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.

Electric Vehicle Incentive Effectiveness Needs Government Support to Reform Other Policies

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Jakarta, 8 March 2023 – On 6 March 2023, the government established incentives for Battery-Based Electric Motorized Vehicles (KBLBB) in the form of assistance in purchasing KBLBB of IDR 7 million per unit for 200,000 units of new electric motorbikes and IDR 7 million per unit for conversion to electric motorbikes for 50,000 units petrol motorbike. Meanwhile, the exact amount of incentives for electric cars has not been determined, but the government plans to support purchasing 35,900 units of electric cars, and 138 electric buses. The government has also prepared an incentive mechanism that is only intended for manufacturers who have registered the type of electric vehicle that meets the 40% Local Content Requirement (LCR). This incentive is planned to be implemented from 20 March 2023 to 30 December 2023.

The Institute for Essential Services Reform (IESR) welcomes the provision of this incentive to encourage the adoption of electric vehicles and grow the domestic electric vehicle industry to encourage more sustainable economic growth in Indonesia and reduce the demand rate for fuel. However, to encourage more aggressive adoption of electric vehicles and ensure the effectiveness of incentives, some policy reforms are needed, including reducing fuel subsidies and a policy to phase out fuel-fueled vehicles, starting from passenger cars before 2045, and Internal Combustion Engine (ICE) motorcycles. IESR views that although the policy reform is not a populist policy, it needs to be taken by the government with deep consideration.

The use of electric vehicles is also a strategy to achieve the target of reducing greenhouse gas emissions stipulated in the Nationally Determined Contribution (NDC), with the target of adopting 13 million units of two-wheeled and three-wheeled electric vehicles and 2 million units of four-wheeled electric vehicles by 2030.

“Providing this incentive is a good first step to increase demand for electric vehicles. With the 40% LCR requirement, it can encourage investment in the manufacture and supply chain of electric vehicle components. It is hoped that with it, we can achieve economies of scale for electric vehicle production and encourage competition which can have an impact on reducing the price of electric vehicles to boost the adoption of even more electric vehicles,” said Fabby Tumiwa, Executive Director of IESR.

Fabby added that the conversion incentives to electric motors were expected to build the capacity of conversion technicians and workshops, as well as attract business actors to pursue a larger-scale conversion process.

“IESR found that there will be 6 million units of conventional motors per year that can be converted to electric motors by 2030. For this reason, hundreds of certified conversion workshops and skilled technicians are needed. Supply chain support for batteries, electric motors and other components is necessary so that conversion costs are more affordable for the public,” explained Fabby.

Moreover, to the LCR requirements for electric vehicle manufacturers, IESR suggested that the government could add electric vehicle performance requirements in providing incentives next year.

“The government can add additional requirements related to electric vehicle performance to encourage increased reliability of electric vehicles, as well as, the research and development ecosystem of the electric vehicle industry in Indonesia. These standards include vehicle mileage, minimum battery capacity, and conversion efficiency,” said Faris. Adnan, IESR Researcher.

Furthermore, Faris added that another interesting thing about this electric vehicle incentive is the priority of giving incentives for Micro, Small, and Medium Enterprises (MSMEs), especially recipients of Small Business Credit (KUR) and Micro Business Productive Assistance (BPUM), including 450-900VA electricity customers. However, according to him, motorists who provide online transportation or logistics service providers also need to be set as a priority.

“Online motorbike transportation or logistics drivers need to be prioritized in providing this assistance because they have long distances to travel per day so that the economic benefits for users and the government will be greater. The amount of assistance offered also needs to be pushed higher than the current amount, which is above Rp. 7 million,” explained Faris.

He also highlighted the installed power capacity of priority prospective buyers. The electric motorbike battery charger itself requires up to 400W of power. This means that to charge the electric vehicle battery, there will be a lot of electronic equipment that cannot be used at the same time.

“This can be anticipated by providing additional power increases when priority buyers buy electric vehicles that receive government assistance,” said Faris.

IESR views the adoption of electric vehicles as a strategy to reach zero emissions if the charging source comes from renewable energy. Based on the IESR analysis in the 2023 Indonesia Electric Vehicle Outlook (IEVO) report, the emissions emitted by electric motorbikes and electric cars are 18% and 25% lower than by petrol motorbikes and cars. However, if the development of renewable energy only refers to the 2021-2030 PLN Business Plan, then the reduction in emissions from electric motorbikes and electric cars is projected to be insignificant, only around 6% and 8% in 2030.

“With several government commitments and support for energy transitions, such as the Just Energy Transition Partnership (JETP), this momentum can also be used to accelerate the transition to the electricity system by developing renewable energy and stopping coal-fired power plants earlier. The result is a lower network emission factor so that the benefits of electric vehicles for decarbonization are maximized,” explained Deon Arinaldo, Manager of the Energy Transformation Program, IESR.

Deon added that the IESR study even showed that with a combination of transportation electrification and accelerated development of renewable energy, Indonesia’s renewable energy mix could even exceed 34% of the RE mix target announced at JETP. ***

IEVO 2023: Reviewing Indonesia’s Electric Vehicle Ecosystem

Jakarta, 21 February 2023 – The transportation sector contributes almost a quarter of the energy sector’s emissions in 2021. Most of the transportation sector’s emissions come from fuel, of which 52% comes from imported fuel. Given the Indonesian government’s target of achieving net-zero emission status by 2060 or sooner, it is important to decarbonize the transportation sector.

Adapting the ASI approach, i.e: Avoid – Shift – Improve, the Institute for Essential Services Reform (IESR) is looking at one of the decarbonization strategies for the transportation sector, namely electric vehicles. Explained by Fabby Tumiwa, Executive Director of IESR during the launch report of the Indonesia Electric Vehicle Outlook 2023, that the number of electric vehicles in Indonesia has continued to increase in the last 5 years, but the market share is still low.

“However, the electric vehicle market share is only 1% of total vehicle sales in Indonesia per year. Several factors still make potential buyers reluctant, such as the high initial price, and supporting ecosystems such as charging stations which are still limited in number,” he explained.

As one of the supporting ecosystems for electric vehicles, charging stations, both Public Charging Stations (SPKLU) and Public Battery Swapping Stations (SPBKLU) have an important role in accelerating the adoption of electric vehicles. Psychologically, the number of charging stations influences the decision of potential EV consumers.

“In numbers, the number of SPKLUs actually continues to grow. But currently it is still concentrated in Java and Bali. Only 12% of SPKLU are located outside Java – Bali,” explained Faris Adnan, IESR Power System researcher.

In addition to the number of charging stations, Faris stated a few more things, including the type of charging system, which currently most of the SPKLU is slow charging type one. It is necessary to look for a comprehensive location to determine the type of charging used. Office areas and shopping centers where people will stay around can use medium or slow charging. However, for places such as public charging on roads, it must use the fast-charging type.

Standardization of charging ports is also one of the discussions in this report. Faris explained that currently there are 3 types of charging ports for four-wheeled electric vehicles. This is one of the obstacles for prospective SPKLU investors because the obligation to provide these three types of ports has an impact on the investment capital that must be provided.

“If the government manages to standardize port charging, the investment value for SPKLU will be more attractive,” explained Faris.

Ilham Fahreza Surya, IESR environmental policy researcher, who is also the author of IEVO 2023 added that the government’s discourse to provide price incentives for electric vehicles should focus specifically on public transportation, logistics vehicles, and two-wheeled vehicles.

“We recommend that the government give priority to two-wheeled vehicles to get incentives to cut prices, and also combine this incentive plan with TKDN rules. So those who are entitled to receive incentives are motorbikes that come from manufacturers who have complied with TKDN regulations,” explained Ilham.

From an industrial standpoint, electric vehicle assembly is the most advanced industry compared to the other supporting electric vehicles component industry. One of the highlights is Indonesia’s plan to downstream nickel into batteries.

Pintoko Aji, IESR’s renewable energy researcher, sees that the Indonesian government’s plan can be utilized by the electric vehicle industry that intends to operate a factory in Indonesia.

“With the existence of a domestic battery industry, domestic electric vehicle manufacturers can use domestically produced batteries in their vehicles as a strategy for fulfilling TKDN components,” explained Pintoko.

In a panel discussion following the presentation of the Indonesia Energy Transition Outlook 2023 report, Wildan Fujiansah, Coordinator of Electricity Technical Feasibility, the Ministry of Energy and Mineral Resources explained that, to answer several issues in the provision of electric vehicle ecosystems in Indonesia, they issued a MEMR ministerial regulation No.1/2023 which regulates one of them regarding standardization charging port, power and battery size.

“Ministerial Regulation No. 1/2023 also regulates SPKLU investment, which previously had to provide 3 charging ports, now only 1 is enough. One of the objectives of this regulation is indeed to boost SPKLU investment,” explained Wildan.

Riza, Senior Researcher for Electric Vehicle Charging Infrastructure, BRIN stated that from a technical point of view the electric vehicle charging process is not just a device with a certain technology.

“In its development, the charging process must match the battery features while the EV continues to develop, “said Riza.

From the user side, two-wheeled electric vehicles are currently widely used by ride hailing companies for their driver partners. However, to increase the confidence of potential users to switch to using electric vehicles, the number of supporting infrastructure, especially battery swapping stations, needs to be increased.

Rivana Mezaya, Director of Digital and Sustainability Grab Indonesia emphasized that from an industrial point of view, electric vehicle users can explore various efforts to own electric vehicle units, but support is needed regarding the availability of supporting infrastructure such as battery swapping stations.

“This collaboration with various parties will encourage the general public to be able to take part in the energy transition in Indonesia,” said Meza.

In addition to collaboration to create an ecosystem that supports electric vehicles from upstream to downstream, dissemination of comprehensive, easily accessible and discoverable information is very important to encourage changes in people’s behavior. This was said by Indira Darmoyono, Chairperson of the Environmental and Energy Transportation Forum, Indonesian Transportation Society.

“Good practices in using electric vehicles and important information such as where conversion workshops are certified, conversion costs, incentives in various forms must be widely publicized so that people have sufficient information and are motivated to switch to electric vehicles,” concluded Indira.

The Indonesia Electric Vehicle Outlook report is one of the main IESR reports, and can be read through 

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.***