Indonesia boasts the world's largest nickel reserves and aims to become a global hub for EV production.
The COVID-19 pandemic has reshaped the dynamics of the Indonesian economy. Although there was a slowdown in 2020, signs of economic recovery began to emerge in 2021 as Indonesian companies of all sizes continued to invest. Initially, the low vaccination rate was a concern, but now, as of the end of August, 100% of the population in the capital city of Jakarta has received their first dose, and a majority have completed their second dose, showing steady progress, particularly in the megaregions.
According to Indonesia's Investment Coordinating Board (BKPM), the total realized investment from both domestic and foreign sources in Indonesia for the first half of 2021 reached 442.8 trillion IDR (30.7 billion USD), accounting for 49.2% of the annual target of 900 trillion IDR (62.5 billion USD). It is noteworthy that approximately 51.5% of the realized investments were allocated outside Java Island.
These investments include business sectors such as electric vehicles based on the Ministry of Industry's 'Making Indonesia 4.0' initiative. Indonesia has ambitions to become a global hub for electric vehicle production. DBS Indonesia has released a report titled 'Investments and Expansion into Electric Vehicles in Indonesia,' revealing Indonesia's potential role in the global electric vehicle supply chain and the government's plans to achieve goals in infrastructure.
The declaration to electrify all automobiles by 2050.
The total number of vehicles in Indonesia in 2020 was 136 million, with 84.5% being motorcycles and the rest being cars, buses, and trucks. Annual motorcycle sales have been increasing since 2015. In Indonesia's motorcycle market, Japanese automotive manufacturers Honda, Yamaha, and Suzuki account for over 80% of sales.
The government aims to have 2.1 million electric motorcycles and 400,000 electric vehicles on the roads by 2025, with 20% of these new vehicles being locally manufactured. By 2030, the goal is to domestically produce 2.5 million electric motorcycles and 600,000 electric vehicles. Starting from 2040, only electric motorcycles will be legally sold domestically. By 2050, the aim is to have all vehicles in Indonesia converted to electric vehicles.
In addition to state-owned enterprises, Indonesia aims to become a hub for EV batteries through attracting direct investments from overseas.
Indonesia boasts the largest reserves of nickel, a key raw material for lithium-ion batteries, and has a vision to lead the global EV battery market. In March 2021, the government established a new state-owned enterprise, Indonesia Battery Corporation (IBC), to foster the battery industry. IBC plans to commence the first phase of battery cell production in 2023, complete the construction of supporting facilities by 2024, and achieve full-scale battery production by 2025.
At the same time, the government is also promoting investments from overseas. For foreign direct investments that contribute to the clustering of the EV industry, the government offers various benefits ranging from allowing 100% foreign ownership to various tax incentives. EV businesses making investments of over 500 billion IDR (34.7 million USD) in facilities enjoy a 100% reduction in corporate income tax, while investments ranging from 100 billion to 500 billion IDR (6.9 million to 34.7 million USD) receive a 50% reduction. EV-related manufacturers benefit from reduced import tariffs on machinery and materials used in EV manufacturing.
The Indonesian EV market has already attracted investments worth tens of billions of dollars from global companies, with Korean company LG Chem investing $9.8 billion and Chinese company Contemporary Amperex Technology (CATL) investing $5.2 billion. Additionally, discussions are underway with other companies such as Toyota Motor, Hyundai Motor, Suzuki, Mitsubishi Motors, Tesla, and BASF (Germany) regarding potential partnerships and investments in Indonesia.
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