EV Battery Indonesia: Understanding the Opportunities and Challenges

Indonesia EV Battery Industry Roadmap

Indonesia has committed to bringing electricity to its people. With an increasing electrification ratio, the country continues to connect millions of households and individuals to electricity. One of its strategies to support and realize Indonesia’s electrification is producing and utilizing electric vehicles (EVs).

According to the Electric Vehicle Production roadmap drawn by the Indonesian Government in July 2021, Indonesia ambitiously plans to produce 400,000 EVs by 2025, 600,000 EVs by 2030, and 1,000,000 EVs by 2035.

The Indonesian EV sector is still relatively underdeveloped. Approximately only 15,000 EVs were sold in 2019, which is a mere 0.2% of the annual vehicle sales for that year. However, firms by McKinsey have predicted a significant increase in the number of EV sales over the coming years.

Opportunities in Developing Indonesia’s EV Battery Industry

The COVID-19 pandemic undoubtedly has a significant impact on the automotive industry. To bolster this, the Indonesian government began relaxing taxes on luxury goods.

This is done to regenerate demand in the industry. The attempt is evidently a successful one as, since the introduction of such a measure in March 2021, the volume of vehicle sales and production has gradually increased.

The battery market in Indonesia is expected to grow exponentially from 2020 through 2025. Indonesia’s attempt to reduce CO2 emissions by 2030 opens room for EVs to be utilized at a larger scale. The growth and usage of EVs are expected to be the driving force of Indonesia’s battery market, with a projected increase in the demand for lithium-ion batteries.

A lithium-ion battery is a rechargeable battery type with high energy density levels and high safety levels. This type of battery is most commonly utilized for portable electronic devices and EVs. Indonesia has extensive nickel and cobalt reserves, both primary raw materials for Lithium-ion batteries.

Indonesia’s large deposits of raw materials are most likely to further fuel the growth of the battery market in Indonesia. The Indonesian battery market is also an attractive one as Indonesia provides access to production facilities, competitive labor prices, and a large domestic market, making it ideal for battery manufacture.

The Indonesian government is optimistic about the large-scale adoption and development of EVs, which are expected to be used as a mode of public transportation. Aside from that, the development of e-cars is also directed at tourist areas, industries, and offices.

As of now, EV has not gained significant traction in Indonesia as there is an overwhelming dependency on fossil fuels as the main alternative for transportation sectors. The potential growth of EVs is also primarily based on the dire need for Indonesia to transition away from the usage of fuel-based vehicles as they continue to impact the environment adversely. Businesses seeking to exploit the potential growth of this industry can obtain assistance on matters regarding company registration and also market research and analysis through InCorp Indonesia.

The Lingering Challenges

Despite there being a significant potential for growth in the battery industry in Indonesia, the initial investment required to establish a battery manufacturing industry is still a sizable one.

Another challenge that stakeholders may also face is the lack of standardization in the EV sector. Each battery type requires a different charger and treatment due to differences in electric current and power.

EV battery supply chains also are often faced with increased costs and environmental concerns that are associated with the extraction process of the raw materials. The pandemic has also added to the challenge as it has created a cloud of uncertainty over the sustainability of the market and supply chain conditions.

Strategic Moves to Develop Indonesia’s EV Battery Industry

Developing the EV sector would require all the relevant stakeholders to make significant contributions. The Indonesian government has shown its intent and commitment to this sector by issuing a national policy relating to the acceleration of the EV implementation.

Aside from this, various ministries, including the Ministry of Finance, Ministry of Energy and Mineral Resources, Ministry of Home Affairs, and Ministry of Communication and Information Technology, have taken active roles in easing the development by eradicating various taxes for the same.

These include tariffs on luxury goods for the automotive industry integrated with batteries, incentivizing facilities for charging equipment, and even providing connectivity facilities through internet-based applications. The State Electricity Company, or Perusahaan Listrik Negara, also plans to deliver incentive facilities for EV consumers.

Private parties and entities also show their commitment by accelerating investments in the electrification process of Indonesia. The Indonesian Battery Corporation in March 2021 is a newly formed State-Owned Enterprise that manages the integrated EV battery industry from upstream and downstream investment.

Aside from this, Regional Owned Enterprises are also extending support to local governments to utilize EVs as operational vehicles within the scope of their respective regions.