SOUTHEAST ASIA: INDONESIA REPORT
Amid the global shift to EVs, Indonesia is vying to become the new leader in this segment.
Indonesia has already surpassed Thailand in passenger car production and has begun full-scale EV production ahead of Thailand. Thailand has begun to defend its position as the auto manufacturing hub of Southeast Asia by offering preferential policies for EVs, including subsidies for both domestic production and sales.
Indonesia’s greatest strength is its abundance of nickel, which is used in car batteries. It is said to have the largest nickel reserves in the world, and investment in this resource is growing rapidly. In April, the Indonesian government announced that it was considering investing in a nickel production venture involving Ford of the United States and that VW of Germany was also considering participation.
The Indonesian government continues to pursue policies to promote EVs: In April, it reduced the value-added tax on certain EVs from 11% to 1%. The tax applies to vehicles with 40% or more local content, including raw materials and labor, to encourage domestic production and consumption.
The government is also considering an early review of the system due to complaints from dealers about the system’s user-friendliness. The policy will also become more flexible. In response to the policy, the world’s major automakers are also active. South Korea’s Hyundai Motor and China’s SGMW started EV production in Indonesia in 2022. U.S. automaker Tesla, which is looking for factory sites around the world, also is generating significant activity. South Korea’s LG Energy Solutions is building a battery plant with Hyundai Motor and expects to begin operations in 2024. China’s CATL, the world’s largest maker of automotive batteries, will also build a new battery plant.
“Thailand may lose its car manufacturing hub to Indonesia,” said an official involved in Thailand’s industrial policy. People involved in Thailand’s industrial policy do not hide their sense of crisis. In Thailand, Japanese automakers such as Toyota began production in the 1960s, and as the power of Japanese cars expanded, the country’s industrial concentration, including its supply chain, grew. The country has been an export base for vehicles destined for Australia, the Middle East and Africa, but the winning formula developed for engine-powered vehicles is no longer applicable against the global shift to electric vehicles.
Thai government officials point out that Japanese manufacturers, who have been working with Thai automakers, are moving slowly. Japanese cars remain popular in Thailand, and expectations for EVs are high. As the country enters a period of EV adoption, the delay in the commercialization of Japanese EVs could become a drag on Thailand’s industrial growth.
The Thai government has set a target of increasing EVs to at least 30% of new car production by 2030, and in February 2022 it launched a new preferential policy. The main pillar of this policy is a subsidy of up to 150,000 baht for the purchase of EVs that will be produced locally by manufacturers in the future. Excise tax on passenger cars will also be reduced from 8% to 2%. Pickup trucks, which are popular worldwide for commercial and personal use and still predominate in Thailand, will be exempt from the tax.
The Thai government has announced a five-year investment strategy starting in 2023 that includes a 10–13-year tax exemption for the production of FCVs. Companies producing biofuels will also be eligible for tax breaks. In December 2022, Toyota and CP Group, Thailand’s largest conglomerate, announced that they will jointly produce hydrogen from biogas generated from livestock waste and consider using it in FCVs.
Source: The Nikkei
PSR Analysis: Competition between Indonesia and Thailand, the largest markets in Southeast Asia, will help boost the competitiveness of Southeast Asia as a whole. While there are significant cultural differences between the two countries, both have large domestic populations and young median ages, and both are expected to experience strong growth as markets.
In particular, Indonesia’s mining resources are being closely watched by the world, and the country is aware of this and hopes to accelerate its own development through more strategic policies. There are concerns about whether Thailand, which has historically had close ties with Japanese car brands, will be able to continue to grow without falling behind Indonesia’s moves. Since it is not possible to suddenly change its industrial structure, Thailand will likely continue to support the consumer market with tax breaks and attract investment with subsidies for some time to come. PSR
Akihiro Komuro is Research Analyst, Far East and Southeast Asia, for Power Systems Research
