Indonesia is surging ahead with its electric vehicle program by opening the sector up to foreign investment. Will the new decision bring an electric revolution to the nation’s roads?
Indonesia’s Ministry of Industry, Mr. Airlangga Hartarto, announced that the government has decided to open up its doors to investment in the manufacturing of electric vehicles. The decision was designed to boost green energy utilisation across the country and reduce reliance on imports of fossil fuels.
The government has also recently strengthened its green vehicles initiatives by taking advantage of the abundant nickel and cobalt reserves in Morowali, Sulawesi. Nickel and cobalt are key materials for making the lithium-ion batteries used in electric vehicle production.
Several big names such as Volkswagen and Hyundai are keen to get in the project. Officials from Hyundai, according to Hartarto, are coming to Indonesia at the end of January to discuss the matter.
Mr. Luhut Pandjaitan, the Maritime Affairs Coordinating Minister, explained that the country has planned to start with the introduction of electric motorcycles, then extend the initiative to public buses, and eventually private cars. According to President Joko Widodo, Wijaya manufacturing company is planning to produce 60,000 electric-powered motorcycles in 2019.
Indonesia, the largest economy in South East Asia, has annual car sales of approximately one million units. Mr. Airlangga outlined Indonesia’s ambition to have electric vehicles account for 20% of the nation’s traffic by 2025. That is about 400,000 cars and two million motorcycles.
However, there are contrasting opinions in the Indonesian government over how to implement the transition to green vehicles. The government is split on whether to adopt fully-electric vehicles from the start or begin with hybrid vehicles to ease the transition.
Zakky Gamal Yasin, the managing director of Len Industry, believes that the country should shift directly to fully electric vehicles. He said, “we are capable of developing electric vehicles, and if we don’t, we will get left behind.”
Local as well as foreign investors have jumped on the bandwagon
On Friday, January 11th, the Ministry of Industry and the Maritime Affairs Coordinating Minister officially set the first stone to start construction on a new lithium battery plant in Morowali Industrial Park (IMIP), Central Sulawesi. The factory symbolises the first step towards achieving Indonesia’s ambitious electric vehicle targets.
The project is a cooperation between several local and international companies. China’s GEM (a battery recycling company), Tsingshan Group, CATL (the largest battery company in China), Japan’s Hanwa, and Indonesian investors from the Morowali Industrial Park (IMIP) have partnered to build the new US$700 million
GEM will have the largest stake in the project, owning 36%, Hong Kong based Tsingshan group will have 21% of the project, CATL 25%, Indonesia’s IMIP will take 10% and Japan’s Hanwa 8%.
While the lion’s share of the profits will go to foreign companies, the 120-hectare plant will bring plenty of employment opportunities for the local population. The construction of the battery plant will create over 2,000 jobs and a total of US$800 million worth of foreign exchange per year.
The benefits will go far beyond short-term economic gains
The government is determined to support and facilitate all players in the green electric manufacturing industry. Mr. Luhut stressed that Indonesia would not only learn the technical aspect of building this type of production, but also the work ethics that the foreign worker possessed.”
The factory’s expected completion date is just 16 months away. This is a much smaller timeframe than similar developments, which usually take six or seven years to complete.
Having a battery plant on Indonesian soil will also allow the country to enter the global electric vehicle supply chain. 40-60% of the total price of an electric vehicle is derived from the price of the battery. A battery plant will put Indonesia in pole position to meet ASEAN’s electric vehicle demands and given Indonesia’s abundance of low-cost labour, the country could even compete with South Korea and China for regional dominance in the future.
The country is well positioned to do so. Indonesia has a vast amount of nickel and cobalt reserves and it has started to build factories that will produce both the raw materials and the batteries. The factories will be able to produce 50,000 tons of nickel hydroxide intermediates, 150,000 nickel sulphate crystals based batteries, 20,000 tons of cobalt sulphate batteries, and 30,000 tons of manganese sulphate batteries.
Mr. Luhut Pandjaitan believes that “Indonesia will become the main player in Lithium batteries. We will control the world market.”
The future looks bright but there will be challenges
Although Indonesia is still behind in the world of electric vehicles, the new project could catapult Indonesia into the green transportation scene. Many developed nations are beginning to pivot away from hydrocarbons and switch to electric vehicles. As global carmakers like Tesla and Volkswagen increase their production of electric cars, they will require vast supplies of raw materials such as nickel and cobalt.
There is, however, one big obstacle to Widodo’s dream of going 20% electric by 2025. High taxes on luxury cars in Indonesia will hamper the government’s ambitions. There is currently a 40% luxury tax and 40% import duty tax on high-end electric vehicles.
The price of the Tesla model X 75D, for example, is doubled in Indonesia due to these additional taxes. The government is already taking measures to make electric vehicles exempt from these taxes. A new bill has been drafted that would bring import duty down to 5% and reduce the luxury tax to 0% on electric cars.
Beyond taxation, Indonesia will have to boost its infrastructure to accommodate electric vehicles, including the establishment of charging locations. The government will also have to support and train the Indonesian workforce to equip them with the necessary skills be globally competitive in the development of the electric vehicle industry. Without this government-wide effort, Indonesia will be entirely dependent on foreign players and many of the economic opportunities the electric vehicle sector holds will be severely diluted.