Indonesia’s EV ambitions could help boost investments in the rest of Southeast Asia

In Asia

Korean automobile manufacturer Kia displays the electric vehicle “EV6 GT-Line” during the 30th Gaikindo Indonesia International Auto Show in Tangerang on August 10, 2023.

Yasuyoshi Chiba | Afp | Getty Images

Indonesia’s EV-friendly policies have lured global investors to the country, but experts say they could also boost investments in Southeast Asia’s automotive industry more broadly.

Indonesia could be the “gateway” to the rest of the Association of Southeast Asian Nations, said Anindya Novyan Bakrie, CEO and president director of Bakrie & Brothers, an Indonesian conglomerate whose electric vehicle unit VKTR manufactures electric buses as well as EV parts.

The Southeast Asian country is rich in copper, nickel, cobalt and bauxite — materials essential for the manufacturing of electric vehicle batteries. Indonesia is the largest nickel exporter, accounting for 22% of the world’s reserves, according to a report by the ASEAN Briefing.

Indonesia has courted the likes of Tesla in the hopes of spinning its resource riches into becoming a key global supply chain hub for electric vehicles.

“Indonesia’s rich endowment in natural resources required for EVs underpins its attractiveness … and is certainly a pull factor for EV investments especially in the aftermath of a nickel ore ban and a government that is increasingly calling for the beneficiation of its natural resource to unlock economic growth,” Koketso Tsoai, automobiles analyst at BMI Fitch Solutions told CNBC.

Indonesia has banned exports of certain metals and minerals in a bid to draw investors and manufacturers in need of those materials to its shores.

EV market: Indonesia is a 'good gateway' to ASEAN, says Bakrie & Brothers CEO

The country’s goal to become a global EV battery hub has seen significant support in recent years. Asian automakers like Toyota and Hyundai have made billion dollar investments to expand EV production facilities in Indonesia.

A 2022 ASEAN investment report noted that EV battery production made up a significant share of foreign direct investment in the region between 2019 and 2021, especially in Indonesia, Malaysia and Thailand.

Despite Indonesia’s efforts, the country still faces hurdles in boosting vehicle production.

“It will be tough for Indonesia to replace Thailand as a regional vehicle production hub, as the latter has a long-established export-oriented automotive industry. Indonesia will also face challenges from lower-cost producers like Vietnam and the Philippines,” said Nishita Aggarwal, automotive analyst at EIU.

Still, the growth of Indonesia’s EV sector could give a halo effect to its neighbors. By providing access to the key materials for EV batteries, the country “could attract much more investment and … help ASEAN as a region adopt electric vehicles faster and more cheaply,” according to a report by Maybank.

Investing in ASEAN

Although Indonesia’s natural endowments play a major role in building ASEAN’s competitive EV ecosystem, Bakrie & Brothers suggest that investors are likely to look at the region as a whole.

The company’s CEO said that “producing the actual EVs in Indonesia, I think it is something that these companies will take a look at ASEAN as a region.” He believes that countries can “combine forces” to bring in different strengths and expertise to benefit the EV ecosystem of the region. 

EVs: We want to be part of the global supply chain, says Indonesian Chamber of Commerce and Industry

Malaysia, for example, offers an “even more niche product mix of high-tech goods in an era of increasing digitalization in the automotive industry,” BMI’s Tsoai said.

He noted that within ASEAN, Indonesia will take on an “outsized role in the upstream sector of the EV supply chain.” Nonetheless, Indonesia’s dominance in this area could complement the expertise of other Southeast Asian countries and boost the region’s EV ecosystem as a whole.

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Indonesia’s EV ambitions could help boost investments in the rest of Southeast Asia

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