Indonesia Plans Incentives To Boost Electric Vehicle Industry

Indonesia plans a series of incentives to boost production of electric vehicles (EVs), according to a copy of a draft regulation reviewed by Reuters. Southeast Asia's largest economy wants EV manufacturers and battery makers to create a downstream industry for its supplies of nickel laterite ore, which is used in lithium batteries. Aiming to become a hub for Asia and beyond, Indonesia hopes companies will start EV production in 2022 and for the share of EV output to reach 20% of total car production by 2025.

The draft regulation, which needs the president's approval, includes incentives for manufacturers of EVs, infrastructure providers and transportation companies, as well as EV buyers.

Details in the draft were confirmed by a government source with knowledge of the matter, who declined to be named because he is not authorized to speak to media. In the draft, carmakers can get a reduction in import tariffs for knocked down - or unassembled - and semi knocked down cars for a certain period, as well as lower import tariffs for machinery and materials for production.

However, they must prioritize locally sourced components. Carmakers will have to increase the composition of domestic components to 80% by 2030, while motorcycle makers will have to reach that target by 2026, according to the government source. Car owners may get benefits such as lower luxury taxes on purchases, lower annual vehicle tax rates, subsidized fees at charging stations, as well as non fiscal incentives like special parking areas and special lanes, the draft showed.

In March, during a consultation with parliament, Finance Minister Sri Mulyani Indrawati presented a new luxury tax scheme designed to encourage production of greener cars. The plan includes removing luxury tax completely for EVs and a low rate for hybrid cars. Indonesian authorities said Toyota Motor Corp, which has the biggest market share in the domestic car market, and Hyundai Motor would invest $2 billion and $880 million in the country, respectively, to develop EVs over the next few years. Japan's Softbank Group would also study opportunities in investment in EVs, batteries and charging systems in Indonesia, its chief executive Masayoshi Son said last month.