Written by Neil McCulloch and Ilham Rizqian Fahreza Surya. Neil McCulloch is a Director of The Policy Practice, a global lead in Political Economy Analysis; Ilham Surya is an Environmental Policy Analyst at the Institute for Essential Service Reform in Indonesia. This work was part of E3G’s  broader political economy mapping research project in Indonesia.  

As Indonesia transitions from President Joko Widodo’s tenure to that of President Prabowo Subianto, one key question arises: what will happen to Indonesia’s ambitious electric vehicle (EV) drive? Under Jokowi, Indonesia made bold strides in developing an EV value chain. Prabowo has signalled continuity by retaining many of Jokowi’s ministers, but questions remains about whether EVs will remain a priority or be scaled back.  

As the fourth most populous country in the world, and the largest coal exporter, Indonesia’s climate policies matter – whether on forestry, energy, or transport. The country’s transition to EVs has huge potential for the energy transition. 

Indonesia’s EV drive 

Presidential regulations boosted the adoption of EVs in Indonesia, while numerous incentives and tax exemptions and reductions were provided for consumers. Major EV companies have been provided with tariff free access to import EVs into the Indonesian market subject to commitments to build manufacturing facilities for EVs in the country with growing levels of local content. 

The focus on EVs was driven by two key factors: a desire to exploit Indonesia’s abundant nickel resources; and a push for job creation through industrialisation. Since the enforcement of Indonesia’s 2014 nickel ore export ban, billions of dollars have been invested in nickel mining and processing plants in Indonesia, predominantly by Chinese companies, often with close linkages to leading Indonesian political and business elites. These investments have made it the largest nickel producer in the world, responsible for around 40% of global supply. The government has also provided incentives to encourage battery manufacturers to set up in Indonesia, including the recently opened USD 1.1 billion joint venture between Hyundai and LG Energy Solution. Through these measures the government hopes to create new employment along the entire value chain. 

Constraints facing the EV market in Indonesia 

The Policy Practice and Indonesian Institute for Essential Services Reform (IESR) conducted a deep dive into the political economy of EVs in Indonesia. This was part of E3G’s broader political economy mapping research project in Indonesia, conducted in partnership with IESR.  Our analysis found there are four major constraints facing the EV market in Indonesia: 

1. Environmental damage and human rights concerns. The huge expansion of nickel mining and processing in recent years has led to numerous allegations of serious environmental harm and worker and human rights abuses. These are damaging Indonesia’s reputation and could slow the expansion of the sector. 

2. Access to international markets. In part because of concerns over environmental harm (and also because of a desire to exclude products with significant Chinese investment), the US has not yet agreed to a limited Free Trade Agreement with Indonesia. The European Union is also going to implement a battery passport starting in 2027, which may make it difficult for Indonesia’s batteries, and EVs using them, to enter the EU.  

3. Fiscal pressures and the unpopularity of fossil fuel subsidy reform. Providing incentives for the entire EV value chain entails a fiscal cost. For instance, the previous administration allocated IDR 7 trillion (USD 453 million) to incentivize electric motorcycles. However, President Prabowo has made several major fiscal commitments, notably  free school lunches across the country, that could cost USD 4.6 billion in 2025. The most obvious way of reducing the government’s fiscal burden would be to reduce the USD 21 billion spent each year subsidising energy. Increasing gasoline and diesel prices would also encourage a more rapid switch to EVs, but reducing subsidies is likely to be extremely unpopular politically.  

4. Opposition from ICE interests. More than 99.9% of vehicles in Indonesia are Internal Combustion Engine (ICE) vehicles, overwhelmingly produced by Japanese manufacturers in Indonesia. These manufacturers do not want their major investments in the ICE value chain to lose value and so are promoting an approach to emissions reduction that focuses on multiple fuel options e.g. hybrids, plug-in hybrids, fuel-cells vehicles, and ethanol-fuelled vehicles.   

External partners can help develop the EV sector in Indonesia  

Working with external partners, could have a significant impact on the development and adoption of EVs in Indonesia. Partnerships can help by sharing knowledge, improving market access, providing concessional finance, and promoting environmental sustainability and human rights. 

For example, external partners could: 

• Boost technical cooperation and knowledge exchange e.g. on how to expand charging infrastructure 

• Enhance international visibility of environmental harms in the EV value chain and also boost the capacity of the government to tackle them 

• Support a non-discriminatory multilateral trading system 

• Engage with the Japanese government and Japanese ICE automotive manufacturers on the need to transition from ICE to fully electric vehicles 

• Provide evidence on the costs of biofuel production 

• Encourage and support locally-led campaigns for clean air 

• Back fossil fuel subsidy reforms that both protect the poor and invest in the energy transition. 

Indonesia stands at a crossroads. The country could become a global leader in the electric vehicle revolution with the critical support of external partners. If Prabowo’s administration can successfully navigate fiscal constraints and entrenched industrial interests they will see the benefits of the energy transition.