Resource-rich Indonesia has plans to become a leading manufacturer of electric vehicles, with President Joko Widodo seeking to lure the likes of US electric car maker Tesla and Taiwan electronics giant Foxconn to the country. A key goal: to develop a domestic battery manufacturing capability. As ambitious as Jakarta is, writes Muhammad Azka Prasetya of GreenUrbanomia, the Southeast Asian nation has a number of roadblocks to overcome on the journey to electrification.
Powering up at a public charging station in Serpong, outside Jakarta: Indonesia aims to have two million electric vehicles on the road by 2030, up from only about 15,000 today (Credit: Zakariya AF / Shutterstock.com)
Today, however, the interest in electric-powered vehicles has been growing, what with increasing consciousness about climate change and need to address environmental pollution. The releases of modern EVs such as the Tesla Model S and Nissan Leaf have fueled the trend since the 2010s, with EVs looking to play a more and more significant part in shaping future modes of transportation. Many countries are now getting on the bandwagon of vehicle electrification.
One country that has committed to introducing the widespread use of EVs is Indonesia. The promotion of EVs in the most populous country in Southeast Asia is related to its goal of achieving a net-zero carbon emissions by 2060, as outlined in a national plan set out as its contribution to the United Nations Framework Convention on Climate Change under the 2015 Paris Agreement. At the UN Climate Change Conference (COP26) in Glasgow last year, Indonesia committed to cutting emissions by 29 percent on its own – by 41 percent with international assistance – by 2030.
In line with this effort, the Indonesian government has set a target of betting two million EV units on the road by 2025. EVs are, therefore, expected to drive a huge shift in transportation modes in the country. President Joko Widodo, popularly known as Jokowi, has proposed that EVs should become the main form of transportation in Indonesia, establishing a foundation for the development and utilization of environmentally friendly transportation in the future.
Indonesia is home to the world’s largest mineral reserves, including nickel, a raw material that is in growing demand for the production of lithium EV batteries. In addition to making serious efforts in developing EVs, Widodo also plans to work with the private sector. One key potential partner is Tesla’s Elon Musk – Widodo hopes to involve the renowned businessman in the country’s plan to establish a world-class electric battery industry by tapping into its vast nickel reserves.
While the main motivation behind vehicle electrification in Indonesia has been the desire to shift from reliance on fossil fuels to broader use of clean-energy alternatives and to improve energy independence, by cutting fuel imports, Indonesia could eventually save more than US$160 million a year if it executes its plan. But the road ahead will be long and difficult. To build its own EV ecosystem, Indonesia will have to rack up US$35 billion in spending over the next five to 10 years. CNN Indonesia reported that as of November 2021, Indonesia only had 14,400 EVs – far below the government’s target of two million.
Fortunately for Indonesia, several parties, including major automakers have shown interest in the country’s EV roadmap. Hyundai, for example, recently released IONIQ5, the first electric vehicle assembled in Indonesia, and built its first Southeast Asian EV factory in the country.
Yet, significant roadblocks remain. In 2018, a report published by corporate strategy consulting firm Solidiance listed three obstacles: unclear policies, the hefty price tag, and the wait-and-see strategies of both original equipment manufacturers and infrastructure players. The main challenge, however, is the still the limited access to EVs.
Public access to EVs is still hampered by the high price of electric cars. No model is priced below Rp 250 million (US$17,351) – the average price of automobiles that is deemed affordable by the public. Even a more affordable model, the Nissan Kicks e-POWER, is priced at a staggering Rp 482 million (UD$32,154). For that price, one could purchase not one but two of the best-selling conventional car model in Indonesia, the Toyota Avanza. Pricing could get more competitive with the arrival of a compact EV from Chinese manufacturer Wuling Motors, which is set to cost from Rp 200 million to 300 million (US$13,400 to $21,000).
The cost of the battery accounts for 40 to 60 percent of the price of each electric vehicle. As manufacturers are still importing batteries, lowering the costs would be difficult. The only solution is to produce batteries domestically. To move towards that objective, the country has already established cooperative arrangements with three battery companies – Foxconn, CATL, and LG Chem, which has an alliance with state-owned Indonesia Battery Corporation (IBC).
Lack of EV infrastructure
As of February 2022, the National Electric Company (PLN), Indonesia’s state-owned electricity company, operated 267 charging stations in 195 areas across the country. The PLN has also established a renewable energy power plant with a capacity expected to reach 29 gigawatts by 2030.
The problem for EVs lies with access to charging stations. Indonesia will have to consider the ratio of the number of EV units to the number charging stations. Based on a study conducted by the Institute for Essential Service Reform on countries that have a large EV penetration, Indonesia will need to achieve a 1:20 ratio of EVs to charging units. With the right business models in place, the discrepancy can be addressed by the private sector and small businesses.
Most of the EVs sold in the country are sport utility vehicles (SUVs), which are very popular in Indonesia. Despite their prevalence, the dominant preference of Indonesian consumers is for multi-purpose vehicles (MPVs), also called minivans or people carriers, due to the lower tax rate on them. As of 2019, tax rate imposed on the sales of MPVs was 10 percent – considerably lower than on other types of vehicles such as small-size sedans, which are taxed at 30 percent. Another reason behind Indonesia’s fondness for MPVs is their desire to spend time with family and for relatives to travel together.
To gain more potential buyers, automotive manufacturers could consider manufacturing electric MPVs. Toyota, for example, unveiled the Kijang Innova EV Concept at the Indonesia International Motor Show Hybrid 2022. The company is expected to produce the model locally.
Access and acceptance
Considering that attention to renewable energy is increasing and gas prices are rising, Indonesia has a great opportunity to develop its own EV ecosystem. When it comes to renewable energy, Indonesia has other options such as a biodiesel program. Should Indonesia stick to the EV route, however, the country would have to increase public access to EVs and EV infrastructure, thereby promoting public interest in and acceptance of electric mobility.
As EVs are still considered a niche option, there is an immediate need to educate the public on EVs and, if possible, introduce policies that push the public to move voluntarily from combustion to electric transportation. Public education about charging, maintenance and the difference between electric automobiles and combustion will be necessary. Such efforts should not be limited to the government but can also be carried out by vested parties such as auto show organizers, automotive journalists and automakers.
Farmer, Rod; Gupta, Rahul; Lath, Vivek; and Manuel, Nimal. (June 30, 2022) “Capturing growth in Asia’s emerging EV ecosystem”, Future of Asia, McKinsey & Company.
German-Indonesian Chamber of Industry and Commerce. (2021) “Indonesian Electric Vehicles Industry Development Gains Momentum”, AHK Indonesien/EKONID, Jakarta, Indonesia.
Schröder, Martin; Iwasaki, Fusanori; and Kobayashi, Hideo (eds). (May 5, 2021) “Promotion of Electromobility in ASEAN: States, Carmakers, and International Production Networks”, ERIA Research Project Report 2021, no 3, Economic Research Institute for ASEAN and East Asia (ERIA), Jakarta, Indonesia.
Muhammad Azka Prasetya