Indonesia’s EV battery bet benefiting from regional supply chain shift: report
The country’s strategic incentives have spurred a dramatic FDI increase in the manufacturing sector from less than US$2 billion in 2011 to more than US$20 billion last year
[JAKARTA] Indonesia’s big bet on manufacturing batteries for electric vehicles (EVs) is paying off as the country is one of the main beneficiaries of a realignment in the regional supply chain.
Government incentives for battery-based EVs, tax breaks and allowing 100 per cent foreign ownership caused foreign direct investment (FDI) in the country’s manufacturing to grow from less than US$2 billion in 2011 to over US$20 billion in 2023, according a recent report by property and management consulting firm JLL.
Indonesia has one of the largest deposits of nickel, a key mineral in the production of batteries for EVs. The government has rolled out numerous incentives to achieve its ambition of becoming a major global player in the EV supply chain.
“EVs and the battery supply chain are putting the spotlight on Indonesia,” said Michael Ignatiadis, the head of manufacturing strategy (Asia-Pacific) at JLL. “From mining to recycling, this is a big driver of investments into Indonesia.”
He pointed out, however, that the sector remains dynamic as supply chains can shift very quickly.
“A rebalancing of the global manufacturing footprint is shifting the supply chain from China to South-east Asia, but I foresee this could change quickly if Europe collaborates with Chinese EV companies,” he said.
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For the time being, Indonesia – along with its Asean neighbours Vietnam, Thailand, the Philippines, Malaysia and Singapore, as well as India – stands to gain from the rebalancing.
Titled Beyond China: Asia’s next manufacturing powerhouse, the JLL report noted that the driving force behind this trend was not only the need for supply chain diversification, but also to capitalise on the strong fundamentals of the region. These include a large population and labour pool, favourable costs and incentives.
Recently, Chinese EV manufacturer Neta Auto agreed to make Indonesia its production base for right-hand-drive cars for export. Neta’s vice-president Zhou Jiang said the company is committed to meeting the locally sourced component requirement of 60 per cent in accordance with Indonesian regulations.
Indonesia’s Industry Minister Agus Kartasasmita said South-east Asia’s largest economy has ambitions to produce some 600,000 EVs by 2030.
Apart from EVs, Chinese manufacturers are also investing in textiles, base metals, chemicals and pharmaceuticals, and food.
Indonesia recorded 204.4 trillion rupiah (S$16.9 billion) in FDI in the first quarter of 2024, said Investment Minister Bahlil Lahadalia.
“The growing FDI shows that the global investment community trusts Indonesia under the leadership of President Joko Widodo,” he told reporters earlier this year.
The ministry noted that 55 per cent of total FDI in the first quarter went to the manufacturing sector, with infrastructure and services accounting for 31.7 per cent.
FDI is critical to Indonesia’s efforts to boost gross domestic product above 5 per cent as it strives to create more jobs and move up the value chain.
President-elect Prabowo Subianto has promised to achieve 8 per cent GDP growth within five years. To realise his goal, the country will need to attract more than US$800 billion in FDI over the next five years.
While the country is on a strong growth trajectory, it needs to improve its infrastructure connectivity and labour productivity to be more competitive, noted JLL’s Ignatiadis.
“They are on a good trajectory, so it is up to Indonesia to make the most of it,” he said.
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