Electric vehicle in Indonesia – development status and challenges

In recent years, the Indonesian government has always regarded new energy as an important goal to promote sustainable development, and has issued a series of policies and regulations with the intention of promoting the development of electric vehicles in the country.

From restricting the export of nickel ore in the upstream, attracting electric vehicle manufacturers to enter Indonesia with tax incentives and other non-financial incentives in the midstream, and vigorously promoting the use of electric vehicles in the downstream to stimulate consumption, the Indonesian government has laid out the development of the entire industrial chain of electric vehicles in the country.

This article will briefly introduce the current development status of electric vehicles in Indonesia, and at the same time analyze the difficulties and obstacles in the development of electric vehicles in Indonesia from various aspects.

Development status of electric vehicle market in Indonesia

Based on the type of electric vehicles, the electric vehicle market can be segmented into battery electric vehicles (BEVs), plug-in hybrid electric vehicles (PHEVs), and hybrid electric vehicles (HEVs). According to the Indonesian Automobile Industry Association, HEVs are more popular than PHEVs and BEVs in Indonesia, dominating the electric vehicle market. The following are the electric vehicle sales in Indonesia 2020-2022, as well as the major car brands and prices in the market.

According to the data, although the sales of electric vehicles in Indonesia are growing fast, the absolute value is very low. Overall, the market share of electric vehicles in Indonesia is still at a low level.

Policy support for electric vehicles in Indonesia

In order to accelerate the popularization of electric vehicles in Indonesia, the Indonesian government has developed various legal frameworks to popularize the use of battery electric vehicles (” BEVs “). Previously, the Indonesian government introduced a subsidy program for the purchase of electric motorcycles, which took effect on March 20, 2023. The scheme is expected to cover 200,000 electric motorcycles in 2023 and 600,000 in 2024, with a subsidy of RP7,000,000 per vehicle.

Recently, the Ministry of Trade also issued the “Notice on the provision of public electric vehicle charging stations (” SPKLU”) and priority parking spaces for electric vehicles in shopping malls “(hereinafter referred to as the Notice), which aims to support and accelerate the transport plan framework for universal BEV, originally stipulated in 2019.

Suggest the shopping center to equip electric vehicle charging facilities
The Notice recommends that shopping mall managers should provide more charging stations and priority parking spaces in their business premises to increase the utilization rate and retention of BEVs, and thus respond to and promote the popularity of BEVs.
To support and accelerate plans for battery-electric vehicles that drive road transport, the notice recommends that the shopping mall managers should:

● Support and implement policies to accelerate land transport electric vehicles and control the use of fossil fuel vehicles;
● Provide electric vehicle charging station;
● Provide priority parking spaces for electric vehicles in shopping malls;
● Promotion of public electric vehicle charging stations and exclusive parking spaces for electric vehicles through multiple channels (including publicity and publications) in various activities organized by the shopping centre.

The Notice also stressed that shopping mall operators can promote information about electric vehicle charging stations and priority parking spaces by placing banners, videos, etc., in the best locations of shopping malls, or through online media such as social media and websites.

Incentive measures for ecological construction of electric vehicles
It is worth noting that the charging stations and BEV parking spaces mentioned in the Notice have been specifically provided for in Regulation No. 55 of 2019. Various financial and non-financial incentives are provided for different BEV production or use groups, including individuals, public transport companies, electric motorcycle battery rental providers, BEV manufacturers and parts manufacturers.

In terms of financial incentives, there are 14 types of incentives, including:
(1) Tariff incentives for the import of BEV parts;
(2) Luxury sales tax incentives;
(3) Reduce the central and local taxes;
(4) Import tariff incentives for the import of machinery, goods and raw materials for investment purposes;
(5) Deferred payment of import duties;
(6) The government undertakes import tariff incentives for raw materials or auxiliary materials used in the production process;
(7) Charging station equipment production incentives;
(8) Export financing incentives;
(9) Financial incentives for research, development and innovation activities in technology and occupations in the BEV component industry;
(10) The local government shall determine the parking fees at designated locations;
(11) Reduce the electricity cost of charging stations;
(12) Provide financial support for the infrastructure construction of charging stations;
(13) BEV industry human resources professional competence certification;
(14) Certification of products and technical standards of BEV Industrial companies and BEV parts industry.

There are also three main types of non-fiscal incentives:
(1) Not subject to certain road traffic restrictions;
(2) Transfer of BEV-related technology production rights held by the central government or local government patent license;
(3) Improving the safety of production activities of enterprises designated as key national targets.

Preferential policies for electricity consumption of charging infrastructure
In terms of charging infrastructure, in order to expand the scale of charging infrastructure, the Ministry of Energy and Mines previously issued the Regulations on the Provision of charging Infrastructure for battery-based electric vehicles (” Regulation No. 1 of 2023 “) to facilitate the owners of BEV charging infrastructure (charging facilities and battery replacement facilities).

According to Regulation No. 1 of 2023, when the above-mentioned owners apply for or change the electricity supply to the power supply enterprise holding the public electricity supply business license (” IUPTLU “), they will enjoy various forms of preferential policies for electricity consumption, including the reduction of electricity connection fees and electricity deposit. In addition, owners of private charging facilities providing electricity for public transport, operators of SPKLU charging stations and operators of public electric vehicle battery exchange stations (” SPBKLU “) are exempted from the minimum payment obligation for the first two years.

Difficulties in the development of electric vehicles in Indonesia

Lack of charging facilities
The lack of charging infrastructure is a key limiting factor for the development of electric vehicles in Indonesia. PLN is primarily responsible for building the EV infrastructure in Indonesia, and as of March 2023, PLN has only 616 public EV charging stations (SPKLU), 1,056 public EV changing stations (SPBKLU), and 6,705 public charging stations (SPLU) available in Indonesia.

Despite the introduction of new incentives to encourage large shopping malls to add charging points and provide free parking spaces for NEVs, electric vehicle charging facilities in Indonesia are still very limited and concentrated in and around Jakarta.

The Indonesian transport association (MTI) has said that electric vehicles in Indonesia are only suitable for urban areas, and there are many limitations for intercities, especially the lack of charging facilities and battery swap station. Even in cities, the number of public EV charging stations is still limited, and charging takes about two to three hours.

PLN data shows that there are only 569 bus charging stations on Indonesia’s 6,000 inhabited islands, and 502 of them are concentrated in the most populous islands of Java and Bali. Electric vehicles in Indonesia are only available in urban areas, and filling up at petrol stations is still a relatively easier and faster way.

Cost of electric vehicles
The upfront cost of electric vehicles is higher than that of fuel vehicles. In Indonesia, most electric two-wheelers cost more than IDR 25 million, while most fuel motorcycles sold in Indonesia cost less than IDR 20 million; Most electric four-wheelers cost more than IDR 600 million, while fuel four-wheelers cost less than IDR 300 million.

In Indonesia, buyers of electric cars are mainly wealthy or middle class or above, and most of them are people who already own cars, rather than first-time buyers. The price of a small electric car is 300 million rupiah, which is still an unacceptable price for most low-income people.

According to the data change of electric vehicle sales in Indonesia, the price is probably the key factor affecting the sales of electric vehicles. The price of most electric vehicle products in Indonesia is still over 500 million rupiah, and the price range of Wuling Air EV in Indonesia is 238 million to 295 million rupiah, and sales since the launch account for about 80% of the previous total sales of electric vehicles.

Corresponding to the price, the technology of electric vehicles is not yet stable. For example, there have been Indonesian car owners in social media to share their purchase of Wuling Air EV encountered technical failures. Some owners said that in an early driving, the car suddenly turned off, and the company’s technicians detected that there was a problem with the module that distributed current in the car. Although considering the lower price, the car owner will have a considerable tolerance for quality issues, but the quality and safety of the car is still an important factor for consumers to consider when buying.

Compared with fuel vehicles, the total cost of ownership of electric vehicles may be lower in theory, and for countries and regions with high fuel prices, electric vehicles are undoubtedly the best choice to reduce the operating cost per kilometer, but fuel prices are generally lower in Indonesia. The fuel price in China is about 7.55-9.23 RMB, while it is about 9.2-11.1 RMB in India, and the fuel price in Indonesia is only about 6.06-6.54 RMB.

Moreover, Indonesia does not have strong fuel control policies in place. Although the Indonesian government is committed to implementing a carbon tax, the policy first targets coal-fired power plants and does not affect the use of internal combustion engines, nor can it promote the promotion of electric vehicles. According to a study by the International council on Clean Transportation (ICCT), even after combining factors such as existing tax breaks in Indonesia, Indonesian consumers of electric vehicles do not have a significant total cost of ownership advantage over fuel vehicles.

For consumers who need to buy cars in Indonesia, electric vehicles have the above-mentioned drawbacks, and under the premise of a small cost, electric vehicles often will not become their first choice for car purchase.

Road facilities and traffic problems
Indonesia is an archipelagic country, and transportation between the main islands is mainly by air plans and ferry. If an electric car is purchased in Indonesia, its range is largely limited to Jakarta and the surrounding area because of the charging facilities. If people in Indonesia need to go to the outer islands, they need to board the boat along with the car, and there is no guarantee that they can find charging facilities when go to the outer islands.

The development of land transport in Indonesia is uneven, with roads in most areas suffering from potholes, unpaved asphalt or lack of maintenance. Indonesia’s climate has half a rainy season and half a dry season, and when the road condition is relatively poor, the sudden rainstorm is easy to get the chassis into water. Meanwhile, in the rainy season, the roads are muddy and slippery, which will increase the difficulty and risk of driving.

In Indonesia’s major cities, especially Jakarta, Bandung and Sumatra, traffic congestion is common. During the holiday peak and working day morning and evening commute, the number of vehicles on the road is large, and the congestion phenomenon occurs frequently. Taking the Jakarta area as an example, in 2019, the congestion level in the Jakarta area was as high as 53%, and although the congestion level improved to 34% during the epidemic, it returned to more than 50% after the epidemic ended.

To ease the congestion, Jakarta has introduced odd-even traffic restrictions, but the move has not improved road traffic, but has led to an increase in the number of two-wheeled vehicles in the area, adding to the congestion on the road. Congested road conditions mean that cars will have a long wait and stay on the road, which may exacerbate the anxiety of electric vehicle owners.

Consumer acceptance
Compared with other emerging markets, the development of electric vehicles lacks a good public opinion foundation. In Indonesia, cars, especially electric vehicles, are still considered luxury goods. Because of this, the tax subsidies used to promote electric vehicles have been accused of being “subsidies for the rich” and have been resisted by some people. The people’s resistance will affect the scale of electric vehicles consumption subsidies and the policy maintenance time to a certain extent.

Japanese and Korean car companies are in the Indonesian market for many years, with a good market recognition and the accumulation of deep supply chain production system, and other brands of electric vehicles may be difficult to obtain considerable brand recognition in the short term and be accepted by consumers.

Indonesia’s fuel vehicle market has long been monopolized by Japanese car companies, and in the future, consumers will tend to choose new energy Japanese cars because of their trust in these manufacturers. The promotion of Hyundai electric vehicles in Indonesia is also very strong. TV advertisements, airport screens, and electric vehicles advertisements launched by Hyundai Motor can be seen everywhere.

Climatic factor
Indonesia is a country that often rains, according to local feedback, large-scale floods often occur in the rainy season, and the situation of vehicles being flooded happens a lot. For example, in early 2020, the entire city of Jakarta was paralyzed by heavy rains, and many cars were flooded. As an emerging industry, electric vehicles have not yet established a perfect after-sales service system, and Indonesia’s road rescue is not developed enough, so many Indonesians will have concerns about buying trams.

Localization rate requirements
For electric vehicles companies looking to invest in Indonesia to build factories, another restriction to consider is the localization rate requirements of Indonesian regulations for automobile manufacturing. Article 8 of Indonesia PR55/2019 sets strict targets for the localization of electric vehicle components – specifically, four-wheel electric vehicle companies and component companies must comply with a minimum localization rate requirement of 35% between 2019 and 2023.

Although the Indonesian government is very supportive of the development of electric vehicles, but on the whole, Indonesia’s market conditions are not mature, the development of electric vehicles are facing many challenges and obstacles.

Infrastructure in emerging markets usually takes time to build and improve, and during this time there are opportunities as well as risks. Investors need to look at the market situation objectively, and the way of choosing the right landing mode is a problem worth further consideration.