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How VCs can address Indonesia’s EV, energy transition in 2024

Published on December 18, 2023

According to the Indonesia Venture Capital 2023 report, produced in partnership between AC Ventures and Bain & Company, local investors are leaning toward a few key sectors in 2024 and beyond, one of which is electric vehicles (EV) and battery technology. 

Investment in the sector surged from around US$3 million in the first half of 2022 to approximately US$18 million in the first six months of 2023. Additionally, a US$38 million investment in MAKA Motors during the second half of 2023 brought the total year-to-date investment in the space to more than US$56 million.

In a recent episode of Indonesia Digital Deconstructed, Leighton Cosseboom and Adrian Li of AC Ventures discussed the potential in Indonesia’s EV market, as well as key challenges that stakeholders will need to cope with to see mass adoption in the market.

Leighton pointed out that Indonesia has a strong position in the global EV supply chain, blessed with an abundance of nickel, a key ingredient for lithium-ion batteries. Around 37% of global nickel production occurs in the country, which also holds 22% of global nickel reserves.

Leighton noted, “The government also has ambitious carbon emissions targets that surpass the commitment it made to the Paris Agreement.”

Smart EV policies in Indonesia

Adrian pointed out that the Indonesian government has implemented smart policies by not allowing nickel ore exports for the time being, ensuring further value capture of the mineral within the country. The regulation also encourages foreign investors to make investments in downstream nickel processing.

“Whether the policy directly translates to the creation of battery technology itself down the line in Indonesia, is still uncertain. China is, for sure, the global leader in terms of the manufacture and design of battery technology. But at least, it’s a step in the right direction,” said Adrian.

He mentioned that much of the local EV investment to date revolves around a consumer theme, primarily linked to Indonesia having one the world’s largest base of two-wheelers.

Investors anticipate that over time, consumers, but also businesses, will transition from internal combustion engines to electric versions of motorcycles for fleets and personal use. That said, Adrian believes there is still a long way to go.

He said, “If you compare it to India, where I think they have now crossed the tipping point of adoption to over 4.5% EV penetration, Indonesia is still far behind. Therefore, it will take several years not only for adoption to happen but also for the supporting infrastructure and ecosystem to enable more widespread adoption.”

With this in mind, he believes now is the opportune moment for venture investors, with winners in the space being companies that create two-wheeler products and parts suitable for domestic use.

For instance, EV two-wheelers should have longer ranges for daily use, accommodate more than one passenger, and carry larger payloads for transporting goods.

EV sustainability in the local market

Adrian clarified, “So that does not mean simply identifying the best-in-class EV units manufactured in China or elsewhere, and bringing them into Indonesia.”

Beyond the unit’s design, the complexity of making electric two-wheelers mainstream in the archipelago may eventually involve providing battery charging facilities.

Adrian noted that India has demonstrated sufficient adoption of electric two-wheelers, making the country a worthy investment target for battery-swapping technologies. However, the situation is different in Indonesia, where electric motorcycle adoption is still nascent.

The problem is exacerbated as there is not yet standardization of the batteries built by each manufacturer, limiting opportunities for battery swap integration.

He pointed out, “We have also seen Electrum pivot from initially partnering with the Taiwanese battery swapping firm Gogoro to now having, I believe, a self-charging or complete self-built solution for Indonesia. I think that is both for cost reasons and also for suitability reasons to the local market.”

As a result, the opportunity at hand in self-charging EV motorcycles remains significant.

Leighton added that there is potential for Indonesia to implement battery-swapping infrastructure, but it will take time. He said, “If the ultimate future of Indonesia’s EV landscape is indeed battery swapping, perhaps self-charging could be a way to get there – something of a step one – and it’s something that investors can act on right now.”

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