Rahul Gupta
Associate Partner, McKinsey & Company
McKinsey & Company 1
Exploring the role
of foreign investments
in shaping Indonesia’s
EV landscape
Rahul Gupta
McKinsey & Company
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The EV industry is involved in 2 of the 10 bold moves to accelerate
Indonesia’s green powerhouse promise
Indonesia has ambitious aspirations
towards being a green powerhouse We have identified 10 things – 2 of which are related to the EV industry
Net-zero emissions by 2060
6. Developing green fuels
1. Greening the power
for transportation
sector
2. Delivering clean energy
Targets 32% reduction of 7. Converting mature oil
by strengthening and
unconditional emissions and 43% and gas fields into carbon
expanding the grid
reduction with international support stores
by 2030 under the Nationally 3. Accelerating electric 8. Developing green
Determined Contribution (NDC) mobility industrial estates
Aims to cut carbon emissions to 250 4. Building the battery 9. Funding the energy
million metric tons per year and 44% value chain transition with green capital
renewable energy share by 2030
under the Just Energy Transition 5. Creating a carbon
Partnership (JETP) established during market with Indonesia’s 10. Enabling a green
G20 Leaders’ Summit abundant nature-based economy
solutions
Source: McKinsey article – Indonesia’s green powerhouse promise: Ten bold moves McKinsey & Company 3
Electrification of transport sector could lead to ~36% reduction in
GHG emissions by 2040 compared to current trajectory
Indonesia EV parc,¹ million vehicles Emissions from transportation4 in Indonesia, MtCO2
ICE2W² ICE4W² E2W² E4W² 135
159 166 130
150 155 125 -6
144
120
115 Fading
110 Momentum
-36 scenario5
105
100
95
90
85
80
2025 30 35 40 2050 75
70
E2W parc <1 ~10 ~40 ~70 ~100 65
penetration³, % 60 Achieved
Commitments
E4W parc <1 ~5 ~15 ~25 ~50 scenario6
penetration³, % 0
2020 25 30 35 40 45 2050
1. EV = electric vehicle (includes battery electric vehicle).
2. CE2W = internal combustion engine two-wheeler; ICE4W = internal combustion engine four-wheeler; E2W = electric two-wheeler; E4W = electric four-wheeler.
3. Penetration = EV/(total EV plus internal combustion engine [ICE]); in the case of vehicle sales, its penetration = EV sales/total sales; in the case of vehicle parc, penetration = EV parc/total parc.
4. Road transport sector only. Only emissions from fuel combustion considered and excludes power emissions
5. McKinsey scenario where there is fading momentum in cost reductions, climate policies and public sentiment, leading to prolonged dominance of fossil fuels
6. McKinsey scenario where Net Zero commitments are achieved by leading countries through purposeful policies and followers transition at slower pace
Source: Industry expert interviews; McKinsey Global Energy Perspective (2024), McKinsey Center of Future Mobility (2023) McKinsey & Company 4
Indonesia has the largest EV value pool and 2nd highest market
growth in SEA
EV value pools per country, 2030 CAGR, 2024-2030
Battery1 EV2 Charging infrastructure3
USD Bn %
40% of SEA’s EV market
Indonesia 7,2 17,6 2,8 27.6 39%
comes from Indonesia
Thailand 26,2 30%
Vietnam 6,6 20%
Singapore 5,0 33%
Malaysia 2,9 34%
Philippines 2,0 58%
Total 70.2
1. Includes battery production, battery management system, and battery financing
2. Includes EV production, financing, maintenance, and end-of-life vehicle battery of E4W, E2W, LCV, and Bus; assuming all units are leased for 5 years
3. Includes charging infrastructure power, ownership, hardware, software, installation, and servicing
Source: MCFM Mobility Markets Solution McKinsey & Company 5
Indonesia could aspire to become a leading EV market in SEA
NI
Fully developed local EV Leading hub for EV and Global supplier of nickel
ecosystem and favorable battery manufacturing in based semi-finished
conditions to reach EV SEA products for EV battery
penetration comparable to manufacturing
international markets
McKinsey & Company 6
Indonesia has several advantages, but it faces challenges in shifting
to serve the downstream battery value chain
Advantages Key challenges
1 Strong battery ~15 GWh battery demand 1 Limited current <0.5GWh battery demand in 2022
demand forecast by 2030 demand with limited demand from domestic
forecast precursor and cathode manufacturers
Favorable ~21% of global nickel reserves 2 Know-how/talent Limited know-how for processing
2
natural are in Indonesia constraints battery-grade nickel and limited
endowments availability of local talent
3 Nascent suppliers Limited local equipment suppliers
3 Government Initiatives include purchase ecosystem resulting in high CAPEX for PP&E
support subsidies, ban on nickel
exports and tax benefits for
4 Uncertain Uncertainty in regulation and lack of
manufacturers
business transparency in developing
environment agreements with manufacturers
5 Lagging ESG Inability of local mining companies to
standards meet ESG standards, thus limiting
ability to capture demand from
overseas and from several OEMs
Source: Expert interviews with manufacturers and OEMs McKinsey & Company 7
Driving Indonesia’s EV landscape: Foreign investments to shape the
entire value chain
Mining and refining Battery production
Expertise and HPAL Expertise in the rapidly
technology to produce developing EV battery
higher-purity “Class 1” technology
nickel
EV production Charging infra
Manufacturing plants Knowledge and
built by EV OEMs to experience in building
localize manufacturing EV charging solutions
McKinsey & Company 8
Case study: The number and size of automotive foreign investments
in key Asian markets are increasing rapidly across the value chain
2021 2022 2023 2024
Thailand and India FDI in the automotive industry, 2021-2024, Mn USD
7,200 Thailand India
1,000
Key insights
800
600
Foreign investments made
400 are mainly in battery and
200 EV production
0
2021 2022 2023 2024 (YTD) Partnerships between
Thailand Miner Pan
international players and
Asia Metal
local players are
common in developing
charging infrastructure
India
Source: Press search McKinsey & Company 9
India's EV policy has had three phases: vision setting, comprehensive
subsidies, and focused interventions for local manufacturing
NON-EXHAUSTIVE
Target & policy setting Subsidies rollout & policy implementation Way forward
2012 2015 2019 2024
Program NEMMP FAME I 1 FAME II & PLI Post FAME II
Target segments Hybrid and electric vehicles) Hybrid and electric vehicles Electric vehicles Electric vehicles
Charging infrastructure Charging infrastructure Charging infrastructure
Battery specification Battery manufacturing Battery manufacturing
Policies Vision and the roadmap for EV adoption Total fund allocation of INR 795 cr (~96 Initial outlay of INR 10,000 Cr ($ 1.2 Bn) GST projected to remain at 5% till 40%
and their manufacturing in the country Mn USD) penetration, around 2028
EV vehicle purchase subsidy
Pilots and initial legislation EV vehicle purchase subsidy New 500 Cr (~ 60 Mn) EV purchase
Reduction in customs duty for EV parts
subsidy from Apr’24 – Jul’24 in the interim
Charging infrastructure set up subsidies
Charging infrastructure guidelines, budget
R&D grants standards and set up subsidies
FAME-III likely to be in the main budget in
Vehicle and battery manufacturing Jul’24 post the 2024 assembly elections
subsidies under PLI program
Customs duty on import of EVs of value
Subsidy for oil companies to set up $35K and above lowered to 15% from
charging stations current 100% subject to certain conditions
Targets & FAME program inception 280,988 EV purchases incentivized under ~1.5 Mn EV purchases2 incentivized under 25% EV penetration by 2025
achievements scheme scheme
40% EV penetration by 2028
427 charging stations set ups were 2877 charging stations set ups were
incentivized incentivized
1. Faster Adoption and Manufacturing of Electric Vehicles in India Phase I and II, PLI
2. Includes four-wheelers, three-wheelers and two-wheelers
Source: Government of India, Expert Interviews, Press Search 10
Foreign investments are encouraged by the Indonesian government
through favorable policies
NOT EXHAUSTIVE
Tax incentives
1% consumer VAT for EVs with >40% domestic components
Import duty exemptions (0%) for Incompletely Knocked Down
(IKD) EVs
Tax deduction of up to 300% for R&D and other technological
innovation activities around EV
Licensing and operations
Local government mandated to give ease of licensing and
guarantees land availability for RE projects
Incentives to boost customer adoption
Subsidy for consumers: USD ~500 for E2W; USD ~5.3 K for
E4W
Registration fee benefit of up to 10% on transfer of EV from
manufacturer to owner
Source: Press search; Decree of Minister of Investment/Head of the Investment Coordinating Board No. 6 of 2023 McKinsey & Company 11
Indonesia is already seeing momentum in foreign investments
NOT EXHAUSTIVE
Value chain Company Country Description of collaboration/investment
Mining & BASF & Eramet are investing USD ~2.6 Bn in a nickel smelting plant
refining
CBL (subsidiary of CATL) signed agreement with ANTAM & IBC for a USD ~6 Bn
investment involving nickel mining & processing and EV battery minerals
Battery Ford, PT Vale Indonesia, and Zhejiang Huayou Cobalt Co. are investing USD ~4.5 Bn in a
production nickel-battery plant
LG and IBC are establishing USD ~9.8 Bn battery manufacturing plant
EV Hyundai invested USD ~1.5 Bn in the Indonesia’s 1st EV manufacturing plant
production
BYD is investing USD ~1.3 Bn in EV manufacturing plant
VinFast is investing USD ~1.2 Bn in EV manufacturing plant
Charging ABB and Haleyora Power (subsidiary of PT PLN) signed an MoU to develop Indonesia’s EV
infra charging solutions
Source: Press search McKinsey & Company 12
Indonesia could further attract foreign investments to accelerate
the growth of EV industry by working on 4 key areas
Quality of Ease of
local talent starting
operation
Commitment to Logistics
ESG standards infra-
structure
McKinsey & Company 13
Recap of • Electrification of transport sector is one of the key driver to
Key accelerate Indonesia’s green powerhouse promise
messages • Electrification in Indonesia represents ~30 bn USD revenue value pool
by 2030 with rapid growth
• Foreign investments and partnerships across the value chain in
India and Thailand boosted EV sales 4-5x from 2021-2023
• Foreign investments are encouraged by Indonesia’s government
through favorable policies
• Indonesia could attract foreign investments to accelerate the
growth of EV industry by improving quality of local talent, ease of
starting business operation, commitment to ESG standards, and
logistics infrastructure
McKinsey & Company 14
