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Indonesia Pushes Electric Vehicle Transition into World-Class Industry Center

Jakarta – Along with the increasing use of electric vehicles (EVs) in the world, the transition of electric vehicles is key to the survival of the automotive industry in Indonesia.

Deputy for Infrastructure and Transportation Coordination, Rachmat Kaimuddin, said that Indonesia is ready to capture the economic opportunities of the electric vehicle industry in order to become a world-class industrial center.

“With the development of the electric vehicle market in the world, accompanied by the world’s need for more environmentally friendly transportation solutions and Indonesia’s huge market potential and resources, we are currently faced with a golden opportunity to become a global partner of leading EV companies to become a world-class EV manufacturing center,” Rachmat said in a discussion entitled “Policies to Accelerate EV Adoption to Support the Sustainability of the Automotive Industry in the Era of Energy Transition” organized by Menko Marves in Jakarta, Wednesday (31/5/2023).

As is known, Indonesia is currently the largest automotive market in the Southeast Asia region. The automotive industry is also one of the backbones of the Indonesian economy, employing around 1.5 million workers and contributing to 4 percent of GDP. Meanwhile, the export value of Indonesia’s automotive industry will reach Rp70 trillion by 2022.

Present as resource persons in the discussion entitled “Policies to Accelerate EV Adoption to Support the Sustainability of the Automotive Industry in the Era of Energy Transition” were Principal Expert Deputy I of the Presidential Staff Office Hageng Nugroho, Head of the Fiscal Policy Agency of the Ministry of Finance Wahyu Utomo, Head of Sub-Directorate of Land Transportation Equipment Industry, Directorate of Maritime Industry, Transportation Equipment, and Defense Equipment (IMATAP) of the Ministry of Industry, Dodiet Prasetyo, Director of Energy Conservation of the Ministry of Energy and Mineral Resources Gigih Udi Atmo, Secretary General of Electricity of the Ministry of Energy and Mineral Resources Ida Nuryatin Finahari, Director of Road Transportation Facilities, Directorate General of Land Transportation of the Ministry of Transportation, Danto Restyawan.

In addition, IESR Executive Director Fabby Tumiwa, IISD Associate and Country Coordinator in Indonesia Lucky Lontoh, ICCT Researcher Tenny Kristiana, and BCG Managing Director and Senior Partner Yulius were also present as responders.

According to Rachmat, the golden opportunity will not exist forever, because other countries are also spreading the red carpet and we must compete with them to attract these players. If we fail, we will only be a market and not a producer.

“Do not let the industry of millions of jobs from Indonesia’s automotive industry be threatened because we are late in transforming the industry,” he said.

“Failure is not an option. For this reason, we must be able to anticipate the needs of these partners to make it easier for them to make business strategy decisions going forward,” he added.

He also elaborated on the Indonesian government’s efforts to attract giant global EV players to Indonesia. The government has established relationships with several giant players that account for half of global production.

According to a Bloomberg Energy Forum study, last year the world’s EV sales market share reached 14 percent. This exceeds the 10 percent threshold, which is the tipping point for exponential EV market growth. The tipping point usually indicates a large growth spurt for the period ahead.

In order not to be left behind in the region, Indonesia has issued a Government Assistance program for the purchase of electric motorcycles and Government Borne VAT (PPN DTP) incentives for the purchase of electric cars and buses (BEVs) in order to increase the affordability of EVs that meet the Domestic Component Level (TKDN) requirements.

IESR executive director Fabby Tumiwa added, “To attract investment in electric vehicles, it is necessary to create market demand. Currently, the demand for electric vehicles in Indonesia is still small, but it is a signal to manufacturing investors that the electric vehicle market has prospects for growth in the short term.”

The increase in EV production and sales is also in line with the shift in consumer interest towards more environmentally friendly products. In addition, the selling value of EV vehicles, which can save operational costs, is also one of the determining factors. Therefore, Indonesia will embrace the EV transition.

The government is also optimistic about the role of the EV industry in supporting Indonesia’s other national interests such as improving energy security, state budget efficiency, and reducing emissions.

ICCT researcher Tenny Kristiana emphasized that based on an ICCT study that will be launched in the near future, EV emissions in Indonesia are much lower than conventional vehicles.

“Currently, the emission reduction of EV vehicles compared to conventional vehicles is around 50 percent,” said Tenny.

Kristiana added that in 2021, EV emissions in China and India are lower than conventional vehicles, namely by 48 percent to 68 percent for China and between 30 percent to 56 percent for India.

IISD Associate and Country Coordinator Lucky Lontoh also raised the potential of EVs in easing Indonesia’s fuel subsidy burden.

“Geopolitical tensions affect world fuel prices. EV adoption can support efforts to strengthen Indonesia’s energy security,” Lucky explained.

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

BCG Managing Director and Senior Partner Yulius said that currently many developed and developing countries have provided incentive policies related to electric vehicles in the hope of becoming producers of electric vehicles in their countries.

“The question is, Indonesia: do we just become consumers or do we also have the ambition to become a production hub for electric vehicles? I appreciate the Indonesian government that already has the desire to become a producer or hub of its production base,” said Yulius.

Yulius added that the automotive industry is currently undergoing a ‘generational opportunity’ transformation that comes once in thirty years where car manufacturers are making a radical change in the type of automotive fuel.

“Many countries are competing to invite OEMs (Original Equipment Manufacturer) to build industries in their countries, because if they are not chosen as the first, they might wait for the next 5-10 years,” added Yulius.

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