The government’s Making Indonesia 4.0 strategy was launched in 2018 and outlines steps to enable the country to capitalise on the evolving trends of manufacturing provided by the Fourth Industrial Revolution. These include the application of new digital and automated technologies to improve production processes and service delivery. Key priorities of the roadmap include the development of a domestic electric vehicle (EV) manufacturing industry. Efforts to develop Indonesia’s EV industry centre on leveraging the country’s rich supplies of nickel laterite ore, the primary input in the lithium-ion batteries that are used to power EVs. Under the government’s strategy, EVs are expected to comprise 20% of the vehicle market by 2025. Officials have stated that the country’s vast resources of lithium could enable Indonesia to become the leader of EV manufacturing within ASEAN.

New Incentives

In August 2019 the government introduced a number of incentives for manufacturers, transport companies and consumers aimed at boosting the production of EVs. They include reduced import tariffs for EV manufacturers on unassembled and semi-assembled vehicles over a specific time period, as well as import tariff deductions for machinery and materials used in EV production. However, under aims to boost domestic production and reduce reliance on imports, the measures state that EV car manufacturers must ensure that domestically produced materials comprise at least 80% of vehicles by 2030, while motorcycles must reach this target in 2020. Meanwhile, in an effort to boost domestic demand of EVs, consumers will be provided with benefits such as lower luxury taxes and annual vehicle tax rates, as well as subsidised fees at charging stations. Other incentives likely to be offered include special parking areas and dedicated lanes.

Facing Challenges

The roadmap is a welcome step towards developing the EV industry and attracting investors. Nevertheless, major challenges will need to be overcome in order to facilitate the creation of this industry. Some of the barriers to expansion include the relatively high cost of EVs in Indonesia; changing consumers’ mindsets to convince them of the benefits of switching from regular cars to EVs; and creating the necessary infrastructure for the growth of an EV market – including through the construction of charging stations around the country.

There has already been some progress in this area, with charging stations having been launched in Jakarta and Serpong at end-2018, while feasibility studies elsewhere have either been conducted or are currently under way. Following one of these studies, Mitsubishi began developing a charging station in Sumba at the end of 2019. Meanwhile, state-owned electricity generation and distribution company Perusahaan Listrik Negara announced plans in December 2019 to install 180 more charging stations nationwide. However, the World Bank has expressed doubts over the ability of the country to become a major player in the EV export market as a result of high non-tariff barriers and a lack of sufficient integration into global supply chains.

Rising Confidence

Despite these concerns, there are strong indications that the government’s initiatives in this area are creating confidence among investors. In June 2019 car giant Toyota announced it would invest $2bn in developing its EV capabilities in the country between 2019 and 2023. The Japanese manufacturer stated that by 2025 it wants half of its global sales to be EVs and considers Indonesia to be a key investment destination. In addition, South Korea’s Hyundai signed a memorandum of understanding in November 2019 with the Indonesia Investment Coordinating Board to invest $1.55bn by 2030 towards supporting EV manufacturing in Indonesia. The investment is earmarked to come in two stages, with the company to build an internal combustion engine car manufacturing plant between 2019 and 2021, then develop an EV production facility, transmission plant, and an EV research and development centre between 2022 and 2030.