Accelerating Indonesia’s Progress as a Global Electric Vehicle Powerhouse

Indonesia proudly stands as one of the fastest-growing economies across G20 countries. Leveraging on Indonesia’s young demographics, the country is well-positioned to be the world’s fourth largest economy by 2045. Riding on its Nickel reserves, Indonesia will also account for 45% of global supply by end of this decade. In the upstream EV ecosystem, government had successfully laid out key policies including the export ban of unrefined nickel ores. Since the ban went fully effective in early 2020, we saw a double-digit growth in upstream and midstream industry (shifting from raw nickel ores to processed metals) marked with the boost of foreign direct investments in the basic metal sector.

To further expand the opportunities in the EV value chain, naturally the next step is to integrate between nickel processing supply chain and develop the downstream sector, which includes EV Battery, EV, and supporting infrastructures. Our Global Research indicated that the development of EV industries in Indonesia can potentially generate extra 0.5% GDP growth to 5.8% in 2028, this is significant. Indonesia is well-known as the biggest automotive market and the second largest automotive producer in Southeast Asia; as such EV opportunities are massive following the expected acceleration in the EV adoption rate. Whilst EV penetration stood at less than 2% in 2023, we believe there will be significant increase in the adoption rate. HSBC Research indicated that EV adoption can reach 25% by 2030. Total market opportunity is expected to surpass USD 20bn, where the Government targets 2.2 million EV cars and 13 million EV motorbikes on the road by 2030. In addition, annual production capacity for EV cars and motorcycles is projected at 600k and 2.5 million respectively with 140 GWh of EV battery production capacity. On the infrastructure side, we will observe significant progress where charging stations to reach over 31,000 and battery swap facilities to reach over 67,000 in 2030.

Important to acknowledge that such big ambition in EV space will require government and policy support. Over time, we have seen positive progress in the regulation landscape related to EV industry to date and as summarized below:

• On 12 August 2019, President Joko Widodo issued Presidential Decree No. 55 of 2019 re. Acceleration of EVs for Road Transport Program (PR 55/2019). This was later superseded by PR 79/2023 and serves as legal basis to provide direction, foundation, and legal certainty for the implementation of the EV for Road Transport Program.
• The Minister of Industry (MoI) subsequently issued Regulation No. 6 of 2022 which extensively covered the Specifications, Development Roadmap and Provisions for the Calculation of the Value of the Domestic Component Level of BEVs (MoIR 6/2022). This regulation was recently amended by the issuance of MoIR 28/2023 on 29 December 2023 which set out a development “roadmap” for the EV for Road Transport Program and dealt with a number of important technical issues including the domestic component level or percentage applicable to BEVs (TKDN), public electric battery swap stations, recognition of conversion EVs, and types of available incentives for EV industry companies. Worth to note that the requirement for local content “TKDN” has been delayed by three years and under the current construct, by 2027 the producers will need to fulfill the local production target in quantities equivalent to the imported EVs whilst complying with the updated local content requirement guideline.??
• Another notable regulation is issued by Ministry of Finance No. 9 of 2024 re. Sales Tax on Imported Luxury Goods for Battery-based Four Wheel EVs (MoF 9/2024), which stipulates 100% waiver of EV car luxury goods tax for FY2024.

Thanks to recent government incentive/investment program, particularly on import duty and luxury tax waiver [subject to eligibility criteria], the global auto players can test and develop the market in advance whilst building production capacity in near future. For comparison, in 2023, Indonesia only had 2 EV brands (Hyundai and SAIC) and since the release of the new investment program in early 2024, there has been significant increase in number of brands and models in the market.

To amplify the exciting opportunities presented by EV sector and its wider ecosystem - HSBC as the leading international bank with 140 years of history and strong presence in Indonesia, recently organized a very successful investment forum on 19th March 2024 titled “Electrifying Indonesia: Unleashing the Potential of Electric Vehicles Ecosystem” where we brought together our clients across the supply chain, policymakers, and industry experts to discuss various thought provoking dimensions of global EV landscape, Indonesia’s important role in this sector, local policies/ regulations to encourage further growth, and local EV adoption as well as its ecosystem impact. This thought leadership event was to serve as a catalyst for the participants to explore potential investment and collaboration opportunities.

In the first session of the investment forum, we witnessed our honorable keynote speaker Mr. Rachmat Kaimuddin (Deputy Coordinating Minister of Maritime Affairs & Investment in Infrastructure and Transportation) took center stage with his presentation titled “Electric Vehicle for a Better Indonesia”. He elaborated energy transition as national priority for Indonesia that would give positive impact in multiple dimensions i.e., energy security and economic implications. EV ecosystem will drive Indonesian economic development and address environmental challenges in transport sector. Furthermore, Indonesia’s government has developed incentive programs which allow leniency for electric vehicles import to spur growth whilst the global automakers work on the development of their production capacity in Indonesia. Waivers are set in place for import duty and luxury tax (both waived up to 100%). It's considered an attractive incentive with a caveat that the EV manufacturers must commit to invest and produce EVs in Indonesia. Production needs to be the same amount as imported EVs, otherwise the waiver will be charged back. There is a bank guarantee mechanism put in place. Furthermore, the car manufacturers must comply with local content requirement in Indonesia i.e., 40% by 2026 and 60% by 2027.

At the second segment of the investment forum, we had the privilege of hosting Andrew Arristianto (Chief Strategic Officer – PT Blue Bird Tbk.), Tran Quoc Huy (CEO – VINFAST Indonesia), Misi Tang (Head of Industrials Asia Pacific, HSBC Global Banking) and Charles Kho (Country Head of International Banking, HSBC Indonesia) for a panel discussion to converse the journey, opportunities, and challenges being faced by the industry players.

Key takeaways from the panel discussion can be summarized as follows:

• Indonesia is expected to follow the footsteps of the EV development in China, as the country can leverage its upstream and midstream of Nickel industries to develop the downstream sector. Not to mention the size of Indonesia’s automotive market from both demand and supply perspective. Indonesia’s production can serve both domestic and export markets. ?
• Charging station remains a key infrastructure element and it obviously requires significant acceleration. Whilst there is a roadmap, the implementation will be important and government support will play a critical part, including the public and private partnership.
• More global EV brands are entering Indonesia and amongst them is Vinfast. They are bullish on Indonesia and optimistic to achieve their growth ambition in this market. There is a similar culture and market behavior between Indonesia and Vietnam; Vinfast is a dominant EV player in home country with their strategy to make EV accessible for everyone and they have diverse models covering various price points. Vinfast also has global ambition as evidenced by their entry and IPO in USA. They are very appreciative that HSBC continues to support their international expansion, including their recent venture to Indonesia.
• Blue Bird procured their first EV back in 2018, making them the pioneer of green initiatives and sustainable public transport. Now Blue bird have 200 EVs + 24 charging stations and aiming to further add 500 more EV fleets in 2024 which is being supported by HSBC by extending a Green Loan facility; well-aligned with Blue Bird’s target to reduce 50% of CO2 emissions and commitment to reach 10% of total fleets under EV by 2030.
• Often viewed as competing technology, at least in the short to medium terms, there will be a balance/co-existence between the nickel-based battery and iron-based battery (Lithium Ferro Phosphate). Depending on the geographics of EV makers, there is still market for both battery technologies. This being said, there can be new technologies that can disrupt the current market.?

The investment forum is concluded with all panelists and HSBC senior management emphasizing the overall positive sentiment as Indonesia plays a bigger and more strategic role in the global EV space. It is a very exciting time indeed for Indonesia, a vibrant market supported by young and thriving population with growing middle-class, to embrace a green and sustainable future with EV as one of the key drivers. EVs are expected to become more affordable and accessible in near future with Government paving the way with ambitious roadmap and fiscal incentives, while multinationals and local EV players are continuously developing the sector by pouring direct capital investments, providing goods and services to the ever expanding market, and bringing rapid technology invention to the country.

HSBC is strategically positioned to support Indonesia’s growth agenda in the EV sector and its ecosystem; a key element to realize Indonesia’s Golden Vision 2045.?? ?

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Jakarta, 29 April 2024

Stephen Kasima, Andrew Jackvin, Kevin Wijaya

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Sources & references: Ministry of Investment – Republic of Indonesia, Coordinating Ministry of Investment and Maritime – Republic of Indonesia, The Jakarta Post, HSBC Global Research.

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