Indonesia plans electric vehicle incentives for foreign car makers

January 29, 2019

JAKARTA (Reuters) – Indonesia is finalizing a new electric vehicle (EV) policy that will offer fiscal incentives to foreign car makers, as it ramps up efforts to become a lithium battery hub, its deputy industry minister said on Tuesday.

“Our target is for 20 percent of all cars produced in Indonesia to be electric vehicles by 2025,” Harjanto said, adding he had been in talks with Japanese and Korean car makers.

Indonesia, second largest car production hub in Southeast Asia after Thailand, plans to introduce a fiscal scheme that will offer tax cuts to EV battery producers and automakers, as well as preferential tariff agreements with other countries that have a high EV demand, the deputy minister told reporters.

“The lower the electric vehicle’s carbon emission, the lower the tax will be”, the official added.

“We are encouraging companies and investors in Japan, Korea, and internationally in general to get into the electric vehicle business at all levels.”

Harjanto declined to name the companies in talks, but he told Reuters in December that South Korea’s Hyundai Motor planned to start producing EVs in Indonesia as part of an around $880 million investment in the country.

Japan’s Mitsubishi announced in mid-2018 it would work with the Indonesian government to research infrastructure that could accommodate EVs.

Indonesia, Southeast Asia’s largest economy, has plentiful reserves of nickel laterite ore, a vital ingredient in the lithium-ion batteries used to power EVs.

Authorities are betting the country can tap into those reserves to become a major regional player in lithium battery production and feed the fast-rising demand for EVs.

Harjanto said construction on an ambitious $4 billion lithium battery project on the island of Sulawesi would be finished in 16 months.

The Morowali site, where the proposed battery plant would be located, currently has 20 nickel ore processing facilities that feed 1.5 million tonnes of nickel pig iron a year into a 3-million tonne-per-year stainless steel mill.

Involving investors from South Korea, Japan and China, the lithium battery project is emblematic of the Indonesia’s ambitions, but analysts have cast doubts on how quickly the plans can be carried out as some of the required nickel smelter technology is complicated.

(Reporting by Cindy Silviana & Fanny Potkin; Editing by Himani Sarkar)