Indonesia’s EV Industry Faces Regulatory, Incentive, Sustainability Challenges

As the global transition to electric vehicles (EVs) accelerates, Indonesia is positioning itself as a key player in the EV supply chain. With the world’s largest nickel reserves, crucial for EV battery production, the country is aiming to transform from a raw materials exporter to a manufacturing powerhouse. However, this ambitious strategy faces several regulatory complexities, conflicting incentives, and sustainability concerns that threaten its position in the global EV supply chain.

One of the most significant challenges confronting Indonesia’s EV market is the tension between short-term market stimulation and long-term industrial development. This has created what experts describe as conflicting incentives. Chinese manufacturers like BYD and Wuling are able to flood the market with cheaper imported vehicles, while companies investing in local manufacturing facilities, such as Hyundai, face higher costs to meet local content requirements. The current duty-free import incentive is set to expire at the end of 2025, after which local manufacturers must comply with increasingly stringent local content requirements. By 2030, EVs produced in Indonesia will need to achieve an ambitious 80 percent local content level to qualify for incentives.

Meanwhile, the country is preparing to optimize the EV charging infrastructure. Energy and Mineral Resources Minister Bahlil Lahadalia has announced that at least 3,500 public electric vehicle charging stations (SPKLUs) will operate optimally across Indonesia to serve Eid al-Fitr homecoming travelers. The distance between SPKLUs has been set at 26 kilometers to make it easier for people to charge their vehicles during the homecoming trip. State-owned electricity company PLN is also providing mobile SPKLU services in East Java for vehicles that run out of power in the middle of the homecoming trip.

Despite these efforts, the most pressing challenge for Indonesia’s EV industry lies in addressing environmental, social, and governance (ESG) concerns. The EV industry’s growth has been under scrutiny due to ESG concerns and safety issues. As Indonesia moves forward with its ambitious EV strategy, it will be crucial for the country to find a balance between the economic benefits of EV manufacturing and the sustainability issues it presents.