Indonesia plans overhaul of rules to develop electric car hub

Jakarta

INDONESIA is planning a slew of incentives for electric car manufacturers and drivers, to help bolster a sector that has already lured investment from Toyota Motor Corp and SoftBank Group Corp, according to a draft government strategy seen by Bloomberg.

The measures are aimed at accelerating the adoption of battery- powered cars in Indonesia, and building a base for the production and export of such vehicles. They include lower taxes for manufacturers and buyers of electric cars, and benefits for owners of electric vehicles (EVs), such as special parking areas, according to the draft that is only awaiting the president's approval.

The country is vying with nearby Singapore and Thailand to become the dominant force in South-east Asia for EVs, part of an effort to fortify the local economy and reduce reliance on imported oil. Indonesia, one of the largest untapped markets for electric cars, wants EVs to constitute a quarter of its car production by 2030 as it tries to bring in more global companies.

"This regulation is the largest overhaul of Indonesian automotive industry, and it is an ambitious as well as a brave move by the government," said Jeffrosenberg Tan, head of investment strategy at PT Sinarmas Sekuritas. "We hope this will lead to huge investments in EV infrastructure, and will be followed through by the development of the supply chain ecosystem."

Indonesian President Joko Widodo said in a statement on Thursday that he will "surely" sign the decree once he receives it, without elaborating on the specifics of the new rules. "We can go ahead and prepare the infrastructure to support electric vehicles," he said.

The rules would change taxation of vehicles so that they would be levied based on fuel consumption and carbon emissions instead of body type and engine size, favouring EVs. Under current rules, a US$65,000 BMW X3 sDrive sport utility vehicle carries a lower luxury tax rate than a US$58,000 Hybrid-powered Toyota Camry because sedans have been considered a more luxurious car type.

The new rules will also require carmakers to gradually increase the amount of locally produced parts to 80 per cent by 2029, according to the draft. Motorcycle producers would need to meet that requirement in 2026.

A number of global carmakers have decided to commit billions dollars worth of investment even before the new rules have kicked in. Toyota, which has the biggest market share in Indonesia, has said that it plans to spend US$2 billion to build hybrid vehicle plants in the country.

Hyundai Motor Co is set to build two plants, including an EV unit, in Indonesia by investing US$1 billion, according to Indonesian Coordinating Minister for Maritime Affairs Luhut Pandjaitan.

SoftBank said this week that it will invest US$2 billion in Indonesia through ride-hailing giant Grab over the next five years and plans to explore investment opportunities in the country's EV, battery and renewable energy sectors. BLOOMBERG