IEVO 2023: Building Indonesia’s Electric Vehicle Ecosystem

Jakarta, 21 February 2023 – Decarbonization of the transportation sector is a crucial strategy in climate change mitigation to prevent the earth’s temperature from rising beyond 1.5 degrees Celsius. In Indonesia, besides the use of biofuels, vehicle electrification can cut 23% of greenhouse gas (GHG) emissions from the transportation sector.

The Institute for Essential Services Reform (IESR) views the development of an electric vehicle ecosystem as an absolute to increase public interest in adopting electric vehicles, accelerate infrastructure distribution and develop the domestic electric vehicle industry.

The IESR in the 2023 Indonesia Electric Vehicle Outlook (IEVO) report notes that dependence on imported fuel has triggered inflation at the end of 2022 due to increasing subsidized fuel prices. Fuel consumption increased by an average of 1.2 million kiloliters per year between 2015 and 2020.

“The increase of fuel imports has eroded foreign exchange, weakened the exchange rate and forced the government to adjust fuel prices, which has an impact on inflation. As fuel price adjustments are politically unpopular and have an impact on people’s purchasing power, the government usually makes this a last alternative to cover the difference between the selling price and the cost of procuring fuel. Subsidies provided by the government deteriorate the fiscal capacity of the state budget. These could have been avoided if fuel imports were cut drastically by increasing the use of electric vehicles and substituting Internal Combustion Engine (ICE) vehicles,” said IESR Executive Director, Fabby Tumiwa.

Compared to ICE vehicles, electric vehicles are better at reducing emissions and having lower operating costs. IESR analysis shows that electric vehicles emit 7% less GHG emissions, and their operating cost per km is 14% lower than ICE vehicles. However, due to the limited availability of electric vehicle models, minimal infrastructure, and high initial investment, people are reluctant to switch to electric vehicles. 

“The government needs to look at the supply aspect of the Battery-Based Electric Motorized Vehicle industry and not just the demand. The tax deduction incentive for electric cars and IDR7 million for electric motorbikes is suitable. However, the eligibility of any car/motorcycle brand as the recipient of the incentives must be considered. The provision of this incentive must be linked to the development of the Local Content Requirements (LCR). Only brands with certain LCR may receive this incentive,” said Ilham R F Surya, Environmental Policy Researcher, IESR, who is also one of the authors of IEVO 2023

Furthermore, Ilham also said that electric two-wheelers (E2W) vehicle conversion could be an alternative to electrification at a lower price. Moreover, E2W is also a means of rejuvenating older motorbikes.

The government’s efforts to meet the GHG emission reduction target in the Nationally Determined Contribution (NDC) through a total of 15 million electric vehicles in 2030 can be seen from the availability of fiscal and non-fiscal policies. However, its fiscal policy is still focused on the demand side. Opportunities for the adoption of massive logistics ride-hailing drivers are expected to trigger the development of the electric vehicle industry in Indonesia.

“Currently, the electric vehicle industry from upstream to midstream has not been fully integrated. Some midstream projects, such as the production of new batteries, will run for at least 2025/2026. The government’s focus should be directed to accelerating the progress of the midstream project and convincing investors to carry out the many investment commitments that have been made,” said Pintoko Aji, co-author of IEVO 2023 and Renewable Energy Researcher, IESR.

For electric vehicle infrastructure, IESR assesses that although the installation has increased by 200% compared to 2021, the locations for Electric Vehicle Charging Station have not been spread evenly. 88% of Electric Vehicle Charging stations are still concentrated in Jakarta and Bali. Furthermore, the utilization of the Battery Swapping Station is still not standardized and only applies to certain brands.

“The government needs to facilitate Electric Vehicle Charging Station investment, one of which is changing the obligation to install three different types of ports in each Electric Vehicle Charging Station unit listed in MEMR Regulation No. 13/2020. The obligation to have three ports causes investment costs to swell to Rp 750 million-1.5 billion per Electric Vehicle Charging Station. Even though not all locations require three types of ports at once. If there is no such obligation, then with the same investment value, the number of Electric Vehicle Charging Stations built can be 3-4 times more,” Ilham added.

Ilham added that standardization of Battery Swapping Stations can be started from an electric motor with a battery capacity of 1.2 kWh or 1.44 kWh which is currently 79% of electric motors on the market, so it is not too difficult for manufacturing. Furthermore, the government also needs to standardize the shape and size of the battery to the electrical configuration in it.

Regarding the electrification of maritime and aviation transportation, Pintoko explained that the use of batteries in ships and aircraft has a challenge in the energy density of batteries, which makes them bigger and heavier, thereby reducing the cargo space of ships and aircraft payloads. This makes the electrification of maritime and aviation practical for a small scale with short distances.

IEVO 2023 recommends that the government strengthen upstream and midstream industry policies and regulations to reduce the price of electric vehicles, make rules to anticipate battery waste, increase interest from financial institutions for financing electric vehicles, and promote the use of electric vehicles.