV goals are no exception. If successful, Indonesia could reduce fuel oil consumption by 3 million barrels and decrease CO2 emissions by 1.4 million tonnes. However, a lot of work needs to be done before this can take place.

The IEEFA notes that Indonesia is lagging behind its Southeast Asian peers. Vietnam leads electric 2W sales by a significant margin, while Thailand is expected to lead electric 4W adoption. Vietnam has also adopted an ambitious ICE phase-out target by 2040.

According to the IEEFA, inconsistent policies surrounding oil demand growth have stalled the progress of fuel economy in Indonesia. For example, the new light-duty vehicles used in the country consume around 40% more fuel than those in India. To improve efficiency, the government must introduce mandated fuel economy standards, a point that is lacking in the country’s NDC.

Furthermore, to succeed in boosting local EV production, Indonesia needs to address the surrounding factors, including introducing subsidies, accelerating the use of renewable energy, making clean energy sources more accessible at scale and more.

The country would also have to work on shifting its population’s preferences, leading citizens towards more environmentally friendly vehicles. The government has already moved in that direction by introducing taxes based on vehicle engine size and CO2 emissions.

Legacy Automakers Can Make or Break the Electric Vehicle Transition in Indonesia 

To succeed, Indonesia should also address the domination of legacy automakers in the domestic market. The IEEFA notes that five automakers control 92% of the 4W market. Meanwhile, two companies command 96% of the 2W market.

As a result, the success of the transition to electric vehicles in Indonesia is highly dependent on those companies’ ambitions. The IEEFA recognises legacy automakers’ heavy focus on internal-combustion engine vehicles (ICEVs) and considers them a major risk that can stall Indonesia’s EV transition. The phase-out policies in developed countries have the potential to make legacy automakers concentrate their ICEV sales towards emerging markets like Indonesia.

And such a strategy has a high chance of success. Due to the lack of policies restricting the ICEV market, legacy automakers are not pressured to focus on making more efficient and cleaner vehicles. Without forcing businesses to align with Indonesia’s decarbonisation goals, legacy automakers will continue doing business as usual. 

Toyota, for example, has a history of actively advocating for the delay of electric vehicles in Japan and abroad. Furthermore, various studies have named the brand as one of the biggest laggards in the EV transition. While the company says it supports Indonesia’s transport electrification and plans to invest 27.1 trillion rupiah (USD 1.8 billion) by 2027 to make electric vehicles in the country, analysts remain reserved. The IEEFA notes that Toyota’s 4W BEV sales comprise just 0.16% of its global business, while Honda’s electric 2W sales remain largely negligible. Another Japanese manufacturer, Mitsubishi Motors, plans to invest 10 trillion rupiah (USD 660 million) in Indonesia by 2025 to produce hybrids and EVs. 

Even if Japanese legacy automakers live up to their promise to develop EVs in Indonesia, they will struggle to compete with South Korean and Chinese producers due to the latter’s more ambitious strategies.

Indonesia EV Sales (Plug-In Hybrids Excluded), Source: Bloomberg NEF
Indonesia EV Sales (Plug-In Hybrids Excluded), Source: Bloomberg NEF

A Similar Global Trend

According to Influence Map, the automotive sector, as a whole, isn’t doing enough to assist global decarbonisation efforts. Automakers with planned phase-outs of ICEVs account for just 30% of the global market.

Within the automaking industry, there are various interests at play. While some companies are all in on EV production, like Mercedes, Audi and more, some legacy automakers are increasingly looking to prolong the life of ICEVs and hybrids. 

Electric Vehicles in Indonesia: Part of the Transition

Indonesia is a prime example of a country striving to improve its decarbonisation targets continuously. The country’s EV targets are among the most ambitious in Southeast Asia. And while the electrification of transport and the switch to EVs has various benefits, they can’t be the sole focus of its decarbonisation strategy. Instead, they should accompany higher-impact targets like mass renewable energy adoption and a quick fossil fuel phase-out.

by Viktor Tachev

Viktor has years of experience in financial markets and energy finance, working as a marketing consultant and content creator for leading institutions, NGOs, and tech startups. He is a regular contributor to knowledge hubs and magazines, tackling the latest trends in sustainability and green energy.

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