Jakarta, December 19, 2025 – Coordinating Minister for Economic Affairs Airlangga Hartarto stated that electric car incentives will not be extended in 2026. The government plans to divert the incentive budget to support the national car program. The incentives that will not be extended include the import duty exemption for electric vehicles in the form of completely built-up (CBU) cars, from the normal rate of 50 percent to zero percent.
The Institute for Essential Services Reform (IESR) assesses that the end of EV incentives will result in a hike in electric car prices due to the loss of the 10% VAT discount and CBU import incentives. This could suppress electric vehicle (EV) sales and further hamper the development of supporting industries, including batteries and components. Furthermore, this move has the potential to slow down higher EV adoption, which is beneficial for lowering the rate of fuel demand and oil imports.
IESR views that the momentum of EV adoption needs to be maintained so it can drive exponential demand that creates supporting industries like batteries. The realization of integrated battery industries from upstream to downstream can create a potential accumulation of economic benefits of at least Rp544 trillion per year until 2060, and this figure still has the potential to increase as it does not yet account for the entire EV ecosystem.
IESR understands that EV incentives were designed to be temporary to attract manufacturing investment. However, this policy is still worthy of extension if proven to provide greater benefits, such as driving EV ecosystem investment and increasing the competitiveness and profitability of the EV industry in Indonesia.
Although there are currently 8 electric car manufacturers producing in Indonesia, this number is still not enough to create healthy market competition. Moreover, the government has a target to increase the TKDN (Local Content Requirement) to reach 60 percent in 2027 and 80 percent in 2030, which can only happen if there is a larger population of EV manufacturers.
IESR studies show that incentives play a significant role in driving EV adoption. Until October 2025, electric car sales recorded a record 68,827 units and sales were dominated by electric cars that received incentives. Conversely, the end of electric motorcycle incentives in 2025 caused sales to plummet by 80 percent in the first quarter compared to the same period the previous year.
Chief Executive Officer (CEO) of IESR, Fabby Tumiwa mentioned that the use of electric vehicles (EV) supports the vision of resilience for energy independence proclaimed by President Prabowo. Based on IESR analysis, using an electric car for 20,000 km can reduce fuel imports by up to 1,320 liters and save users about Rp6.89 million per year. With the number of EVs on the road as of October 2025 reaching around 140,000 units, the potential savings reach 185,000 kiloliters of fuel and compensation costs of around Rp315 billion in the current year, while also contributing to lower emissions.
“Vehicle electrification is the backbone of emission reduction in the transportation sector. Its contribution can reach 45–50 percent of the total emission reduction in the transportation sector. The benefits will be even higher if combined with a more comprehensive strategy through the Avoid–Shift–Improve approach, which can yield emission reductions of up to 76 percent in the long term and around 18 percent by 2030,” said Fabby.
According to Fabby, accelerating vehicle electrification requires the implementation of a consistent strategy through a mix of policies, regulations, and incentives that strengthen each other. Rationalizing fuel subsidies is an urgent step because they have been weakening the competitiveness of electric vehicles.
Meanwhile, IESR Energy Demand Management Research Coordinator, Faris Adnan Padhilah, stated that the interest of national banks to finance the EV industry and EV ownership credit continues to increase. This opportunity needs to be utilized by the government to strengthen green financing for sustainable mobility. Additionally, the implementation of supply-side policies, such as EV mandates, economic instruments including carbon taxes on fuel, and no less importantly, other non-fiscal incentives such as odd-even exemptions, will increase the attractiveness of EVs and drive consumer interest.
Hence, IESR also encourages the government to re-evaluate the plan to stop EV incentives, considering that a number of manufacturers are still in the factory construction stage and there is a need to attract investment from other brands so they do not run to our competitor countries in Southeast Asia. In the short term, IESR recommends four main steps: (1) extending incentives for one year to give the industry time to complete production facilities, maintain sales momentum, and prevent a policy gap that harms the market and investment climate; (2) accelerating vehicle rejuvenation through the establishment of vehicle age limits; (3) establishing a specific incentive mechanism for two-wheeled EVs; and (4) conducting investment promotion and attracting EV manufacturers to build factories in Indonesia.