As part of its ambitious goal to achieve Net Zero Emissions (NZE) by 2060 − or sooner − Indonesia is intensifying efforts to reduce greenhouse gas emissions by 29 percent by 2030, mainly through electrification of transportation, supported by government incentives to boost the popularity of environmentally friendly vehicles.

Electric vehicle (EV) adoption in Indonesia has gained momentum, with usage rising by 120 percent in 2021 compared to the previous year. However, challenges persist. Despite a target to produce 40,000 electric cars by 2025, annual EV sales still fall short of 5,000 units, signaling a need for more aggressive measures.

One of the biggest obstacles is affordability. Most electric cars are priced around Rp600 million (US$36,000), nearly double the cost of a typical conventional car, which is around Rp300 million. This price gap is largely due to the high cost of EV batteries, which can account for up to 60 percent of the total vehicle price. To address this, Indonesia has set its sights on producing EV batteries domestically, though manufacturing is still in its early stages.

Infrastructure is another hurdle. Building EV charging stations requires more investment than traditional fuel stations, and they need to be installed in diverse locations such as parks and parking lots. This makes expansion more complex and costly.

Public awareness and readiness also play a crucial role. Many Indonesians are still unfamiliar with EV technology, and broader adoption will take time. Experts suggest the need for integrated efforts across sectors − combining research, supporting component industries, favorable policies, and achieving economies of scale.

Indonesia has already laid down the legal framework, including Presidential Regulation No. 55/2019 and Government Regulation No. 74/2021, to speed up battery-powered vehicle adoption and regulate EV taxation. Programs like LCGC (Low-Cost Green Car) and KBH2 (Fuel-Efficient and Affordable Vehicles) are also being considered for revival to make EVs more accessible.

Government incentives currently by reducing the Value Added Tax (VAT) on EVs by 10 percent. In 2024, this meant consumers paid just 1 percent VAT. However, with a recent VAT hike, EV buyers now pay 2 percent. Hybrid vehicles receive even less support, with a 3 percent incentive resulting in a 9 percent VAT burden.

The limited selection of affordable models also restricts mass adoption. For example, the Wuling Air ev is one of the most budget-friendly at around Rp184 million. Meanwhile, larger 7-seater models like the BYD M6 still cost upwards of Rp383 million.

Automotive analyst Bebin Djuana emphasized the need for stronger government intervention, particularly as rising VAT undercuts efforts to make EVs affordable.

“Electric cars are still expensive,” he said. “There should be exceptions to the VAT rules for EVs, like in other countries where governments step in to help their people make the transition.”

He suggested VAT cuts for all vehicles priced between Rp1 billion-2 billion to revitalize consumer spending and encourage EV adoption. A broader tax break, he argued, could boost the automotive industry and make sustainable transport more feasible across Indonesia.