Indonesia’s EV Transformation: A Work in Progress

In late September, the level of air pollution in Jakarta hit record highs and started a heated debate about whether the culprit was rising vehicle exhaust fumes or belching smoke from nearby coal-fired power plants. Though the debate was inconclusive, it did raise awareness of the city’s deteriorating air quality and the need to address carbon emissions.

The planned retirement of coal-powered electric plants will take money, resources and time. However, the rising popularity of quiet electric vehicles (EVs) zipping through Jakarta’s roads is undisputed and widely accepted. Polluting fumes from transportation account for 23 per cent of total emissions on the energy demand side; 90 per cent of which comes from road transport.  

The government is keen to develop the EV industry. With the world’s largest nickel ore reserves — a major raw material for EV batteries — the government is trying to build an end-to-end EV battery supply chain ecosystem. This begins upstream with the extraction of nickel ore to produce the higher-grade intermediary mixed-hydroxide-precipitate (MHP) used in manufacturing nickel-cobalt-manganese (NCM) EV batteries. It will culminate downstream in the manufacturing of EV batteries and the production of EV cars and motorcycles.

At the upstream end, there are already 43 nickel smelters operating and 28 more under construction, reflecting a total investment of about US$30 billion. Later this year, the country’s first US$15 billion EV battery plant, which is owned by the Indonesia Battery Corp (IBC), is expected to start operating). IBC is a joint venture of four state-owned companies — Inalum, PT Pertamina, PT Perusahaan Listrik Negara (PLN) and PT Aneka Tambang Tbk — with a consortium led by the LG Group from South Korea. The consortium includes Ningbo Contemporary Brunp Lygend Co Ltd (CBL) from China.

Downstream, several car producers are selling their EV brands — for example, Hyundai’s IONIQ 5 at the upper-end, and Wuling Air EV and Suzuki Ertiga Hybrid at the lower-end. Even with the exemption of luxury taxes and lower value-added taxes (VATs) for EV cars, the 600 million rupiah (US$52,000) price of EV cars at the upper end of the range is about twice that of a comparable petrol powered car. But the entry of lower-end EV cars has narrowed the price gap substantially. Users have also noted the lower operating and maintenance costs compensate for the higher selling prices. Annual sales of EV cars rose nearly four-fold from 2,012 in 2021 to 7,679 in 2022. These cars only constitute about 0.04 per cent of the country’s total 22 million car market.

To improve air quality in the capital and across the country, the government cannot rely solely on the conversion of EV cars and motorcycles. But it remains an important and doable first step.

In the country’s 125 million motorcycle market, there are a larger number of new EV motorcycle producers. Existing and dominant Japanese motorcycle producers such as Honda, Yamaha and Suzuki are introducing their EV brands as well. There are now several new EV motorcycle brands which sell scooters and motorcycles. One new EV motorcycle producer is GESITS, a joint venture between battery producer IBC and state-owned firm Wijaya Karya. Average prices for EV motorcycles hover around 25 million rupiah, slightly above the 20 million rupiah price of their gas-powered counterparts. EV motorcycle sales have increased five fold, from 5,486 in 2021 to 25,782 in 2022, accounting for a growing but still small 0.03 per cent of Indonesia’s total motorcycle market.

The still small portion of Evs has not deterred the government from setting an ambitious target of 2.2 million EV cars and 13.5 million EV motorcycles on the road by 2030. This represents about 10 per cent and 11 per cent of the total number of 22 million cars (both gas and EV) and 125 million motorcycles (gas and EV) on the road currently.

To accelerate the use of EVs and bolster the larger ecosystem, the government has put in place an export ban on nickel ore and lowered EV testing and certification costs at the upstream end. At the consumer-end, there has been a reduction of VAT from 11 per cent to 1 per cent and the elimination of luxury tax for EV purchases. Jakarta’s odd-even licence plate traffic restriction has been lifted for EVs. The government is also providing a subsidy of 7 million rupiah (US$600) per person for EV motorcycle purchase or conversion. This is generous, given the average 25 million rupiah sales price for such new EV vehicles.

But challenges remain. The government has built 846 EV charging stations and 1,639 battery swapping outlets for EV motorcycles. Coupled with home charging, the infrastructure required might be less extensive than the petrol station network. Still, the current number of charging outlets is not sufficient as it remains largely in urban locations across Java, Sumatra and Bali. There are also concerns over the limited range of EVs, leading to a preference for EV hybrids. EV producers can also decide to use non-nickel lithium-iron-phosphate (LFP) batteries. This would pose a major challenge for the upstream nickel portion of the EV ecosystem, since they would be presented with a smaller market.

It is clear that more needs to be done to ensure EV conversion and adoption that meets Indonesia’s ambitious 2030 targets for reducing carbon emissions. The government should consider loosening the eligibility criteria for purchases, speeding up the release of EV motorcycle subsidies and continuing the electrification of gas-powered public transportation (buses and trains). It should expand the network of battery charging and battery swapping facilities, standardise EV motorcycle batteries to ease battery swapping, and ensure that nickel-based batteries can compete quality and price-wise with LFP battery alternatives. In addition, it should gradually issue disincentives — such as additional surcharges for buying gas-powered cars and motorcycles. To improve air quality in the capital and across the country, the government cannot rely solely on the conversion of EV cars and motorcycles. But it remains an important and doable first step.

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