Indonesia’s electric dream? A race to EV supremacy

Author - Amy Sood

Government incentives are driving a surge in sales, but will they be enough to shift consumer habits in Southeast Asia’s largest auto market?

Indonesia is on a fast track to establishing itself as a global electric-vehicle powerhouse, banking on its vast nickel reserves and an aggressive downstreaming strategy to create an all-encompassing domestic EV and battery supply chain.

But despite government incentives and rising sales, the country’s EV ambitions face a number of roadblocks, with high costs, insufficient charging infrastructure and the rapid evolution of battery technology all threatening to stall progress.

With an eye on the horizon, Jakarta has set an ambitious target of getting 2 million electric cars and 12 million electric two-wheelers on Indonesia’s roads by 2030.

To achieve this, the government has rolled out a range of policies aimed at encouraging citizens to embrace EVs and attracting foreign companies to set up shop locally.
These incentives include a value-added tax discount on EV purchases and zero import duties for foreign automakers if they establish manufacturing facilities in Indonesia and meet local content requirements. China’s BYD and GAC Acton, as well as France’s Citroen, have already pledged to build factories in the country.

Visitors look at cars during the Indonesian International Motor Show in Jakarta on February 13. Photo: EPA-EFE

Sales figures show that EVs are growing in popularity in Indonesia. While only 125 were sold in 2020 at the height of the pandemic, by 2023, that number had soared to 17,000, and last year it shot up to just over 43,000 units, according to data from automotive industry association Gaikindo.

Government subsidies had been “very helpful” for EV sales, Herman Tri Putra, a sales representative in Jakarta for Chinese EV heavyweight Neta Auto, told This Week in Asia.

“Customers are finding that the annual tax benefits and efficiency of using electric fuel makes EVs cheaper than conventional cars in the long-term,” he said.

However, despite the uptick in sales, EVs still accounted for a mere fraction of the 860,000 passenger cars sold in Indonesia last year. Analysts warn that government incentives alone may not be sufficient to sway potential buyers, who remain wary of range limitations and the higher upfront costs of EVs.

Cars powered by internal-combustion engines are around 40 per cent cheaper than comparable EV models in Indonesia, while there has been only limited progress in developing the necessary infrastructure to support EV usage.

A charging dock at a public electric-vehicle charging station in Denpasar, Bali, Indonesia. Photo: EPA-EFE

Outside major cities like Jakarta and Surabaya, drivers are often discouraged by the scarcity of charging stations, Herman from Neta said.

“I do not think it will be difficult for the government to reach its target but this will need to be balanced with the large-scale development of charging stations throughout Indonesia,” he said.
Still, the government sounds optimistic. Luhut Binsar Pandjaitan, chair of Indonesia’s National Economic Council and a key architect of the downstreaming strategy, said in 2023 that Indonesia could emerge as a top-three producer of both EVs and batteries by 2027.

But the truth of this assertion will hinge on the country’s ability to cultivate market demand for EVs, according to Putra Adhiguna, managing director at the Energy Shift Institute think tank.

“Building domestic EV demand is crucial to establish a meaningful role in the EV value chain, especially within the tight global competition,” he said. “Right now Indonesia is largely still in the first 20 per cent part of the EV value chain.”

A worker processes nickel at a nickel smelter near Sorowako on Indonesia’s Sulawesi island. Photo: Reuters

Nickel galore

Indonesia has the world’s largest proven nickel reserves and the government is hoping that its grip on this hot commodity, traditionally essential in the production of EV batteries, will strategically position the nation to boost its value-added manufacturing sector.

Its downstreaming strategy, which saw the country ban the export of unprocessed nickel ore, has helped Indonesia draw in billions of dollars in investments, primarily from Chinese firms such as steelmakers Tsingshan and battery giant CATL.

Today, Indonesia leads the global nickel mining and smelting industry, producing nearly half of the world’s refined nickel and two-thirds of its mined nickel. In 2023, processed nickel exports from Indonesia hit US$22 billion, accounting for 9 per cent of total exports – a leap from just 2 per cent in 2019.
"Nickel provides some edge, but it’s quite limited" - Putra Adhiguna, energy finance analyst

Last year marked another milestone with the inauguration of Indonesia’s first EV battery plant: a US$1.1 billion facility established by Korean companies Hyundai and LG.
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And analyst Putra sees much more room for growth, given that Indonesia is already Southeast Asia’s largest auto market.

However, he cautions against an overreliance on nickel, especially as newer technologies, such as lithium ferro-phosphate batteries, gain traction among manufacturers, including those in China. These alternatives do not require nickel, highlighting a need for Indonesia to diversify its approach to EV production.

“Nickel provides some edge, but it’s quite limited considering that most EVs sold now use batteries with no nickel,” he said

 

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