With a US$9.8-billion investment deal to develop an integrated electric vehicle (EV) battery industry, and the world's largest nickel reserves, Indonesia is taking another step toward its goal to become a major hub for the EV industry.
The agreement with LG Energy Solution of South Korea, the world's second-biggest EV battery producer, came at the end of a pandemic-battered 2020 and represents a major vote of confidence in the local EV sector. It also is another milestone on the journey to reduce the country's greenhouse gas emissions by 29% by 2030.
"Electric vehicles are more environment-friendly. They have lower emissions than fuel-based vehicles, and could reduce air and noise pollution," State-Owned Enterprise Minister Erick Thohir said during an EV test-drive and an inspection of a charging station in Bali on Jan 2.
The state-owned utility PLN has joined the bandwagon and changed its business strategy to anticipate the switch to EVs. Among the inducements it is offering to power consumers is a 30% discount for EV battery charging at night.
A PLN team reached Bali on a road trip from Jakarta driving an EV, which cost them only 200,000 rupiah ($14.40) for the power, compared with the 1.1 million rupiah ($79) it would have cost to fuel a conventional car for the same trip.
Mr Thohir said that switching to EVs from fuel-based cars could slash petroleum imports by 1.5 million barrels of oil equivalent per day, equivalent to 200 trillion rupiah ($14.4 billion) annually.
PLN is part of a consortium comprising four state-owned enterprises (the others are the energy company Pertamina, the miner Aneka Tambang and the mining company Mind ID), called Indonesia Battery Holding, which signed the investment agreement with LG Energy Solution and its partner, the Korean carmaker Hyundai, on Dec 30 in Seoul.
The deal will make Indonesia the first country in the world to pursue an integrated EV battery industry, upstream from mining nickel in North Maluku province in eastern Indonesia, to downstream by smelting the metal and manufacturing lithium batteries in an industrial zone in Batang, Central Java. Groundbreaking for the project is expected to take place in the first half of this year, said Bahlil Lahadalia, head of the Investment Coordinating Board (BKPM).
"We have never secured a deal with an investment value as high as this one since the reform period," Mr Lahadalia said, referring to the era that followed the 1998 Asian financial crisis.
The signing in Seoul took place along with the signing of the Indonesia-Korea Comprehensive Economic Partnership Agreement, by then-trade minister Agus Suparmanto and his South Korean counterpart Sung Yun-mo.
The trade deal will provide preferential tariffs to further facilitate South Korean investments in Indonesia, paving the way for the EV battery joint venture in anticipation of the growing global demand, which Mr Lahadalia said was forecast to rise fourfold to 1.3 trillion terawatt-hours in 2030.
"The main material of a lithium battery is nickel, and 80% of that material is here in our country," he said, adding that the battery accounts for 40% to 50% of the total cost of an EV.
The LG deal came a week after President Joko Widodo and Coordinating Minister of Maritime Affairs and Investment Luhut Pandjaitan talked on the phone with Tesla CEO Elon Musk on Dec 11, during which they discussed the US electric car maker's potential to invest in Indonesia.
"Both parties exchanged views on the electric car industry and electric batteries, the main component. Moreover, President Widodo also invited Tesla to consider Indonesia as a SpaceX launching pad," the ministry said in a statement.
According to the ministry, Mr Musk agreed to send a Tesla team to Indonesia this month to explore investment opportunities.
Attracting Tesla would be a major achievement, given its experience and mission to accelerate the global transition to sustainable energy, said Satya Hangga Yudha Widya Putra, co-founder of the Indonesian Energy and Environmental Institute (IE2I).
"Having Tesla invest in Indonesia would enable a transfer of knowledge and create employment opportunities for the national workforce," he said.
And if the Tesla teams visit leads to further development, it would give a boost to Indonesia's green ambitions. The country aims to replace 20% of automotive production with hybrid and electric vehicles and to produce 10 million electric motorcycles and 4 million electric cars by 2035.
According to the Global EV Outlook, published by the International Energy Agency (IEA), in June 2020, the bulk of the world's electric vehicle fleet will consist of electric two- or three-wheelers, concentrated in the 10 Asean countries, China and India.
But experts say that while there is growing global demand for EVs, which consequently boosts demand for batteries, vehicle consumers in Indonesia might still be reluctant to switch, given high prices and limited infrastructure.
"Consumers are still heavily driven by price and infrastructure rather than sustainability and the environment," said Mr Putra.
"Therefore, it is important to reduce the price of cars to below 450 million rupiah per unit, given that the price of electric cars in general is still more than 600 million rupiah, which is very expensive for most domestic consumers."
Incentives such as tax breaks for upstream industry players and for individual vehicle owners, along with the necessary infrastructure in place, would also help to reduce the EV prices and increase the likelihood of consumers purchasing them over conventional forms of vehicles, he said.
The availability of sufficient charging stations in accessible locations, and reliable charging duration, are additional aspects to consider in promoting the public switch to the green vehicles, as it would give drivers a sense of security that they can keep their vehicles going.
"Switching public transport fleets to electric vehicles, in addition to the switch by individual drivers, could significantly reduce the amount of air pollution from conventional vehicles," Mr Putra added.
