Can Tesla Save Indonesia’s EV Ambitions?
According to multiple sources, Tesla’s Elon Musk is negotiating the setting up of production in Indonesia. Indonesia has massive nickel and some cobalt reserves, excess vehicle building capacity, and a great need to move forward in the rEVolution. It is the second largest vehicle producer in ASEA (behind Thailand), and President Joko Widodo is keen for Tesla to use Indonesia as a manufacturing base for the entire vehicle supply chain, not just for battery supply.
A recent report from the Institute for Energy Economics and Financial Analysis points out that the current trajectory of EV take-up in Indonesia will not meet ambitious domestic targets. “Indonesia has a target of at least 1.2 million electric bike adoptions and 35,000 electric car adoptions by 2024,” Reuters/yahoo! writes. “Industry groups have said demand for EVs is growing but the sales volumes were still very small compared to combustion engine cars in the country of 270 million people, due to the higher price of EVs.”
Indonesia’s EV plans dramatically hit the headlines last year during the G20 Summit in Bali.
Energy analyst Putra Adhiguna of IEEFA examines Indonesia’s policy directions and the potential clash with the intentions of legacy automakers currently operating in Indonesia. For a summary fact sheet, see here.
Japanese carmakers dominate the light car market: Honda, Mitsubishi, Suzuki, Toyota, and its subsidiary Daihatsu command 92% of the market. These companies are not famous for progress with electric vehicles. In fact, they have campaigned against them and perpetuated FUD in the media and political circles.
In the two-wheeler market, Honda and Yamaha hold a combined 96% share. In FY22, Toyota’s battery EVs (BEVs) comprised 0.16% of its global unit sales, while Honda’s electric two-wheeler sales were largely negligible. Positive announcements about EVs have been shrouded in double speak. It is highly unlikely at this point that Japanese carmakers will aid Indonesia’s road to EV adoption. If only Tesla could help.
In the midterm, Indonesia has set aggressive targets of 13 million electric two-wheelers and 2.2 million electric cars by 2030. The headwinds of legacy auto delay electrification as they cling to the profit generated by petrol 2- and 4-wheelers, which will make this difficult.
Indonesian oil production is declining, as domestic demand is increasing. Transport produces about a quarter of Indonesia’s energy greenhouse gas emissions. There is a need for strong state leadership to promote a greener grid as well as greener transport.
“EVs consume energy about three times more efficiently than traditional internal combustion engine vehicles (ICEVs), which convert only 12% to 30% of the energy in the fuel tank to power the wheels,” the report’s author Adhiguna tells us. This means, that even with a coal-dependent grid, EV adoption can ease oil demand growth and lower life-cycle emissions.
“Indonesia’s light vehicle fuel consumption is about 40% higher than India’s, and it does not reflect well on a country which supposedly worries about its oil imports. Mandated targets such as fuel economy should be put in place immediately to pressure the legacy automakers toward more efficient vehicles,” says Adhiguna.
Adhiguna notes that Indonesia’s 4-wheel and 2-wheel auto manufacturing segments are, respectively, operating at 48% and 36% below their production capacities. “With Indonesian auto sales below their peak of 2011–14, the spare production capacity will likely further disincentivize the legacy automakers to move away from ICEVs.” On the other hand, it could be a business opportunity for Tesla, which has already bought up one disused factory and transitioned it to churn out EVs.
Indonesia currently plans to implement a progressive vehicle tax based on emissions and fuel consumption and to introduce some subsidies. Carrot and stick — this has worked in jurisdictions like Norway and New Zealand.
“Coordinating Minister of Maritime and Investment Affairs Luhut Pandjaitan said the government is finalising a scheme to subsidise about 6.5 million rupiah ($413) per purchase of electric motorbikes to drive sales in Southeast Asia’s largest economy. Jakarta has already provided a tax cut for sales of EVs and hybrid cars since 2019.”
According to ING: “Indonesia’s EV vehicle sales improved in 2022, more than doubling 2021 totals by May 2022. In 2022, year-to-date sales hit 1,587 compared to 693 EVs for the same period in 2021. Despite the substantial YoY growth, however, EV sales account for a mere 0.6% of vehicle sales for the same period (267,030). Furthermore, the number of EVs is still minuscule at 4,904 which is a mere 0.2% of total registered vehicles.”
Adhiguna fears that legacy OEMs will further delay the transition by reliance on HEVs and prolonging the production of ICE vehicles in the emerging market. But since ICEV sales peaked in 2017, how can legacy auto fund the transition to an electrified future? It is a business risk — when to jump in order to maximise profit and avoid stranded assets? Could the Indonesian government consider facilitating their transition through resource access and preferential policies?
Legacy auto may blur the lines with HEVs and PHEVs. But ultimately, they are still petrol cars. “Experiences in other markets show that the claimed benefits can differ widely from real-world results, a crucial consideration in providing government support.”
“It is also quite telling that the electric two-wheeler has not really taken off despite Indonesia being one of the largest markets globally,” says Adhiguna. Perhaps it will with the introduction of subsidies to stoke demand and encourage production. “The legacy automakers have emphasized providing diverse mobility options for consumers, but the all-electric options remain largely absent from the table. Ultimately, the EV is not a single solution for all the problems in transport. Attention to public modes of traveling, well-designed urban developments and alternate mobility options will all need to be maintained, but the legacy automakers should not be left unchecked as they can be very influential.”
As Japanese automakers move slowly towards electrification in markets that demand it (Europe and China), and even in their home market, to compete with Chinese imports; it is time to reconsider BEVs for Indonesia.
In the meantime, the Japanese need to watch out for the Tesla juggernaut should Elon decide to set up production facilities in Indonesia. Joko Widodo has stated that he is willing to spend more time and effort convincing Musk and Tesla to use Indonesia as more than just a resource supplier. Will Tesla eat their lunch? Time will tell.