Indonesia is advancing rapidly in its efforts to establish itself as a global electric vehicle (EV) hub, leveraging its substantial nickel reserves and an aggressive downstream strategy to develop a comprehensive domestic EV and battery supply chain.

Despite government incentives and increasing sales, the country's EV ambitions face several challenges. High costs, inadequate charging infrastructure, and the rapid evolution of battery technology present significant obstacles that could impede progress.

The Indonesian government has set an ambitious target of having two million electric cars and 12 million electric two-wheelers on the country's roads by 2030.

To achieve this objective, a series of policies have been introduced to encourage EV adoption among consumers and attract foreign manufacturers to establish operations in Indonesia. These incentives include a value-added tax (VAT) reduction on EV purchases and zero import duties for foreign automakers that set up local manufacturing facilities and meet domestic content requirements.

China's BYD and GAC Aion, as well as France's Citroën, have already committed to establishing factories in the country.

Sales data indicate that EVs are gaining traction in Indonesia.

Government subsidies have played a significant role in stimulating EV sales, according to Herman Tri Putra, a sales representative in Jakarta for Chinese EV manufacturer Neta Auto.

''Customers are realising that the annual tax benefits and the efficiency of electric power make EVs more cost-effective than conventional vehicles in the long term,'' he stated.

Analysts caution that government incentives alone may not be sufficient to persuade potential buyers, who remain concerned about range limitations and the higher upfront costs associated with EVs.

Internal combustion engine (ICE) vehicles remain approximately 40% more affordable than comparable EV models in Indonesia, and progress in expanding the necessary infrastructure to support widespread EV adoption has been limited.

Beyond major cities such as Jakarta and Surabaya, the scarcity of charging stations continues to deter potential EV buyers, according to Herman.

''I do not think it will be difficult for the government to reach its target, but this must be accompanied by large-scale development of charging stations across Indonesia,'' he stated.

Nevertheless, the government remains optimistic. Luhut Binsar Pandjaitan, Chair of Indonesia's National Economic Council and a key proponent of the downstreaming strategy, stated in 2023 that Indonesia could emerge as one of the world's top three producers of both EVs and batteries by 2027.

However, the feasibility of this projection will depend on the country's ability to stimulate domestic demand for EVs, according to Putra Adhiguna, Managing Director at a think tank institute.

''Developing domestic EV demand is essential to securing a significant position in the global EV value chain, particularly given the intense international competition,'' he stated. ''At present, Indonesia remains largely within the initial 20% of the EV value chain.''

Indonesia possesses the world's largest proven nickel reserves, and the government is seeking to leverage this resource traditionally a key component in EV battery production to strengthen its value-added manufacturing sector.

Its downstreaming policy, which included banning the export of unprocessed nickel ore, has attracted more than US$ 1 billion in investment, primarily from Chinese firms such as steelmaker Tsingshan and battery manufacturer CATL.

Indonesia now leads the global nickel mining and smelting industry, accounting for nearly half of the world's refined nickel production and two-thirds of its mined nickel. In 2023, the country's processed nickel exports reached US$ 22 billion, representing 9% of total exports a significant increase from just 2% in 2019.

Another milestone was achieved last year with the inauguration of Indonesia's first EV battery plant, a US$1.1 billion facility established by South Korean companies Hyundai and LG.

According to Putra, Indonesia has substantial potential for further growth, particularly as the largest automotive market in Southeast Asia.

However, he cautions against over-reliance on nickel, particularly as newer battery technologies, such as lithium iron phosphate (LFP) batteries, gain popularity among manufacturers, particularly in China.

These alternatives do not require nickel, underscoring the need for Indonesia to diversify its approach to EV production.

''Nickel provides certain advantages, but they are somewhat limited, given that most EVs currently being sold use batteries that do not contain nickel,'' he stated.