- Electric Vehicle (EV) adoption in Indonesia will experience a less rapid growth trajectory when compared to other more high-growth markets particularly in Europe, China and South Korea, due to a lack of incentives, low incomes and limited charging infrastructure.
- We expect taxi operators, ride-hailing firms and public transport companies to drive the initial adoption of EVs in the medium term due to their ability tso recoup investments in EV purchases from rider fares.
- Electric motorcycles present an opportunity for increased adoption, especially in the short term as the present popularity of two-wheeled motorcycles in Indonesia and the lower price point of the electrified versions compared with other EVs will lead to more rapid adoption in the near term.
Electric vehicle (EV) adoption in Indonesia will be boosted by a shift in government policy to encourage local EV uptake over the longer-term period (5-10 years). However, short-term growth will be capped due to the current lack of incentives, low incomes and limited charging infrastructure. Regulatory developments from Indonesia’s Financial Services Authority (OJK) to ease lending rules for EV purchases is a first step in the right direction, however we believe that it will not be sufficient enough to drive a rapid increase in EV sales in the short term. We believe that the lack of both financial and tax incentives from a consumer perspective will keep prices of EVs high compared with internal combustion engine (ICE)-powered vehicles, which will push the vast majority of the country’s population out of the potential market for EVs.
Also weighing on a more rapid uptake of EVs, particularly of passenger EVs are the low income levels in the country as EV prices remain high. We believe that the low consumer purchasing power in the country supports our view of EV sales growth rates will remain well below Indonesia’s more affluent counterparts such as South Korea, Hong Kong and to a certain degree Malaysia and Thailand. Indonesia’s low incomes relative to its Asian regional peers is also highlighted by its low scores of 37.9 and 30.6 out of a possible 100, under the ‘GDP per Capita’ (USD) and ‘Spending Population As % Of Total’ indicators in our Autos Sales Risk/Reward Index (RRI) (see chart below). Our Autos Sales RRI measures the relative attraction of markets for vehicle sales based on several risk and reward indicators such as economic and political risks as well as the size of the specific country’s consumer base and automotive industry (a score of zero indicating least attractive and a score of 100 most attractive). The previously mentioned two indicators measure the consumer purchasing power inherent in the markets relative to other markets we cover in our RRI. Indonesia scores well below the Asian regional average scores of 48.7 and 54.0, respectively. The lack of incentives aimed at reducing the costs of purchasing EVs and a lack of charging infrastructure compounds the affordability of EVs even further.
We have highlighted previously that emerging markets such as Indonesia would be best placed for more robust hybrid vehicle sales growth (mild hybrids and plug-in hybrid variants) over a medium-term horizon. Hybrid vehicles offer a more affordable price point for Indonesia’s consumers to enter the EV market due to the lower income levels of its population and hybrids also reduces range anxiety associated with Battery Electric Vehicles (BEVs) especially in the short to medium term (1-5 years).
That said, we believe that ride-hailing firms operating in the country such as Grab Inc and Gojek, as well as taxi operators, will be in a better position to purchase EVs and BEVs in particular, due to their ability to recoup investments in purchasing expensive EVs through charging a higher cost to commuters for an EV service. Grab has introduced an EV pilot program in Indonesia which consists of 20 four-wheeled EVs and 10 two-wheeled EVs in partnership with Hyundai Motors, Astra Honda Motor and Gesits to be used by commuters.
We believe that electrified motorcycle sales will fare better over a 1-5 year’s time horizon than other EVs as better pricing and an already large motorcycle penetration rate favour a swifter shift towards EVs. In 2018, there were over 119mn motorcycles in Indonesia, which is above China and behind India (see chart above). This represents a large market to tap into which is ripe for electrification if existing motorcycle users opt for electrified versions.
We also note that the potential for an electric motorcycle fleet that embraces battery swapping technology, which improves charging times and reduces range anxiety, augments the appeal in the shift towards e-motorcycles. The success of a similar technology being deployed in Taiwan, where Gogoro has made significant inroads, could provide a blueprint on how e-motorcycles could gain traction in Indonesia. Honda, Yamaha, Kawasaki, and Suzuki, are reportedly working on testing swappable battery technology in a consortium established in 2009. This opens up opportunities for individuals to retain their brand preferences while utilizing the same swapping/recharging stations. Based on the big four motorcycle manufacturers’ presence in Indonesia, we believe the country to be a potentially large market to tap into. We, therefore, expect the move towards EVs in Indonesia to be led by the two-wheeler segment over the next 1-5 years which will also be supported by rising demand for e-commerce due to the high usage of motorcycles for the transportation of goods bought online. Moreover, the push towards sustainability will urge companies to reduce the carbon footprint of their deliveries.