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The Government of Indonesia has committed to develop electric car

<Quantitative target of national automotive production 2020 - 2035>

Source: The Ministry of Industry


The Indonesian government has set the automotive industry as one of the priorities in Making Indonesia 4.0. The government's vision in developing the automotive industry is to become a global player in the automotive industry. Hence, the government plans to develop a strong, competitive, and sustainable automotive industry. There are at least four target that want to be achieved towards 2030 namely self-sufficient local production of raw materials and key component, optimize sectoral productivity along the value chain, leading automotive export hub and regional leader in electric vehicle production.


In the national automotive industry roadmap, the government sets the Low Carbon Emission Vehicle (LCEV) portion including electric vehicles to reach 25% or 750,000 units of the total production of 3 million cars in 2035. In addition, the government also targets 30% of the total motorcycle production to be electric vehicles by 2030. This means that the total production of electric motorbikes is targeted to reach 2.4 million units. This national automotive industry roadmap is in line with the government's commitment to reduce carbon dioxide emissions by 29% - 41% by 2020.


Apart from producing environmentally friendly vehicles, the government is also targeting to boost exports of cars and motorbikes. In 2025, car exports are targeted at 14.8% of total production. Meanwhile, motorcycle exports are expected to reach 12.5% of the total production in the same year. Ten years later, the government targets car exports to increase by 383.9% and motorbike exports to grow by 59.1%.


To obtain the target, the Government of Indonesia is actively attracting investment related to electric vehicle market. It is not only encouraging the automotive manufacturer to produce in the domestic, but also the component to establish product in Indonesia such as battery. The South Korea investor, PT Hyundai Motor Manufacturing Indonesia has committed to invest in electric vehicle production with total budget approximately USD 1.55 billion. According to the statement of the Ministry of Industry, the Hyundai production facility will have production capacity by 250,000 units per year. Yet, in the first stage, Hyundai will produce around 150,000 units per year. It is being targeted to be operated in 2021.


Other South Korea company, LG Energy Solution Ltd and the Head of the Indonesian Investment Coordinating Board signed a Memorandum of Understanding (MoU) on December 18, 2020. The MoU contains cooperation on giant and strategic investment projects in the electric vehicle battery cell industry integrated with mining, smelter, refining and precursor and cathode industries with an investment plan value of USD 9.8 billion. The plan is for LG Chem to collaborate with the MIND ID consortium consisting of PT Indonesia Asahan Aluminum (Inalum), PT Aneka Tambang Tbk. (ANTM), PT Pertamina, and PT Perusahaan Listrik Negara.


A Chinese electric vehicle battery manufacturer, Contemporary Amperex Technology Co ,. Ltd (CATL) plans to invest in Indonesia worth USD 5.1 billion. This was disclosed by the Investment Coordinating Board (BKPM) in mid-November 2020. It is planned that the company will begin factory construction in 2021. Apart from CATL, the government is also lobbying other electric battery manufacturers such as LG Chem from South Korea.


Previously, PT QMB New Energy Materials has built an electric battery raw material factory worth USD 700 million in Morowali, South Sulawesi. The first ground-breaking was conducted in January 2019 and target to be finished at this year. PT QMB New Energy Materials is a collaboration between Chinese, Indonesian and Japanese companies consisting of GEM Co., Ltd., Brunp Recycling Technology Co., Ltd., Tsingshan, PT Indonesia Morowali Industrial Park and Hanwa. The plant has a construction capacity of 50,000 tons of nickel and 4,000 tons of cobalt, which will produce 50,000 tons of nickel hydroxide intermediate, 150,000 tons of nickel sulfate crystal batteries, 20,000 tons of cobalt sulfate crystal batteries, and 30,000 tons of manganese sulfate crystal batteries.


Despite of aggressively attracting more investor, the Government of Indonesia provide the legal umbrella for the development electric vehicle by the Presidential Regulation Number 55 Year 2019. Based on the regulation, the electrical vehicle companies have been divided into two categories namely electric vehicle industrial companies and electric vehicle component companies. Both of the categories have the same requirement in order to establish the business in Indonesia such as mandatory establishment of local electric vehicle manufacturing facilities, must established based on Indonesian law, must operate within Indonesian territories, and secure the license or Izin Usaha Industri (IUI) for the assembly or production of electric vehicle as well as for supporting components. Despite of these conditions, the regulation is also setting the technical requirements for electrical vehicles. For example: the electrical vehicle must register to the authority to get the electric vehicle identification numbers. To meet the qualification, the electric vehicle must undergo several tests such as type test and periodical test.


The important points that shall be considered by the company is the requirement of the local content or Tingkat Kandungan Dalam Negeri (TKDN). Both Vehicle Companies and Component Companies are required to comply with the following TKDN criteria. As for the type 1 vehicle (two wheeled or three wheeled) requires TKDN by 40% minimum for the period 2019 - 2023; 60% for the period 2024 - 2025; and 80% for the periods 2026 onwards. Meanwhile, for the type 1 vehicle (four or more wheeled) must follow TKDN 35% for the period 2019 - 2021; 40% for the period 2022 - 2023; 60% for the period 2024 - 2029; and 80% for the period 2030 onwards.


To develop the electrical vehicle, both central and regional development are allowed to offer various incentives for example import duty incentives, luxury tax incentives and incentives for charging station. Aside of fiscal incentives, the government may grant the non-fiscal incentives such as exemptions from road-usage limitation, transfer of production rights for electrical vehicle technologies for which the relevant patents are held by the government; and security for industrial companies which have become objects of vital national importance.


Electric-Vehicle companies are permitted to import certain products, yet it is required that they meet the relevant import prerequisites, as addressed in the following table.

Nevertheless, plans to develop electric vehicle will face bumpy road. According to Chairman I of Indonesia Automotive Association, Jongkie Sugiarto said that the price of electric vehicle. Even though the government has set the minimum quantity for electric cars, the selling price is still more than IDR 500 million at the lowest price level. In fact, it could cost more. Thus, electric car buyers are limited to the upper middle class. The price of electric cars can be reduced if the government provides price subsidies. The construction of an electric battery factory is also expected to reduce the price of electric cars in the future. Therefore, it needs more subsidy from the government to lower the price and attract more consumer to buy electric car.


"This is because the battery component is the most expensive, which is around 40% of the price of a car," said Jongkie.


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