The COVID-19 pandemic has reshaped the dynamics of Indonesia’s economy. Although there was a slowdown in 2020, the country has shown promising economic recovery this year as Indonesian companies of all sizes continue to attract investments.
Indonesia’s total realized domestic and foreign investments in the first half of 2021 reached IDR 442.8 trillion (USD 30.7 billion), or 49.2% of the full-year targeted realization of IDR 900 trillion (USD 62.5 billion), according to the country’s investment agency BKPM. Around 51.5% of investment realization is allocated outside of Java.
Some of those investments target business sectors like electric vehicles under the Ministry of Industry’s “Making Indonesia 4.0” initiative, as Indonesia has the ambition of becoming a global EV production hub. DBS Indonesia released a report titled “Indonesia: Investments and foray into electric vehicles” to unpack the country’s potential role in the global EV supply chain and the government’s plans to realize its infrastructural goals. Here are five key takeaways from the report.
#1. Motorcycles rule the streets
There were 136 million active motor vehicles in Indonesia in 2020, 84.5% of which are motorcycles and the rest are passenger cars, buses, and trucks. Annual sales of motorcycles have been increasing since 2015. Japanese automakers Honda, Yamaha, and Suzuki control over 80% of sales in the Indonesian motorcycle market.
#2. Vehicles to go electric by 2025
The government aims for 2.1 million electric motorcycles and 400,000 electric cars to be on the road by 2025, and 20% of these new vehicles will be manufactured locally. The goal is to produce a total of 2.5 million electric motorbikes and 600,000 electric cars domestically by 2030. From 2040 onwards, only electric motorcycles can be legally sold in the country. By 2050, all vehicles in Indonesia will be electric.
#3. Indonesia offers incentives to lure investments
The government offers a number of benefits to investors that write checks for companies in the EV industry, from 100% foreign ownership to various tax incentives. EV businesses with a capital investment of over IDR 500 billion (USD 34.7 million) will receive a 100% cut in corporate income tax, while investments worth IDR 100–500 billion (USD 6.9–34.7 million) will receive a 50% cut. EV-related manufacturers will benefit from import tariff reductions for machinery and materials used for EV manufacturing.
#4. A new state-owned company will shape Indonesia into an EV battery hub
With the largest reserves of nickel, a key raw material for lithium-ion batteries, Indonesia has a vision to lead the global EV battery market. In March 2021, the government established a new state-owned company called Indonesia Battery Corporation, or IBC, to begin forging the industry. IBC will begin first-phase production of battery cells in 2023, complete construction of support facilities in 2024, and implement full battery production in 2025.
#5. Global companies are pouring money into Indonesia
Indonesia’s EV market has attracted multibillion-dollar investments from global companies, including a USD 9.8 billion commitment from South Korea’s LG Chem and USD 5.2 billion from China’s Contemporary Amperex Technology, or CATL. Other investors include Toyota, Hyundai, Suzuki, and Mitsubishi. Tesla and Germany’s BASF are also in talks for potential partnerships or investments in Indonesia.