Indonesia launched a major overhaul of its automotive regulations this week designed to encourage the development of an electric vehicle industry in the country.

President Joko Widodo announced he had signed off a long-awaited presidential decree on electric vehicles which includes a series of investment and consumer incentives to compete with what is already in place in Thailand.

Widodo signed into legislation a plan which finance minister Sri Mulyani Indrawati pre-announced last month which includes taxing vehicles based on fuel consumption and carbon emissions instead of body type and engine size.

This will also eliminate the tax disadvantage incurred by sedans vehicles in this market and provide owners with benefits such as privileged parking.

The government has set a target for electric and hybrid vehicles to account for 25% of domestic sales and production by 2030 and compete with Thailand as an international production hub for these vehicles.

The move would also help reduce the country's dependence on oil imports.

Widodo pointed out the main reason why electric vehicles are up to 40% more expensive to produce than conventional vehicles is the cost of their batteries.

He expects the local abundance of raw materials such as cobalt and manganese will help bring down prices.

The new regulations will also stipulate minimum local content levels of 80% by 2029.

Public transport vehicles, including buses, taxis and ridesharing services, are expected to drive local demand for electric vehicles in the early stages to help the industry develop economies of scale.

Toyota Motor recently said it would invest up to US$2bn in Indonesia for the production of electric and hybrid vehicles while Hyundai Motor is also mulling a significant investment.

Widodo also plans to increase the proportion of crude palm oil in local diesel fuel from the current B20 (20%) to B30 by the end of 2019 and B50 by the end of 2020.