Electric vehicles (EVs) have been a popular topic among globally. It was seen as one of the way for the world to reduce its carbon emission which affecting climate in the latest century. As transportation is one of the closest areas for everyone’s life and the major contributing sector of CO2 emission, shifting Internal Combustion Engine (ICE) to EV is considered as one of the most impactful initiatives we can take. EV has steadily gained popularity in Indonesia; several automotive manufacturers have even raised factories to manufacture EVs in Indonesia. Indonesia announced itself to be the EV hub in the Southeast Asia region, supported by its large automotive market and its large nickel reserve which is one of the biggest in the world. But has the government taken all the necessary steps to achieve it in the coming years?
As of 17 November 2022, there are around 33,800 EVs on Indonesian road according to Minister of Energy and Mineral Resources. That number includes electric car, motorcycle, and buses. There are 7,669 passenger cars, 25,782 motorcycles, 58 electric buses, 6 cargo vehicle, and 285 tricycles. There’s still a significant amount to be fulfilled to reach the government target of 400,000 electric cars operating in Indonesia for 2021-2025. When comparing the 2021 sales numbers to other countries in the region, Indonesia is leading in numbers of EV vehicle sold but quite lagging on its EV share of total vehicles sold. This signifies that EV adoption in the country itself still have things to work on. Moreso as the country has the ambition to capture 25% of EV sold globally by 2030.
Table 1: Electric Vehicles in 2021
Source: BCG, Statista, Fitch, ICCT, Press Release, Mandiri Investment Forum 2023
Indonesian government has implemented several incentives to further drive the EV adoption, both incentive for manufacturers and for consumers. While Presidential Regulation No 55 Year 2019 has provided the base for EV related incentives, mostly for its manufacturers, by promising facilities such as import duty exemptions. Meanwhile currently for consumers’ incentive, government has exempted luxury tax for electric vehicles, from Government Regulation No 74 Year 2021.
But the luxury tax incentive seems to not affect greatly on the current EV market in Indonesia. an analysis done by Kompas based on the latest National Socioeconomic Survey (Susenas) of the Central Bureau of Statistics have shown that the total cost of ownership for an electric car is still higher than owning an internal combustion engine car. While cost of maintenance, fuel, and tax for electric vehicle are significantly lower for EV, the price of an electric car is still way higher than the reduction of other costs can cover. After 5 years, average total cost of ownership for an EV is 24% more expensive than gasoline cars.
Exhibit 1: Biaya Kepemilikan Mobil Selama Lima Tahun Pertama (Rp juta)
Keterangan : Komponen biaya merupakan nilai rata-rata
Milieu Insight has done research regarding Southeast Asians impressions regarding Electric Vehicle adoption in 2021. While 78% of Indonesian respondent have a positive impression on electric cars, 47% of the respondent has stated that price of electric cars has been the top reason for them to not considering EV as their next vehicle. As demand side drivers will greatly affect the future of EV in Indonesia, it is compulsory for the government to further lower the price for an EV.
Table 2: Research regarding Southeast Asians impressions regarding Electric Vehicle adoption in 2021
One way to address the problem is to push automotive manufacturers to produce more affordable models. Currently, the average price for an electric car available in Indonesia is around IDR 640.9 million. While currently government is planning to provide another incentive in form of a discount reaching up to IDR 80 million per car, the price is still way higher than an average gasoline car available in the market. If EV price can be pushed to around IDR 300-400 million before the discount incentive, many believe it will trigger the massive transition.
Of course, driving down the price would not be the only silver bullet to drive EV adoption in Indonesia. Building the whole ecosystem for EV will be required to ensure sustainable demand in the market. Government has set a target to build 31,859 EV charging station by 2030 to address the second highest factor hindering the EV adoption from consumers’ perspective – too few charging station around. But there are also several other areas which government could build or drive the market to fill the gap, such as specific financing support for purchasing EV, building circular economy by preparing battery recycling industries, or building other supporting industries such as EV component manufacturers.
In conclusion, while the number of EVs in Indonesia is still relatively low, the government's efforts to promote adoption and its ambitious targets suggest that the market is set to grow significantly in the coming years. Tax incentives and the expansion of charging infrastructure are key elements of the government's strategy, but more work is needed to address factors like affordability and public awareness of the benefits of EVs. Ultimately, the development of a strong EV ecosystem is critical to driving demand and establishing a sustainable market for EVs in Indonesia.
