Incentives Needed to Drive the Electric Vehicle Market

Jakarta, May 11,  2023 – Executive Director of the Institute for Essential Services Reform (IESR), Fabby Tumiwa, stated the Government of Indonesia provided electric vehicle incentives as one of the strategies to open or develop the electric vehicle industry itself. However, Fabby stressed that there are better solutions than incentivizing electric vehicles to overcome the congestion problem. This was said by Fabby Tumiwa when he was a guest speaker on the Mining Zone program, CNBC Indonesia TV, on Thursday (11/5/2023).

“We already have a downstream policy; we cannot export nickel ore. For this reason, nickel must be produced in Indonesia, and we already know that nickel is processed in smelters to become batteries. With this policy, several global companies are currently investing in Indonesia, including Korea and China. Well, the next stage is building an electric vehicle. For example, the type of battery is like Nickel-metal hydride (NiMH),” explained Fabby Tumiwa.

Furthermore, Fabby said to attract investment in electric vehicles, it is necessary to create market demand (demand). It is considering that the need for electric cars in Indonesia is still small. According to Fabby, sales of electric vehicles have remained within 25 thousand units since the issuance of Presidential Regulation (Perpes) No 55 of 2019. Reflecting on this, the government needs to set a strategy to grow demand for electric vehicles.

“With the demand, it is hoped that electric vehicle manufacturers can invest in Indonesia. However, it should be remembered that if we want to encourage investment on the upstream side, the incentives will differ. On the other hand, if we build a market from the product, the incentives are also different. Hence, the existing incentives cannot be wrong because we need to look at the context,” mentioned Fabby Tumiwa.

In addition, Fabby stated that in the context of energy use, there is a need to substitute fuel oil imports (BBM). As is known, Indonesia’s oil production continues to decline every year. Under these conditions, said Fabby, if there were no efforts to reduce fuel consumption, more than 60% of fuel needs would be imported. This is a severe problem because it threatens the security of the national energy supply.

“Under such conditions, incentives for electric vehicles are also part of a strategy to reduce growing demand for fuel by shifting vehicle technology. Remembering that electricity can come from anywhere, including renewable energy, “said Fabby Tumiwa.

Not only that, in the context of the energy transition, said Fabby, the automotive industry will sooner or later experience changes. If Indonesia is prosperous in electric vehicles, the production of conventional cars will decrease, which can impact reducing employment opportunities. As market interest in conventional vehicles declines, green jobs will be created.

IESR: Electric Vehicle Incentives Need to Focus on Two-Wheeler Vehicles and Public Transportation Electrification

Jakarta, 20 December 2022 – The government plans to provide incentives for electric vehicles with details of Rp80 million for the purchase of electric cars, Rp40 million for the purchase of hybrid-based electric cars, Rp8 million for the purchase of new electric motorbikes, and Rp5 million for electric motorcycle conversion. The Institute for Essential Services Reform (IESR) views that providing electric vehicle incentives is better focused on purchasing two-wheeler electric vehicles, converting them into two-wheeler electric vehicles and electrifying public transportation.

IESR Executive Director, Fabby Tumiwa, thinks that this time is not proper to provide incentives for buying electric cars. He mentioned several reasons in the Energy Corner: Huge Electric Vehicle Incentives conducted by IESR (19/12), including limited fiscal capacity, as well as the need for a sizable budget for other activities to support a just energy transition, such as developing renewable energy and ensuring the quality of access to electricity in underdeveloped areas. Fabby said that with these considerations, the government should focus more on providing incentives for the purchase of two-wheeler electric vehicles to increase demand for electric vehicles and reach the target of 13 million electric motorbikes in 2030.

“Giving incentives for motorbikes is far more reasonable than cars. We also support the electrification of public transportation, such as electric buses. If this is realized, it will not only reduce fuel consumption but also reduce congestion and reduce emissions,” explained Fabby.

Fabby explained that providing incentives for the purchase of electric motorbikes would benefit the middle to lower-class people who use them not only as a means of transportation but also as earning incomes, especially in urban areas.

Meanwhile, incentives for the procurement of electricity-based buses for small transportation in urban areas will support the creation of low-emission public transportation. IESR Junior Researcher for Electricity Systems and Distributed Energy Resources, Faris Adnan, believes that the Indonesian government can learn from India’s experience in providing incentives for electric vehicles through the Faster Adoption and Manufacturing of Electric Vehicles (FAME) scheme. In this scheme, bus incentives are greater than private cars.

“When we discuss urban mobility, there is an Avoid, Shift, Improve framework. With this framework, in addition to using electric vehicles for private vehicles, the government can build transit-oriented cities and use electric-based public transportation. From existing experience, using only the avoid and shift frameworks can reduce emissions between 40-60%. For this reason, public transportation needs to be subsidized,” said Faris.

Moreover, IESR supports the government if incentives distribution is carried out for the conversion process from conventional motorbikes to electric motorbikes. The conversion process especially needs to be done on vehicles aged 6-7 years with good motor body conditions so that what needs to be replaced is only the engine and battery installation. Assuming the converted motorbikes are past the age of 10 years, it is estimated that there are 6 million motorbikes per year that are ready to be converted.

Based on a survey conducted by IESR, said Faris, the cheapest conversion rate for two-wheeler electric vehicles is Rp10 million, and the most expensive is Rp30 million, with an average range in the range of Rp15 million-Rp23 million. The IESR survey also shows the willingness to pay of Indonesians to convert conventional vehicles into electric motorbikes in the range of Rp5 million-Rp8 million per unit. For this reason, the government must think of additional schemes to make electric motorbike conversions cheaper.

“With incentives, assume we can cut Rp5 million so that the average price of converting electric vehicles from Rp15 million-Rp23 million to Rp10 million-Rp18 million for electric motorbikes without battery replacement system. With battery replacement, the price can be reduced by Rp6 million – Rp8 million. That way, the price of converting an electric motorbike with a battery system can be Rp4 million – Rp10 million, which means it is already under the willingness to pay,” said Faris.***