Indonesia’s EV industry attracts global investors and boosts ASEAN’s automotive sector

Indonesia, the largest economy in Southeast Asia, has been making strides in developing its electric vehicle (EV) industry. The country’s rich natural resources, supportive policies and strategic location have attracted global investors and manufacturers, as well as boosted the prospects of the ASEAN’s automotive sector.

Indonesia’s natural resources give it an edge in EV battery production

One of the main advantages that Indonesia has in the EV industry is its abundance of natural resources, especially metals and minerals that are essential for the manufacturing of EV batteries. Indonesia is the largest exporter of nickel, accounting for 22% of the world’s reserves. Nickel is a key component of lithium-ion batteries, which power most EVs. Indonesia also has significant deposits of copper, cobalt and bauxite, which are also used in battery production.

Indonesia’s EV industry attracts global investors and boosts ASEAN’s automotive sector
Indonesia’s EV industry attracts global investors and boosts ASEAN’s automotive sector

To capitalize on its resource wealth, Indonesia has banned exports of certain metals and minerals, such as nickel ore, in a bid to draw investors and manufacturers in need of those materials to its shores. The country has also offered incentives such as tax breaks, subsidies and low-interest loans to encourage domestic and foreign companies to invest in its EV battery industry.

Indonesia’s policies support its EV ambitions

Another factor that has contributed to Indonesia’s EV development is its supportive policies and regulations. The country has set a target to produce 600,000 electric cars and 2.5 million electric motorcycles by 2030, as part of its efforts to reduce greenhouse gas emissions and dependence on fossil fuels. To achieve this goal, the government has implemented various measures to promote the adoption and production of EVs in the country.

Some of these measures include:

  • Reducing import tariffs and luxury taxes for EVs and their components
  • Providing subsidies for EV buyers and charging station operators
  • Mandating state-owned enterprises and public institutions to use EVs
  • Establishing standards and certification for EVs and their components
  • Developing infrastructure and facilities for EV charging and maintenance
  • Supporting research and innovation in EV technology and industry

Indonesia’s location makes it a gateway to ASEAN’s automotive market

Indonesia’s strategic location in Southeast Asia also gives it an edge in the EV industry. The country is situated in the heart of the ASEAN region, which is one of the fastest-growing and most populous markets in the world. The ASEAN has a combined population of over 650 million people, a gross domestic product (GDP) of over $3 trillion, and a rising middle class with increasing purchasing power.

Indonesia’s proximity and connectivity to other ASEAN countries make it an ideal hub for exporting EVs and their components to the region. The country is also a member of the Regional Comprehensive Economic Partnership (RCEP), a free trade agreement that covers 15 countries in Asia-Pacific, including China, Japan, South Korea, Australia and New Zealand. The RCEP will create a huge market for EVs and facilitate trade and investment among its members.

Indonesia’s EV development is poised to be the “gateway” for further investments in ASEAN, and could play a major role in building the region’s EV ecosystem. Anindya Novyan Bakrie, CEO and president director of Bakrie & Brothers, an Indonesian conglomerate whose electric vehicle unit VKTR manufactures electric buses as well as EV parts, said that Indonesia could be the “gateway” to the rest of the Association of Southeast Asian Nations.

“Indonesia is very strategic because it has access to all these markets … If you look at ASEAN as one market, then Indonesia becomes very important,” he told CNBC.

Indonesia’s EV industry attracts global players

Indonesia’s efforts to develop its EV industry have not gone unnoticed by global players. Several major automakers have announced plans to invest in or expand their EV production facilities in Indonesia, such as:

  • Toyota: The Japanese giant plans to invest $2 billion in Indonesia over the next four years, with a focus on developing hybrid and electric vehicles.
  • Hyundai: The South Korean company plans to build its first overseas EV plant in Indonesia, with an investment of $1.55 billion. The plant will have an annual capacity of 250,000 vehicles, including 150,000 electric cars.
  • Tesla: The American electric car maker has expressed interest in building a battery factory in Indonesia, following talks with Indonesian officials. Tesla is reportedly seeking access to Indonesia’s nickel reserves for its battery production.
  • LG: The South Korean electronics giant has partnered with Hyundai to build a battery plant in Indonesia, with an investment of $1.1 billion. The plant will supply batteries for Hyundai’s EVs as well as other customers.
  • CATL: The Chinese battery maker has signed a deal with Indonesian state-owned mining company PT Aneka Tambang (Antam) to develop a lithium battery plant in Indonesia. The plant will use nickel produced by Antam as well as other sources.

These investments indicate that Indonesia is becoming a key player in the global EV supply chain, and could potentially challenge the dominance of China, which currently accounts for over 70% of the world’s EV battery production.

Indonesia’s challenges and opportunities in the EV industry

Despite its progress and potential, Indonesia still faces some challenges and opportunities in the EV industry. Some of the challenges include:

  • Low consumer demand and awareness: Indonesia’s EV market is still nascent, with only around 3,000 electric cars and 13,000 electric motorcycles sold in 2020. Many consumers are still unfamiliar with or reluctant to switch to EVs, due to factors such as high prices, limited choices, lack of infrastructure and incentives, and concerns over safety and performance.
  • Competition and cooperation: Indonesia has to compete with other countries in the region, such as Thailand and Vietnam, which are also developing their EV industries. At the same time, Indonesia has to cooperate with its neighbors to create a harmonized and integrated EV market in ASEAN, which would benefit all parties involved.
  • Innovation and skills: Indonesia has to invest more in research and development, as well as human capital, to enhance its technological capabilities and competitiveness in the EV industry. The country also has to foster a conducive ecosystem for innovation and entrepreneurship, involving various stakeholders such as government, industry, academia and civil society.

Some of the opportunities include:

  • Growing domestic and regional market: Indonesia has a large and young population, with a median age of 30 years old. The country’s middle class is expected to grow from 52 million in 2018 to 135 million in 2030, according to the World Bank. These factors create a huge potential for EV demand and consumption in Indonesia, as well as in the ASEAN region.
  • Green and sustainable development: Indonesia has committed to reducing its greenhouse gas emissions by 29% by 2030, and by up to 41% with international support. The country also aims to increase its renewable energy share from 12.5% in 2019 to 23% by 2025. Developing the EV industry is one of the ways that Indonesia can achieve these goals, while also creating economic and social benefits for its people.
  • Diversification and value addition: Indonesia has an opportunity to diversify its economy and add value to its natural resources by developing the EV industry. The country can reduce its reliance on commodity exports and imports of fossil fuels, while also creating more jobs and income for its workers and businesses.

Indonesia’s EV industry is on the rise, thanks to its natural resources, policies and location. The country has attracted global investors and manufacturers, and boosted the prospects of the ASEAN’s automotive sector. However, Indonesia still faces some challenges and opportunities in the EV industry, which require concerted efforts from all stakeholders to overcome.

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