Why Foreign Investors Should Invest in Indonesia's Electric Vehicle Market

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Electric vehicles (EVs) are becoming more popular in the global automotive industry. Indonesia is no exception. The Indonesian government has opened up new investment opportunities for companies around the globe to encourage the growth of Indonesia's electric vehicle industry.

After President Joko Widodo's new Presidential Regulation 55/2019, foreign EV companies interested in setting up an Indonesian company can now enjoy more flexibility. This is to speed up the implementation of EVs for public transport.

Here are four reasons foreign investors should invest in this sector.

Abundant natural resources

Nickel is a key component in the production of electric car batteries. The world's largest nickel deposits are found in Indonesia. Indonesia is home to 25% of all known nickel deposits in the world. In 2020, Indonesia produced 760,000 tonnes of nickel and had 21 million metric tons in nickel reserves.

Moreover, the largest reserve of gold in the world, the Grasberg mine in Indonesia holds the second-largest copper reserve. This is crucial for the construction of EV batteries.

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Indonesia EV roadmap

Indonesia is aiming to be a major player in the global electric car industry with a $17 billion roadmap. The goal is to have 2.1million electric motorbikes on the roads by 2025 and 400,000 of them locally manufactured. Its goal is to build an all-electric bus fleet within seven years to serve Jakarta's mass transit system. To achieve this goal, 14,000 electric buses will be required.

PLN, the state-owned energy company, also committed to adding more than 31,000 EV charging stations before 2030. The PLN made this money available to the public and commercial sectors for them to invest in Indonesia. This $3.7 billion commitment is over ten years. Numerous government initiatives are being taken to improve electric vehicle capabilities. This is good news for companies involved in the development and production of electric vehicles.

Investors feel safe because of the active involvement of the government in the Indonesian electric vehicle industry.

In late July, South Korean companies Hyundai and LG signed a Memorandum of Understanding with the Indonesian government. The MoU will allow them to form a joint venture company that will produce EV batteries in Karawang, West Java. The $1.1 billion investment company plans to produce more than 150,000 EV batteries each year.

The Indonesian EV market is still young and growing

The EV sector in Indonesia is still young. Electric vehicles represent only 0.2% of all annual vehicle sales in 2019. The University of Indonesia discovered that 70% of Indonesians were interested in purchasing an electric car in September 2020. This is a sign that Indonesians have become more conscious of EVs.

McKinsey predicted that Indonesia's electric vehicle sales would rise significantly over the next few years. The country's electric passenger cars will reach 250.000 units by 2030, which is 16% of all new passenger cars sales. Meanwhile, electric motorbike sales are predicted to reach 1,9million units, which represents 30% of all new two-wheeler purchases.

The country is home to more than 22% of the world's nickel reserves. This, combined with government initiatives to reduce carbon emissions by 29% over 10 years, has created a favorable climate for EV producers looking to invest in Indonesia.

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Incentives from the government in Indonesia's electric vehicle sector

According to the latest Positive Investment List by the Indonesian government, the Indonesian EV industry is one of the priority sectors. Investors around the world are attracted by benefits such as 100% ownership of a business and tax incentives. For example, an EV business with a capital investment exceeding IDR 500billion will be eligible for a 100% deduction from corporate income tax. Investments between IDR 100 and 500billion will qualify for a 50% deduction.

All these factors have created the conditions for foreign investors looking to invest in Indonesia's rapidly growing EV market.

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