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.

Tracking the Advancements of Indonesia’s Electric Vehicle Battery Industry

Over the present decade, the popularity of electric vehicles (EVs) has witnessed a significant increase with year-over-year sales showing exponential growth. According to reports from Bloomberg New Energy Finance (BNEF), there are already almost 20 million EVs on the road until the end of 2021. To enhance energy efficiency, ensure tailpipe emission reduction, and decrease reliance on oil fuels, EVs have become an attractive choice for both stakeholders and the general public. Taking into account the prevailing trend and several additional benefits, Indonesia, being the largest nickel reserves country, through President Regulation 55/2019 regarding the BEV acceleration program, has taken proactive measures to participate in the global EV industry, particularly in the battery sector. Following this regulation, the Ministry of Industry was established outlining the industry roadmap and local content requirements (LCR) through Ministerial Regulation 20/2020.

As of 2023, the weighting of the Local Content Requirement (LCR) in the Indonesian electric vehicle (EV) industry has adjusted. The assessment of the assembly process, previously at 20%, has been reduced to 12%, with the remaining 8% being reallocated to the calculation of the main components, including the battery (35%), electric motor (12%), and chassis (11%). The importance of LCR in Indonesia is relevant in the context of supplying for government procurement or projects. In support of the growth of the domestic EV industry and attracting investment, the Indonesian government has implemented various initiatives, including the President Instruction 7/2022 for public procurement and subsidies plan for the purchase of LCR-compliant electric vehicles.

The weight of batteries in electric vehicle (EV) industries highlights the importance of utilizing domestically produced batteries for improving the overall LCR. The current state of the battery industry, however, poses challenges for mass production. The Institute for Essential Services Reform (IESR) team sought to understand the gap in technological capabilities within the domestic battery industry. To achieve this objective, the team conducted exclusive interviews across the upstream, midstream, and downstream sectors of the industry. The purpose of these interviews was to evaluate the industry’s preparedness in meeting both government targets and the demands of the EV market. The comprehensive assessment aimed to gain a thorough understanding of the domestic battery industry.

Battery EV production flow

Upstream sector industries

The upstream sector in Indonesia’s EV industry is rapidly growing, ready to meet market demands. The government has reinforced this growth with MEMR Regulation 11/2019, which governs mineral and coal mining and bans nickel ore exports. Despite the controversy, the regulation has led to the construction of two HPAL nickel refineries and 5 more are in the works. According to the Indonesia Nickel Miners Association, there is yearly demand for 50.57 million tons of saprolite and 1.2 million tons of limonite ore for the HPAL plants, expected to produce nearly 1 million MHP/MSP and 316,000 tons of derivative products including 140,000 tons of Cr concentrate, 136,000 tons of Nickel Sulfate, and 19.5 tons of Cobalt Sulfate. One developer has even introduced its refining technology, the Step Temperature Acid Leaching (STAL) process, designed to refine limonite ore with a nickel content of less than 1.6%, yielding MHP as the final product at its prototype plant.

Midstream sector industries

The lithium-based battery sector has seen slow growth due to high investment needs and limited experience. Aside from three major investment plans for battery production (IBC-LG, IBC-CBL, and Indika-Foxconn) that are underway, IESR has gathered information on existing and growing companies. These companies have production capacity for battery cells, ranging from 30 to 1 thousand cells per day. An interesting development is a start-up from Universitas Sebelas Maret that has a partnership with another start-up from the same university for active material and precursor production.

To align with NCM or NCA nickel-based cathodes, the upstream sector’s battery precursor production process needs to be continued domestically. However, local battery companies use LFP for their business due to safety and long life-cycle considerations, even though it has lower energy density compared to nickel-based options. As a result, class 1 nickel production in Indonesia’s upstream sector is not yet sufficient to meet the needs of the cathode or battery cell industry within the country.

Downstream sector

As one of the world’s largest producers of motorcycles, Indonesia has no major obstacles in assembling EVs. The frame or chassis is the most established component to be produced domestically. Meanwhile, some companies have produced electric motors (powertrains) and supplied E2W production for state-owned enterprises.

However, the recycling or reuse of battery cell waste for second-life batteries is yet to be fully developed. But, researchers at Universitas Gadjah Mada have taken the initiative by starting the development at a laboratory scale. Despite limited EV usage in the country, this sector is expected to be promising due to its potential to extract rare materials like lithium and easy access to metals required for battery production.

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