Indonesia is planning to position itself as an electric vehicle industry hub and has recently planned a series of incentives to bolster the sector, signed into effect by President Joko “Jokowi” Widodo this month.
The Southeast Asian country is providing lower taxes for manufacturers and buyers of electric cars. The government is also providing benefits to owners of electric vehicles, which includes special parking areas.
Indonesia has been moving toward electric vehicles as a boom in sales of combustion vehicles has contributed to air pollution in the country. The country is the second-largest car producer in southeast Asia and is setting its sights on the electric vehicle industry. Indonesia is aiming for electric cars to make up 20 percent of its total vehicle production by 2025. It anticipates investment from China, Japan, and South Korea.
With these new incentives and regulations, Indonesia will be able to compete with Singapore and Thailand. With the country’s natural resources of nickel and cobalt, Indonesia can strongly position itself in the electric vehicle market.
The country is hoping companies will start EV production in Indonesia in 2022. The sector has already received investment from giants such as SoftBank and Toyota. Hyundai is also expected to invest around $880 million in the country to develop electric vehicles over the next few years.
Incentives are also promised for manufacturers of electric vehicles, according to the regulation signed into effect by the country’s president. Carmakers can get a reduction in import tariffs for unassemble cars. There are also lower import tariffs for machinery and materials for the production of vehicles. Carmakers are also asked to prioritize locally sourced components.
“Carmakers will have to increase the composition of domestic components to 80% by 2030, while motorcycle makers will have to reach that target by 2026,” a government official told Reuters.
Indonesia also plans benefits for electric vehicle owners. These include lower luxury taxes on purchases and lower annual vehicle tax rates. Non-monetary incentives like special parking areas are also planned.
The government is also offering tax holidays for companies producing electric vehicle batteries in Indonesia.
Indonesia Also Wants to Be a Main Player in Lithium Battery Production
With surging demand for lithium batteries for electric vehicles, Indonesia has been a target for battery production due to its large nickel laterite ore reserves.
Indonesia’s Coordinating Maritime Minister Luhut Pandjaitan claimed last year that the country would become the main player in lithium batteries. “We will control the world market,” Pandjaitain added. “We are lucky – we are starting in the third generation of lithium batteries, so it’s cheaper.”
According to Industry Minister Airlangga Hartarto, companies see Indonesia as having “big potential to develop electric-based products due to the availability of raw material.”
Bloomberg reports that Indonesia’s $4 billion lithium-ion battery manufacturing facility, expected to be completed in 2020, will further improve the country’s attractiveness as an investment hub. The facility already has investors from China, Japan, and South Korea.
Tesla has also shown interest in building a lithium battery factory in the country. But the company is not alone. Giants such as LG, Mercedes-Benz, and Volkswagen are also looking to build factories for battery raw materials in Indonesia.
Rahima Sohail is a contributor to Globely News, writing on U.S. politics and the geopolitics of Asia. She was previously a sub-editor and producer at The Express Tribune, a Pakistani English-language daily. She spends most of her time reading and ranting about politics and football.