Aditya Hadi, Jakarta – The government will offer financial "assistance" to buyers of new electric four-wheelers and two-wheelers in a bid to push electric vehicle (EV) adoption.
However, experts expressed some doubts about the effectiveness of the incentives to support the country's dream of becoming Asia's EV industry hub.
Industry Minister Agus Gumiwang Kartasasmita announced on Monday the government would provide subsidies for the purchase of 200,000 new electric motorcycles and the conversion of 50,000 conventional two-wheelers to electric ones between March 20 and Dec. 31.
According to Febrio Kacaribu, head of the Fiscal Policy Agency (BKF), the assistance amounted to Rp 7 million for each purchase or conversion, so the Finance Ministry would earmark Rp 1.75 trillion for this support.
The Industry Ministry also proposed assistance for the purchase of 35,900 new electric cars and 138 electric buses during the same period. Minister Agus refused to reveal the mechanism for purchases of those vehicles but said the details would be finalized by March 20.
Agus explained EV manufacturers needed to comply with the 40 percent local content requirement (TKDN) to be eligible for the sales incentives. So far, only EV carmakers Hyundai and Wuling and motorbike producers Volta, Gesit and Selis were compliant, according to the minister. Producers looking to sell vehicles under the subsidy scheme are also forbidden to increase their selling prices ahead of the program.
Meanwhile, on the buyers' side, the government will prioritize small and medium enterprises (SMEs) that are customers under the microcredit program (KUR) and receive low-voltage electricity. The industry minister said a verification mechanism would prevent the subsidy from going to people who were not the intended beneficiaries.
However, Abra Talattov, head of the Center of Food, Energy and Sustainable Development at the Institute for Development of Economics and Finance (INDEF), expressed doubts about the targeting process, pointing out fuel subsidies often went to people not entitled to them.
Nevertheless, Abra expressed support for the EV incentive as a way to address excess power generating capacity in the country.
Energy and Mineral Resources Ministry secretary-general Rida Mulyana said the new incentive may add 15.2 gigawatt-hours to annual electricity consumption.
He also explained EV users could save millions of rupiah per year by switching from gasoline consumption to electricity, while the government could save on fuel subsidy spending.
The government declared a target of lifting the share of EVs to 5 percent of all vehicles sold this year, and to 10 percent in 2024, so as to reach the critical mass needed for growth of the industry.
"The very first thing [to do in the EV industry] is to get traction. We need 10 percent of all new vehicles sold in a year to be electric," said Septian Hario Seto, undersecretary at the Office of the Coordinating Minister for Maritime Affairs and Investment, in February.
According to the Association of Indonesian Automotive Manufacturers (Gaikindo), car sales in Indonesia had hit 1 million units last year, while the Indonesian Motorcycle Industry Association (AISI) stated sales for two-wheelers had amounted to 5.2 million units.
The number of vehicles to be sold with EV incentives this year represent less than 5 percent of all vehicles sold last year.
The BKF's Febrio noted the government already provided tax incentives and import duty exemptions for the EV industry that amounted to 32 percent of EV car prices and 18 percent of EV motorcycle prices.
Lee Kang Hyun, chairman of the Korean Chamber of Commerce and Industry (KOCHAM) in Indonesia, welcomed the subsidies and discounts for the EV industry but noted EVs were still quite expensive in the country.
He suggested high-level government employees use EVs first to create a bigger market that could help push down production costs to a level at which EVs would become more affordable.
EV race with Thailand
Coordinating Maritime Affairs and Investment Minister Luhut Pandjaitan explained the background of this financial assistance was the lack of EV adoption in the country despite regulations aimed at developing the industry since 2019.
"Mass adoption has not happened due to price, the difference between conventional vehicles and EVs. That hinders people's ability to purchase EVs," Luhut said.
Another consideration is neighboring countries, Thailand in particular, have developed their local EV industries and are competing with Indonesia to become the EV hub in Asia.
"We're in a race with Thailand. The President has instructed us to provide similar or better incentives than Thailand so that we can attract investment from EV manufacturers," Industry Minister Agus said.
Minister Luhut said the government was in negotiations with potential investors who would not invest in the country without such an incentive.
"We are finalizing negotiations with two EV manufacturers. This new assistance will strengthen our [bargaining] position," Luhut stated.
Luhut also said United States-based EV giant Tesla had a plan to produce 1 million units in Asia. "Will Tesla come to Indonesia or not? Let's see," he said.