Economies

Electric dreams: Indonesia’s ambitious battery electric vehicle plans

Indonesia's battery electric vehicles ambition will not only spur industrial development, new technology and vehicle design, but it also stands to make Indonesia a production and export base for BEVs.

Indonesia’s transportation sector consumes about half of the country’s energy. Motorcycles uses a significant part of it with numbers increasing by 41% from 104,118,969 units to 146,858,760 between 2013 and 2018.

But the government wants to change this energy pattern. And it plans to do it in three ways: increase renewables, reduce petrol and make the best use of gas. It will also pursue another ambitious solution. Embrace the use of Battery-Electric Vehicles.

Unlike internal combustion engines used in motor vehicles, Battery-Electric Vehicles, or BEV, uses an electric motor to turn the wheels. But BEV is still in its early stage of development, says Agung Wicaksono and Benriwan from the School of Business and Management at the Institut Teknologi Bandung.

In August 2019, President Joko Widodo introduced a regulation to speed up BEV’s use on roads. “This is a concrete manifestation of the central government’s commitment to providing direction, foundation and legal certainty,” says Agung and Wicaksono and Benriwan.

The researchers see BEV as a game-changer for the country. It will not only spur industrial development, new technology and vehicle design, but it will make Indonesia a production and export base for BEVs.

Finding BEV

BEV’s adoption is low compared to targets set by the Ministry of Industry. In 2020, there were 229 electric cars and 1,947 electric motorcycles. The government has targeted 400,000 cars and 1,760,000 motorcycles by 2025. “The numbers show that the target achievement rate is low and has not increased after the Government’s new policy”, points Agung and Benriwan. “Moreover, there are currently 27 charging stations and nine swapping stations. By 2025, the government plans to have 4,000 charging stations and 14,000 swapping stations.”

These are ambitious targets in a growing global market. According to the International Energy Agency, the number of BEVs have reached 7.2 million units of electric vehicles worldwide. China dominates with 47% of the total market share. China’s dominance has attracted global investors like Tesla to build BEV support facilities in China. Norway sells more BEV than any European countries. Its market penetration is 51.6% share, with Tesla being one of the most popular brands.

Pushing BEV

The government is throwing all sorts of incentives to start up this sector. Besides regulations, the Ministry of Finance offers tax allowance. BEVs do not attract sales tax on luxury goods. Local producers are exempt from central and local taxes including accessing Super Deduction Tax and Investment Allowance facilities.

The Ministry of Industry introduced import duty exemptions for spare parts and BEV accessories. Other benefits include tax incentives for raw materials and BEV research and development. There are incentives for Domestic Content Levels to encourage technology transfer and foster domestic industrial ecosystems.

The Ministry of Energy and Mineral Resources is reducing fuel imports and accelerating renewable energy. The Ministry of Environment and Forestry plans to reduce greenhouse gas emissions, recycle and reuse policies from batteries. The Ministry of Home Affairs is offering tax incentives for motorcycles and motor vehicles. The National Standardisation Agency of Indonesia (BSN) is developing national standards for BEV, supporting components including plug-ins and batteries.

The government is spending IDR 238 trillion to dominate the BEV industry ecosystem. In March this year, it formed a holding company, Indonesia Battery Corporation (IBC). The company incorporates four state-owned enterprises, PT Asahan Aluminium, PT Aneka Tambang, PT Pertamina and PT Perusahaan Listrik Negara, with each making up 25% shares.

IBC will integrate the electric vehicle battery ecosystem across the value chain from mining, smelting/refining to the battery cell, battery pack, assembly and recycling. The company will also invest US$17 billion in battery production for exports and form strategic partnerships on the technology of processing battery raw materials into batteries and along the industry value chain.

In May this year, IBC signed a Heads of Agreement to invest in a BEV factory with a battery consortium with South Korea’s LG. The consortium consists of LG Energy Solution, LG Chem, LG International, POSCO and Huayou Holding. IBC is looking to partner with battery players in the US and Japan.

For an analysis of Indonesia’s Battery-Electric Vehicle see Agung Wicaksono and Benriwan, 2021, Corporate strategy to optimise the development of Battery Electric Vehicle in Indonesia, Policy Brief, School of Business and Management (SBMITB), Institut Teknologi Bandung, May

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