EVs in Indonesia: From Environmental Commitment to Global Business Opportunities

Alta Mahandara

The arrival of the Electric Vehicle (“EV”) era in Indonesia signifies a transformative period for the domestic automotive industry. The government policy to promote electric vehicles  reflects its strategic commitment to reduce greenhouse gas emissions and embrace environmentally friendly energy-based vehicles. This article explores the profound impact of this commitment by delving into the emerging business opportunities and the regulatory framework supporting the growth of EVs in Indonesia.

Environmental Commitment and EVs in Indonesia

Indonesia is actively demonstrating its dedication to curbing greenhouse gas emissions by setting a noteworthy target in its Nationally Determined Contribution (NDC) to reduce carbon emissions by 29% by the year 2030. As part of its substantial efforts, the country is embracing the adoption of EVs.

Moreover, the year 2021 witnessed a surge in global investments in the EV sector, creating significant momentum for Indonesia’s economic growth. A total investment of $273 billion in this sector signals that the EV market has become a primary focus of the global economy. This substantial investment reflects a paradigm shift in the global economy, which is increasingly favouring low-emission vehicles. With ambitious targets, Indonesia is moving in line with global initiatives to reduce greenhouse gas emissions by up to 90% by 2050.

In pursuit of achieving its ambitious targets, the Government of Indonesia took a crucial step in 2022. Through the Ministry of Energy and Mineral Resources or Kementerian Energi dan Sumber Daya Mineral (“ESDM”), Indonesia pledged to convert 1,000 conventional motorcycles into electric motorcycles. Furthermore, the government provides various incentives and facilitation to encourage both businesses and consumers to adopt EVs. These efforts not only reflect technological shifts but also underscore Indonesia’s tangible dedication to environmental protection and the advancement of eco-friendly technology.

Read More: New Outlook on Nickel Investment: Electric Vehicle Charging Infrastructure

EV Regulations in Indonesia

The Government of Indonesian has issued a series of regulations to support the acceleration of the EV industry. The following are some key regulations serving as the main pillars of this program:

1. Government Regulation No. 29 of 2018 on Empowerment of Industry as partially amended by Government Regulation No. 28 of 2021 (“GR 29/2018“);
2. Presidential Regulation No. 55 of 2019 on the Acceleration of Battery EV Programs for Road Transportation;
3. Ministry of Industry Regulation No. 28 of 2020, as amended by Ministry of Industry Regulation No. 7 of 2022 on the Amendment to Ministry of Industry Regulation No. 28 of 2020 on Battery Electric Motor Vehicle Components in Fully Disassembled and Not Fully Disassembled Conditions;
4. Ministry of Industry Regulation No. 6 of 2022 (“MIR 6/2022“) on Specifications, Roadmap Development, and Determination of Domestic Component Value Calculation for Battery Electric Motor Vehicle (Battery EV).

Potential and Opportunities for EV Business in Indonesia

The surge in the EV sector is not just an environmental imperative, it’s a booming business opportunity with the potential to propel Indonesia onto the global stage. In Indonesia, the EV sector presents a multifaceted landscape that includes vehicle manufacturing, battery production driven by the nation’s rich nickel reserves, advanced battery waste management solutions, and the expanding infrastructure such as EV charging stations. This integrated approach underscores Indonesia’s strategic advantage, which offers a holistic ecosystem for stakeholders and positions the country as a significant player in the global EV industry, and that fosters economic growth and innovation across various segments. As we delve deeper into Indonesia’s EV landscape, dissecting the market dynamics, understanding the key role of nickel reserves, and assessing infrastructure advancements offer a holistic perspective on the nation’s strategic evolution in the electric vehicle industry.

1. Market Dynamics

   Indonesia’s EV market is revving its engine and is projected to reach a staggering Rp30 trillion (US$1.9 billion) by 2029. This explosive growth is fueled by a burgeoning middle class, rising fuel prices, and, crucially, government incentives. From reducing import duties on components to exempting sales tax on luxury goods, the government is playing a key role in priming the pump. The result? There is a burgeoning demand for electric two-wheelers and a steadily increasing appetite for passenger cars, fueled by brands like Hyundai and Wuling entering the domestic production game.

   The government provides fiscal and non-fiscal incentives to businesses operating in the EV sector to encourage their development in Indonesia.

   Fiscal incentives include:

• • Duty-free import of EV components and raw materials that are not produced domestically, allowing businesses to save production costs and enhance the competitiveness of their products;
  • Exemption or reduction of income tax, value-added tax, and luxury goods sales tax for the production of Public EV Charging Stations, enabling businesses to gain greater profits and expand their infrastructure network;
  • Other tax exemptions or reductions related to EVs, in accordance with the provisions of the legislation, allowing businesses to reduce their tax burden and improve liquidity.

Non-fiscal incentives include:

• • Transfer of production rights for EV/EV-related technology with patent licenses from the Central Government and/or local governments, enabling businesses to access the latest technology and improve the quality of their products;
  • Development of security and/or safety of operational activities in the industry sector for the sustainability or smooth operation of logistics and/or production activities of specific industrial companies that are of national importance, enabling businesses to maintain stability and continuity of their operations.

Not only given to businesses, in this case, incentives are also provided by the Government to consumers with the hope of increasing demand and usage of these environmentally friendly vehicles. Some incentives for consumers include:

1. • Cheaper or free parking fees at locations designated by local governments;
   • Reduction of electricity charging fees at Public EV Charging Stations;
   • Exemption from odd-even license plate traffic restrictions;
   • Exemption or reduction of motor vehicle tax, motor vehicle fuel tax, and other taxes related to EVs in accordance with regulations.

     Read More: Lost in Nickel Lawsuit at the WTO, Indonesia Forced to Export Raw Nickel?

2. Nickel: Powering Indonesia’s EV Revolution
   

   It’s not just about the market; Indonesia holds a trump card that other EV players lack, that is, abundant nickel reserves. This crucial battery component puts Indonesia in the driver’s seat of the global EV supply chain. With an estimated 25% of the world’s nickel reserves, the country is on the precipice of becoming a battery powerhouse, attracting investments from the likes of LG and CATL. This vertical integration—from mining to battery production to final vehicles—paints a picture of an EV ecosystem humming with opportunities.

3. Charging Ahead: Infrastructure on the Rise
   

   Of course, no EV future is complete without a robust charging infrastructure, and Indonesia is making strides here too. the giant state-owned electricity, PLN, is leading the charge by aiming to install 1,401 EV charging stations by 2025. Public battery swapping stations are also gaining traction as they offer fast battery exchanges, a potential game-changer for two-wheeler adoption. This commitment to infrastructure, coupled with increasing private sector investment, promises to alleviate range anxiety and pave the way for seamless EV mobility.

Read More: Presidential Regulation Number 112 of 2022: Is Green Industry in sight?

Domestic Component Level and its Implementation in the EV Industry

Just like other industrial sectors, fulfillment of the Domestic Component Level or Tingkat Komponen Dalam Negeri (“TKDN”) in the EV industry also takes a significant part in the business operation. In general, the calculation and verification of the TKDN in Indonesia are regulated in Article 70 of GR 29/2018. The following are the key points of this regulation:

1. Calculation and Verification of TKDN:

• • Calculation and verification are conducted through TKDN certification by the Minister of Industry.
  • The Minister can appoint a competent independent verification agency.

2. Verification on Goods Producers:

• • Verification is conducted on Goods producers having industrial business permits.

3. Calculation of TKDN Value:

• • Calculation refers to the provisions and procedures for calculating TKDN specified in the Ministerial Regulation.

4. Validation and TKDN Certificate:

• • The results of calculation and verification are validated by the Minister’s appointed officials.
  • TKDN values are listed in the TKDN certificate and the inventory list of domestically produced Goods.

Currently, the Minister of Industry is evaluating the calculation method for TKDN of electric cars. A precise and detailed TKDN calculation set by the Government will clarify which components of electric cars need to be domestically produced. This clarity will incentivize electric car manufacturers to invest in the production of local components, thereby strengthening Indonesia’s electric vehicle ecosystem.

In accordance with Article 2 of MIR 16/2011, TKDN is calculated based on the comparison between the final goods price and the final goods price minus the price of foreign components. The final goods price includes production costs covering direct materials, direct labor, and factory overhead costs (indirect labor, machinery/tools/facilities, and other factory overhead costs), excluding income, company overhead costs, and Output Tax.

It should be noted that, as of now, regulations regarding TKDN weight for EVs have been established in MIR 6/2022. According to this regulation, the TKDN target for EVs is set at 80% by 2030. Although MIR 6/2022 regulates TKDN for key components of EVs, such as body, cabin, chassis, battery, and electric motor drive systems, this regulation specifically applies to the BEV Industry. There are currently no provisions that specifically regulate the application of TKDN for the Battery EV Component (BEVC) Industry.

Investing in Indonesia’s EV future is not just about chasing profits; it’s about embracing a cleaner, more sustainable future. So, buckle up and prepare to ride the wave of Indonesia’s electrifying success. We, ADCO Law, are ready to assist you in exploring the potential and in understanding the legal foundations supporting this transformation. Together, let’s create a sustainable green future.

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