The Indonesian government has an ambitious plan of reaching 2.5 million EV users by 2025 and reducing air pollution by 29% by 2030.
To fulfill its aim, this year the country will subsidise the purchase of EVs. Further, in 2035, the Indonesian Ministry of Industry aims at producing ~1 million four-wheelers and 3.22 million two-wheelers, This step will bring the country closer to its commitment of reducing carbon emissions and achieving the Net Zero Emission target by 2060.
In the latest Fitch Ratings report, it is estimated that four-wheeler EV sales will accelerate to 5% of Indonesia’s total car sales in 2023 (2022: 2%), which will be a result of government incentives to promote EVs. It further informs that sales of 4 wheeler vehicles are likely to stay stable in 2023, but growth may be limited due to rising prices.
The factors that would drive the steady automobile demand in 2023 will depend majorly on economic growth, an underpenetrated market and the easing semiconductor chip shortage. As per data, local automobile sales recovered to one million units in 2022 on strong fundamental car demand. Further, the reports says that the sales of four-wheeler EVs increased to over 20,000 units in 2022, which is six times the volume in 2021, The reason is availability of more affordable options, such as the Wuling Air EV and Suzuki Ertiga Hybrid, entering the market. Besides, the government is also formulating incentive schemes for EV purchases and considering cutting value-added tax on EV sales to 1%, from 11%.
Since 70% of sales are based on credit, that might be a hurdle for the rapid sales growth due to rising interest rates that finally leads to high borrowing costs. Moreover, discretionary car purchases might also be delayed due to economic growth concerns.
However, Fitch estimates Indonesia’s EV sales to exceed 50,000 units in 2023. The major factors that will drive this growth include the rising EV affordability through the introduction of new, lower-priced models to suit the budget of the buyers and potential additional government incentives.
The report further noted that the government’s ambitious EV adoption target and development of the domestic EV value chain is expected to facilitate the longer-term transition. It pointed out the challenges like the high price of EVs, underdeveloped charging infrastructure, and the nascent incentive and regulatory framework, towards widespread adoption. Presently, most EV products in Indonesia are still priced over IDR500 million, whereas 80% of domestic passenger cars sold in 2022 were under IDR300 million.