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September 29, 2020

Indonesia struggles to keep EV strategy on track

Indonesia is struggling to keep its ambition of becoming a regional electric vehicle (EV) manufacturing hub on track. For countries throughout the ASEAN region, the global COVID-19 pandemic has had a significant impact on government budgets and fiscal spending priorities, while consumer spending continues to fall.

By bcusack

Indonesia is struggling to keep its ambition of becoming a regional electric vehicle (EV) manufacturing hub on track. For countries throughout the ASEAN region, the global COVID-19 pandemic has had a significant impact on government budgets and fiscal spending priorities, while consumer spending continues to fall.

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Southeast Asia's three largest automotive markets, namely Indonesia, Thailand and Malaysia, are all keen to be part of the increasingly globalised EV revolution and are competing head-on to attract inward investment in this sector. However, the region's economies are in deep recession and local demand for vehicles has plunged this year. Moreover, automakers around the world continue to announce cutbacks and are reviewing investment priorities.

Also, other regions such as Europe, China and East Asia, offer much better growth opportunities at present, with governments offering generous electric vehicle sales incentives and investing heavily in recharging infrastructure.

A year after Indonesian President Joko Widodo signed off on a long-awaited presidential regulation on electric vehicles, and with a vehicle tax based on fuel consumption and carbon emissions rather than vehicle body type and engine size, the government has renewed its attempts to attract investment in this sector.

Before the COVID-19 pandemic, the Indonesian government set out an ambitious target of 20% of vehicle production to comprise electric and hybrid vehicles by 2025, including 20% of the targeted one million vehicle exports, rising to over 25% by 2030.

Before the COVID-19 pandemic, the Indonesian government set out an ambitious target of 20% of vehicle production to comprise electric and hybrid vehicles by 2025, including 20% of the targeted one million vehicle exports, rising to over 25% by 2030. Initial demand was expected to come from Jakarta-based companies such as taxi operators, local delivery fleets and bus companies.

The Indonesian government has reportedly held talks with potential Chinese and South Korean investors in recent months. Shortly after a free trade agreement was signed between Indonesia and South Korea last year, Hyundai Motor Group confirmed it would build a new vehicle assembly plant in the country – with the first phase set to be completed towards the end of 2021.

The South Korean automaker subsequently stated that it was also considering producing electric vehicles at the facility, although few details have emerged since then – particularly with regard to timing, potential volumes and models. Given current market conditions this is not surprising.

Toyota Motor, the leading automotive brand in this market, confirmed it will support Indonesia's EV policy by allocating one of its local production lines for this purpose. It said it would initially focus on hybrid vehicles, reflecting mainly a lack of EV recharging infrastructure in the country. The company's hybrid vehicle sales have been minimal here so far, however, despite the recent addition of the Corolla Cross Hybrid to its range which it imports from Thailand.

The government sees Indonesia's abundance of natural resources such as cobalt, zinc and manganese – raw materials for EV batteries – as a key strength in attracting EV sector investment.

The government sees Indonesia's abundance of natural resources such as cobalt, zinc and manganese – raw materials for EV batteries – as a key strength in attracting EV sector investment. This also fits in with the national policy of encouraging the development of downstream processing industries and is behind the recent ban on exports of key unprocessed materials. With the new EV regulations also stipulating minimum local content levels of 80% by 2029, local battery production will become essential.

LG Chem, the world's largest EV battery manufacturer, has suggested it would consider investing in an electric vehicle (EV) battery plant alongside its new Hyundai facility should the South Korean automaker decide to go ahead with EV production in Indonesia. But this remains unconfirmed at this stage.

Domestic demand potential is also key to attracting manufacturing investment in this sector and this is clearly lacking in Indonesia at present, despite the government's ambitious targets. Indonesia is not alone in this, however, with EV sales across southeast Asia also negligible at present. Thailand has the largest EV market in the region with a reported 1,570 sales in 2019.

Thailand also has the largest market for hybrid vehicles in the region, with sales rising by 51% to a more respectable 30,676 units last year according to data released by its Board of Investment. The Thai government estimates that global automakers, including Toyota, have so far pledged to establish an annual production capacity of 450,000 hybrid vehicles, 93,000 electric vehicles and 188,000 battery packs in the country.

So far there are no public EV recharging facilities available in Indonesia, while in Thailand local energy company Energy Absolute has been building a recharging network over the last year in collaboration with national retail chains such as Seven-Eleven and Robinsons, Caltex petrol stations and Bridgestone service outlets. Last month, Hyundai Motor Group's logistics company Hyundai Glovis said it will ship a small fleet of Hyundai battery-powered trucks to Thailand in the fourth quarter of the year for local deliveries to Seven-Eleven's network of 12,000 convenience stores across the country.

Indonesia clearly looks to be slipping behind Thailand in its efforts to establish electric and hybrid vehicle manufacturing hub and is also struggling to stay on track to achieve its sales targets for these vehicles. The cost of hybrid and electric vehicles remains prohibitively high here and much more in the way of sales incentives is needed to generate significant private demand. State-owned electricity firm PLN in September also suggested that at least 31,000 charging stations would be needed nationwide by 2030 if the government is to meet its stated targets.

In August local energy company PT Sumber Energi Sukses Makmur said it has agreed to partner with Today Sunshine New Energy Vehicle Industry Company Ltd, a Chinese manufacturer of small electric vehicles based in Zhejiang, to build a plant on the duty-free island of Batamin Sumatra for the assembly of up to 10,000 five-seater EVs per year. These are most likely to be used as local public transport vehicles rather than by private consumers.

So far, Indonesia's taxi operator Bluebird Group looks to be the largest user of electric vehicles, reportedly with a fleet of 25 BYD electric vehicles in its fleet and an additional four Tesla Model X sedans used in its upmarket Silverbird service, but it also has its own recharging facilities.

Free Report
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What does the future hold for the US electric vehicles market?

The US Electric Vehicles (EV) market has established itself as one to watch. Despite China maintaining the number one spot, the US holds significant standing as one of the major EV markets, with GlobalData’s whitepaper identifying a strong growth trajectory within the forecast period. This report further analyzes the trends, market drivers, and government incentives set to influence and facilitate the market.   This report also looks beyond the US and touches on environmental concerns set to drive the EV market worldwide.   Want to find out more? This report demonstrates GlobalData Explorer’s sector analysis capabilities, showing how you can:  
  • Get historical and forecast market sizing data, with country specific insight for 22+ of the world’s largest industries
  • Track sector dealmaking activity, to view aggregate volumes, specific deals and top investors for all major deal types in M&A, Capital Raising, and Partnerships
  • Analyze news from GlobalData Explorer’s News Database – enable screening and alerts by industry, company, geography and news sentiment for filtered insight
  • Identify and track the key disruptive trends that are keeping the top digital thought leaders talking through social media analytics
  Consult this report now to find out how you and your company can benefit from our Explorer platform.
by GlobalData
Enter your details here to receive your free Report.

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