Indonesia Embraces Electric Vehicles as Key to Automotive Industry Sustainability

INTI- Marves, Jakarta, With the increasing use of electric vehicles (EVs) worldwide, the transition to electric vehicles has become key to the sustainability of the automotive industry in Indonesia. This was the conclusion drawn from a cross-stakeholder discussion held by the Indonesian Government on Wednesday (May 31, 2023), organized by the Coordinating Ministry for Maritime Affairs and Investment (Marves) in collaboration with relevant ministries and agencies.

As known, Indonesia is currently the largest automotive market in Southeast Asia. The automotive industry also serves as one of the main pillars of Indonesia's economy, employing around 1.5 million workers and contributing 4 percent to the GDP. Meanwhile, the export value of Indonesia's automotive industry reached IDR 70 trillion in 2022.

The discussion titled "Accelerating EV Adoption Policies to Support the Sustainability of the Automotive Industry in the Energy Transition Era" was attended by key speakers, including Hageng Nugroho, the Senior Expert Assistant to the Deputy for Economic Affairs of the Presidential Staff Office; Wahyu Utomo, the Head of the Fiscal Policy Analysis Agency of the Ministry of Finance; Dodiet Prasetyo, the Head of the Sub-Directorate for Land Transportation Equipment Industry at the Directorate of Maritime Industry, Transportation Equipment, and Defense Equipment (IMATAP) of the Ministry of Industry; Gigih Udi Atmo, the Director of Energy Conservation at the Ministry of Energy and Mineral Resources; Ida Nuryatin Finahari, the Deputy Director-General for Electricity at the Ministry of Energy and Mineral Resources; Danto Restyawan, the Director of Road Transportation Facilities at the Directorate General of Land Transportation of the Ministry of Transportation.

In addition, Fabby Tumiwa, the Executive Director of the Institute for Essential Services Reform (IESR); Lucky Lontoh, Associate and Country Coordinator of the International Institute for Sustainable Development (IISD) in Indonesia; Tenny Kristiana, a researcher at the International Council on Clean Transportation (ICCT); and Yulius, the Managing Director and Senior Partner at Boston Consulting Group (BCG), were also present as respondents.

Rachmat Kaimuddin, the Deputy for Infrastructure and Transportation Coordination, stated that Indonesia is ready to seize the economic opportunities in the electric vehicle industry to become a global manufacturing hub.

"With the growing electric vehicle market worldwide, accompanied by the global need for environmentally friendly transportation solutions and Indonesia's vast market potential and resources, we are currently faced with a golden opportunity to become a global partner for leading EV companies and a world-class EV manufacturing center," said Deputy Rachmat.

"However, this golden opportunity will not last forever because other countries are also rolling out the red carpet, and we must compete with them to attract these players. If we fail, we will only become a market and not a producer. We must not let the millions of jobs in Indonesia's automotive industry be threatened because we are late in industrial transformation," Deputy Rachmat added.

"Failure is not an option. Therefore, we must anticipate the needs of these partners to facilitate their strategic business decisions in the future," he emphasized.

Kaimuddin also outlined the Indonesian government's efforts to attract global EV giants to invest in Indonesia. The government has established relationships with several major players, representing half of global production.

According to a study by the Bloomberg Energy Forum, last year the global EV sales market share reached 14%, surpassing the critical threshold of 10%, which is the tipping point for exponential EV market growth. The tipping point usually indicates significant growth for the future period.

To avoid falling behind in the region, Indonesia has implemented government assistance programs for the purchase of electric motorcycles and value-added tax incentives borne by the government for the purchase of electric cars and buses (BEVs), aiming to increase the affordability of EVs that meet Domestic Component Level (TKDN) requirements.

Fabby Tumiwa, the Executive Director of IESR, added, "To attract investments in electric vehicles, there needs to be a creation of market demand. Currently, the demand for electric vehicles in Indonesia is still small. This is a signal for manufacturing investors that the electric vehicle market has short-term growth prospects."

The increase in EV production and sales is aligned with the shift in consumer interest towards more environmentally friendly products. Additionally, the resale value of EVs, which can save operational costs, is also a determining factor. Therefore, Indonesia is embracing the EV transition.

The government is optimistic about the role of the EV industry in supporting other national interests of Indonesia, such as enhancing energy security, budget efficiency, and emission reduction.

Tenny Kristiana, a researcher at ICCT, emphasized that based on an upcoming ICCT study, EV emissions in Indonesia are significantly lower compared to conventional vehicles.

"Currently, the emissions reduction of EVs compared to conventional vehicles is around 50%," Tenny stated.

Kristiana added that in 2021, EV emissions in China and India were lower than conventional vehicles, ranging from 48% to 68% for China and 30% to 56% for India.

Lucky Lontoh, Associate and Country Coordinator of IISD, also highlighted the potential of EVs in reducing the burden of fuel subsidies in Indonesia.

"Geopolitical tensions affect global fuel prices. The adoption of EVs can support efforts to strengthen Indonesia's energy resilience," Lucky explained.

However, the development of the domestic EV industry still faces two major challenges. First, how Indonesia can increase manufacturing capacity, and second, how Indonesia can boost domestic demand for EVs.

Yulius, the Managing Director and Senior Partner at BCG, stated that many developed and developing countries have already implemented incentive policies related to electric vehicles with the hope of becoming EV producers in their respective countries.

"The question is, will Indonesia be just a consumer, or do we also have the ambition to become a production hub for electric vehicles? I appreciate the Indonesian government for having the desire to become a producer or the hub of EV production bases," Yulius said.

Yulius added that the automotive industry is currently undergoing a "generational opportunity" transformation, which only occurs once every thirty years, where car manufacturers are making a radical shift in the type of automotive fuel.

"Many countries are competing to invite Original Equipment Manufacturers (OEMs) to build industries in their countries because if they are not chosen as the first option, they may have to wait 5-10 years ahead," Yulius added. ***.Hans