Introduction
Electric vehicles (EV) from China are gaining popularity in Indonesia, with 66% of consumers viewing them positively. This is driven by their affordability, innovative features and comfort.
Wuling Motors leads as Indonesia’s most popular EV brand, winning awards and achieving high sales. Other Chinese brands like BYD, DFSK, Seres, Chery and Neta are also making significant strides in the market.
This has been facilitated by the Indonesian government that is actively supporting EV adoption through substantial subsidies and incentives, totaling US$445.6 million, and has attracted large investments, such as the US$1.3 billion from BYD. Local production initiatives – such as Chery’s in Bekasi – and partnerships like Sokonindo aim to bolster Indonesia’s position in the global EV supply chain.
The focus extends to electric motorcycles, with several manufacturers establishing factories in Indonesia. PT. Sunra Asia Pacific Hi-Tech, PT. RPM and PT. Yadea Teknologi Indonesia are leading this initiative, with Luyuan planning a significant market entry through domestic partnerships.
Agreements
The influx of Chinese EV manufacturers into Indonesia is a result of recent cooperation agreements between the two countries, which have spurred efforts to enhance investment cooperation, particularly in EV batteries, automotive manufacturing and spare parts production. This is reflected in an MoU signed during Jokowi’s visit to Beijing in 2023. However, discussions on EV cooperation had been ongoing between the two countries since before this visit.
Furthermore, B2B collaborations have been established – such as between China’s GAC Aion New Energy Automobile Co. Ltd. and Indonesia’s PT. Indomobil Energi Baru – to distribute GAC Aion EV in Indonesia. This partnership aims to provide environmentally friendly vehicles including sedans, SUVs and supercars.
Additionally, another Chinese company, Zeekr, has partnered with PT. Premium Auto Prima as the Brand Holder Agent (APM) to introduce SUV and MPV models in Indonesia.
Other renowned manufacturers like Great Wall Motor will also enter the Indonesian automotive market in the second quarter of 2024 with a specific focus on hybrid models.
The growing entry of Chinese can also be attributed to the government’s efforts to revise the incentive scheme for electric vehicle manufacturers, such as relaxing VAT taxes, adjusting the Domestic Component Level and relaxing Completely Built Up (CBU) vehicle imports, all of which aim to attract foreign investors to invest in the country.
This also causes Chinese EVs to flood the Indonesian market compared to products from Japan or South Korea. This popularity is due to the low price of Chinese EVs compared to the price set by producers from other countries. In fact, Chinese EVs are even cheaper than normal cars in circulation today. This competitive price can be attributed to low production costs and component quality.
The increasing popularity of Chinese EVs in Indonesia actually plays well into the government’s goals to reduce independency on fossil fuel and facilitate transition to greener energy sources. This does not necessarily mean that normal vehicles will stop circulating, though EVs might very well overtake total sales due to their energy efficiency and low cost. To reach that point, however, there needs to be a shift in consumers’ attitude towards EV and willingness to abandon dependency on fossil fuel, as well as a wider awareness campaign on sustainability agenda. In other words, consumers need to be convinced why they need to shift to EV.
Challenges
The use of EVs in Indonesia still faces a number of challenges. For example, 71.2% of respondents in a survey two years ago considered it difficult to find public EV charging stations. This concern proves true even today, as charging stations remain limited an unequally distributed.
As of April 2024, the number of charging station stood at 1,380 units and almost half (656) were located in Java. Interestingly, charging stations remain limited in Sulawesi and Maluku, the two places where Indonesia’s nickels are mined and processed. This seems to suggest that the local population has not really benefitted from the downstream products of nickel extracted from their areas.
Moreover, 62% of respondents expressed concerns about the high price and maintenance cost, which goes to show their unfamiliarity with the minimum cost of charging an EV. In addition, a number of respondents also acknowledged the limited range and distance that EVS can cover as well as concerns about the long charging time for EV battery.
Another challenge concerns the handling of battery waste. The government needs to be more proactive and agile in creating clear regulations regarding the processing of battery waste, whether they will be recycled or repurposed to support sustainable battery use. Without clear regulations and adequate supervision, battery waste could potentially lead to new environmental issues.
Besides, the burgeoning presence of Chinese EVs in Indonesia could have several implications on the latter’s political and economic landscape.
Firstly, it would create inconsistent policy dynamics. The competition between manufacturers from China and other countries over EV imports and production would result in the inconsistencies of Indonesia’s policy frameworks, as manufacturers from Japan and South Korea would require different conditions. This lack of coherence in policies can lead to uncertainties for investors and hinder the sector’s sustainable growth as well as competitiveness.
Another important point is concerns over the exploitation of nickel resources in Indonesia, a crucial component for EV batteries. Indonesia’s abundant nickel reserves present a double-edged sword in the context of EV production. The rush to exploit nickel reserves without standardized environmental and labor regulations raises significant concerns about sustainability and social responsibility. The lack of standardized practices combined with the prevalence of cheap nickel prices raise concerns about environmental sustainability and fair economic practices. Indonesia risks becoming merely a raw material supplier without substantial value addition if proper regulations and strategic industrial policies are not implemented.
Moreover, Indonesia’s role in the EV supply chain is predominantly assembly, with the more technologically advanced components such as batteries and core EV technologies sourced from China. This condition limits Indonesia’s ability to capture higher value-added segments of the EV market, reinforcing dependency on foreign technological expertise and potentially stifling local innovation and industrial growth.
Related to this, the intensifying entry of Chinese EVs could increase Indonesia’s reliance on China. This dependency could include crucial components like batteries, electric drivetrain technologies and charging infrastructure, all primarily sourced from China. This would deepen Indonesia’s dependency on Chinese industrial strategies and market dynamics, potentially limiting its autonomy in shaping domestic EV policies and priorities. If, for example, China’s domestic market is shaken by geopolitical tension, its impacts would reverberate across Indonesia’s EV market.
Another concern relates to the recent announcement by the Indonesian government to implement up to 200% increase in import duty on textile products from China. This might induce a modicum of anxiety on Chinese exporters from all industries and sectors, including EV producers, if not communicated and managed well. For now, however, the impact of this announcement on the EV sector remains to be seen.
Lastly, EV is in no way going to be a panacea to the urban congestion problem in Indonesia’s major cities. The emphasis on increasing private EV ownership, as opposed to developing an effective public transportation system, could exacerbate traffic jam, air pollution and economic loss in Indonesian cities. Campaign for EV adoption, therefore, must be accompanied by complementary infrastructure development and policy measures to tackle multidimensional problems in Indonesia’s transportation sector.
Conclusion
Indonesia needs coherent policies amidst the influx of Chinese EVs and lack of competition in the sector. Clear policies are vital to attract investments and foster industrial growth.
Addressing nickel resource exploitation is critical. Indonesia should adopt standardized mining practices and fair pricing mechanisms to sustainably manage its reserves, minimizing environmental impact and maximizing economic benefits.
To strengthen its EV supply chain role, Indonesia must focus on developing domestic capabilities beyond just assembly. This includes technology partnerships, R&D in EV components like batteries and incentives for local innovation to reduce reliance on foreign technologies and enhance economic gains. Rather than solely promoting private EV ownership, Indonesia should prioritize enhancing public transportation infrastructure and technologies. This approach – involving investments in mass transit, adopting EVs for its public transport fleets and promoting sustainable mobility solutions – can ease urban congestion and lower emissions.
