Manufacturers say two years enough to prepare EV models

The government under the leadership of President Joko “Jokowi” Widodo has set an ambitious target in developing electric vehicle (EV) manufacturing, partly as an effort to help boost the industry, which looks like a Herculean task, according to industry players and the World Bank.

It expects the local automotive industry to begin domestic EV production by 2021 or 2022 to reach the target of exporting 200,000 electric cars by 2025, around 20 percent of the expected total of 1 million car exports in the year. Jokowi has issued a presidential regulation that regulates and incentivizes the EV industry to spur its growth, although it still lacks supporting regulations from other ministries before the cars can hit the road.

“I question the government’s readiness in preparing the regulations related to the vehicles’ licenses from the Trade Ministry, the Industry Ministry and even the Transportation Ministry,” said automotive expert Bebin Djuana on Tuesday. “If they fail to precede the manufacturers’ preparations, it will be an odd thing to see the cars unregulated.”

Bebin urged the government to move faster in issuing the regulation as a two-year period was enough for domestic car manufacturers to prepare their EV models.

After the presidential regulation was issued, several other relevant ministries began preparing regulations to support the government’s EV policy. The Finance Ministry is currently finalizing a government regulation that will lower the luxury goods sales tax (PPnBM) for electric cars while the Environment and Forestry Ministry is preparing a regulation on battery waste mitigation.

The National Police are working on the registration and identification of EVs as the Industry Ministry is also preparing a domestic manufacturing regulation and the Energy and Mineral Resources Ministry is working on regulations on electrical power supply and the standardization of power outlets.

Association of Indonesian Automotive Manufacturers (Gaikindo) chairman Johannes Nangoi said the industry cautiously welcomed the government’s latest policy direction. “We have to quickly follow [the electric vehicle regulation], otherwise the Indonesian market will not develop,” said Johannes.

He added that the industry was waiting on follow-up regulations on related industries, such as the waste management industry, which was vital to handle the battery waste from the vehicles.

Publicly listed diversified conglomerate PT Astra International president director Gidion Hasan highlighted the need to attract foreign direct investment in a bid to push the initiative.

“In regard to EV batteries, for instance, we already have the raw materials but we don’t have the technology to process them into batteries,” he said during a recent discussion. “It will be better if we can invite foreign companies to process the raw materials domestically.”

Gaikindo data revealed that automotive exports had increased over the past few years. In 2018, Indonesia exported 264,553 completely built-up (CBU) units, an increase from 231,169 cars exported in 2017. The figure was also up from the 194,000 cars exported in 2016 and 207,000 in 2015.

However, national car sales have stagnated in the last few years. Gaikindo has kept its annual automotive sales target unchanged from last year’s 1.1 million units, slightly lower than 2018’s achieved sales of 1.15 million units. In the first half of the year, car sales declined by 14 percent compared to the same period in 2018 with almost all brands suffering lower sales.

At the same time, complicated export procedures might harm Indonesia’s chances of becoming a global player in the electric vehicle industry, making it less integrated than other countries in the global supply chain, the World Bank has said.

“Exporting cars requires being part of integrated supply chains across multiple countries,” reads a presentation slide from the World Bank recently conveyed to President Joko “Jokowi” Widodo, a copy of which was obtained by The Jakarta Post. “Indonesia is largely cut off.”

The World Bank said the relative isolation from the global supply chain in manufacturing was due to a series of nontariff measures that made import of capital goods difficult for carmakers. Such measures include preshipment inspection by independent surveyors and import approval or recommendation letters from the Industry Ministry, while the capital goods also have to be verified for their compliance with the Indonesian National Standard (SNI).

Moreover, selected capital goods, such as tires, gearboxes, engines and cable igniters, among other things, are subject to import tariffs, further harming Indonesia’s competitiveness with other countries, the World Bank said.

The lack of qualified human resources and restrictions with regard to the negative investment list (DNI) were also cited as reasons for Indonesia’s lack of integration in the global supply chain.

World Bank country director for Indonesia and Timor Leste Rodrigo A. Chaves said that being less integrated in the global value chains could harm Indonesia’s economy, particularly in terms of job creation and investment.

“I think that not being part of a global chain means less investment and less value added,” said Chaves. “As you know people get paid […] for the value they add to the production. So, it is very important to add value, so that the employment is well remunerated, there is more employment.”

In the meeting’s material, the World Bank recommended that the government eliminate the preshipment inspection, import recommendation as well as import tariffs for key capital goods for manufacturing.

Meanwhile, SNI verification with limited health and safety risks could also be converted to a self-certification process in order to better integrate the country into the global supply chain, the World Bank recommended. (prm)

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