Indonesia and Australia Sign MoU to Boost EV Collaboration

On November 23, 2023, Indonesia and Australia formally declared their collaboration in the electric vehicle (EV) industry by signing a Memorandum of Understanding (MoU) in Jakarta.

The MoU co-signed by Indonesian ad interim Coordinating Minister for Maritime Affairs and Investment, Erick Thohir, and Australian Minister for Industry and Science, Ed Husic, is designed to open up opportunities in the global EV supply chain

The focus is in particular on key elements such as lithium and nickel processing which are deemed essential commodities in the production of EV batteries and theirrelated industries. Additionally, both nations aspire to participate in collaborative scientific research endeavors and foster new business-to-business relationships.

This MoU is not an isolated initiative but a seamless continuation of the broader diplomatic efforts between Indonesian President Joko Widodo and Australian Prime Minister Anthony Albanese. It finds its roots in the prior agreement between the two leaders. It is a tangible outcome of the AU$200 million Australia-Indonesia Climate and Infrastructure Partnership, a forward-looking collaborative initiative launched in 2022.

What are the key areas covered in the MoU?

The MoU between Indonesia and Australia encompasses key strategic areas, aligning with their mutual goals and challenges within the EV industry. These include (but are not limited to):

• Reducing reliance and promoting diversification The primary focus of the MoU is to support Indonesia, Southeast Asia’s largest economy, in diminishing its dependence on Chinese investment and resources. Simultaneously, Australia aims to establish a foothold in battery production.
• Mapping the EV supply chain: Australia’s Industry Minister Ed Husic emphasized the collaborative mapping of the EV supply chain. This initiative is crucial for both countries to gain insights into the intricate network of production, fostering efficiency and strategic decision-making.
• Cooperating on new processing and manufacturing methods: According to the declarations made during the signing ceremony, by pooling their expertise, Indonesia and Australia seek to contribute to developing cutting-edge techniques, ensuring competitiveness in the rapidly evolving EV market.
• Support for Indonesia’s critical mineral supply chains: Notably, Indonesia’s abundance of nickel reserves, which has attracted substantial foreign investment, including from major players like Brazil’s Vale, China’s Tsingshan, South Korea’s Hyundai, and China’s CATL, positions it as a key player in global nickel production.
• Mitigating challenges and expanding investor base: The MoU also serves as a strategic response to challenges faced by Indonesia, particularly in the American EV market. The Inflation Reduction Act in the United States poses hurdles due to environmental concerns and China’s dominant role in Indonesia’s nickel midstream. The collaborative effort with Australia is seen as a method of diversification, aiming to expand the investor base beyond China, thus mitigating challenges in global EV markets.
• Enhancing ESG rating and supporting exports: The collaboration between the two countries has the potential to increase Indonesia’s Environmental, Social, and Governance (ESG) rating. Additionally, the MoU is expected to strengthen the production of critical minerals, especially those geared towards exports to developed countries, aligning with the broader goal of sustainable and responsible resource utilization.

 Indonesia’s EV Industry Outlook

Indonesia is ambitiously charting its course within the EV industry, aiming to achieve 2.5 million EV users by 2025. However, current market data indicates that a significant transformation in consumer habits may require more time to materialize. As of August, electric vehicles constitute less than one percent of the total cars on Indonesia’s roads, with last year witnessing 15,400 electric car sales and approximately 32,000 electric motorcycle sales, according to a Reuters report.

While the Indonesian government’s projections aim for rapid growth, the market is experiencing a gradual shift in attitudes. Notably, in West Jakarta, auto dealer PT Prima Wahana Auto Mobil reports an uptick in EV sales. Customers are increasingly opting for vehicles like the Wuling Air EV, often as a secondary option alongside conventional cars.

This cautious approach to adoption is likely influenced by concerns around emerging EV infrastructure, charging facilities, after-sales services, and the critical factor of EV range. Worries about costs and battery power constraints may initially hinder widespread adoption, but Indonesia remains resilient in its pursuit of EV prominence.

Beyond consumer adoption, Indonesia has grander ambitions—positioning itself as a pivotal hub within the global EV supply chain. As the largest automotive market in Southeast Asia and the second-largest production center in the region after Thailand, Indonesia is strategically positioned to play a leading role in the evolving landscape of electric mobility.

Implications of the MoU for Indonesia’s EV Industry

The recently signed MoU carries substantial implications for Indonesia’s dynamic EV industry. One of its key impacts is its strategic alignment with Indonesia’s goal to reduce dependency on Chinese investment and resources. Simultaneously, Australia’s aim to establish a foothold in battery production complements Indonesia’s ambitions.

Meanwhile, Indonesia’s abundance of nickel reserves, a critical mineral in EV production, is a focal point of the MoU. Building on existing foreign investments from major players, this strategic positioning further solidifies Indonesia’s role as a key global player in nickel production.

 Lastly, the MoU’s impact extends beyond the domestic landscape and aligns with Indonesia’s broader goal of sustainable and responsible resource utilization and practices.

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