Electric Vehicle Industry, Strategic Momentum

The momentum for the development of the electric vehicle industry ecosystem must be utilized as well as possible as an "entry point" for accelerating growth. Otherwise, it is difficult to escape the middle-income country trap.

The following article was translated using both Microsoft Azure Open AI and Google Translation AI.

KOMPAS/HERYUNANTO

Illustration

The distant past may have ended long ago, but the influence of historical trajectories on the present cannot be simply denied. This is in line with the perspective of the "Path Dependence" theory.

Shortly after Commodore Perry from the US forcibly opened Japan from its closure in 1853, the first modern iron/steel smelting machine was built in Japan in 1857. The introduction of modern technology after the first Industrial Revolution really became a game changer. because it encourages the growth of the Japanese manufacturing industry, including the automotive industry and the defense industry.

Even more, the penetration of Western values, philosophy, and technology has triggered the Meiji Restoration movement in Japan at that time (1868-1912). While the Netherlands colonized our nation for 350 years, they did not provide modern iron/steel smelting technology post-Industrial Revolution.

As a result, our nation has not been able to produce its own internal combustion engine (ICE) since independence. This has become an obstacle in realizing the national automotive industry, so that it continues to be trapped in dependence on imported cars and/or foreign direct investment (FDI).

Also read: Electrification of Transport and Mine Downstream

Strategic momentum

A momentum very rarely comes twice, let alone many times. Momentum, generally, has to do with timing. Timing beats speed, precision beats power. This expression is suitable for realizing the national electric vehicle industry ecosystem.

The green economy transition globally is a strategic momentum for the development of the national electric vehicle industrial ecosystem. There are a number of factors.

First, it is possible to accelerate the mastery and development of electric vehicle technology compared to ICE-based vehicles.

Most of the electric vehicle technology as the enabler needed is available or accessible, it just needs to be improved to close the technology gap which may not be too wide, especially related to manufacturing. .

There are quite a lot of experts in electric vehicles. Various models of electric vehicles created by the nation's children, both passenger cars, buses, and motorcycles, have been produced in the past ten years as tangible evidence.

Visitors try electric motorcycles at the Indonesia International Motor Show (IIMS) 2023 event held at the Jakarta International Expo in Kemayoran, Jakarta on Thursday (16/2/2023). A total of 26 electric motorcycles were provided for the vehicle testing event, including those from brands such as Alva, Ofero, United, Rakata, Gesit, and PLN Motorv.

A number of supporting technologies needed include composite materials, regenerative brake systems, electric drive motors, advanced driver assistance systems, battery management systems (BMS), and others. Beyond that is the manufacturing technology for printing (casting) and assembling (assembling) all components massively supported by digitization and automation. This is where the main technology gap is.

Secondly, although not entirely, most of the critical supporting mineral resources are available and have been produced. While other raw materials, namely lithium and phosphate, can be imported from neighboring countries, such as Australia and Vietnam.

Recently, Australia agreed to supply 60,000 tons of lithium to Indonesia, why not include phosphate as well? The business relationship between Indonesia and Australia can be mutually beneficial. Indonesia supplies urea, electronics, processed wood, iron/steel, and provides tourism destinations, while Australia supplies lithium, phosphate, beef, and wheat.

From the institutional side of the electric vehicle supply chain industry, Indonesia has established the MIND ID and PT IBC as state-owned holding companies. In addition, there are PT Inalum, PT Krakatau Steel, and others.

Third, green investment financing is widely open. Funding for electric vehicle investment is included in "green financing".

Following the climate change conference in Glasgow, Scotland in November 2021 and Sharm El Sheikh, Egypt in November 2022, there are quite a few national and international financial institutions that provide green funding sources, including for electric vehicle investment.

However, Indonesia needs cooperation with more advanced countries in terms of technology, especially for the digitization and automation of manufacturing.

Fourth, Indonesia needs a leading sector in order to accelerate economic growth to escape the middle-income country trap as soon as possible. The electric vehicle manufacturing industry is very realistic and deserves to occupy this leading sector position.

Fifth, research and development (R&D) activities in encouraging the advancement of science, technology and innovation (STI) can be more directed at supporting the development of the electric vehicle manufacturing industry, electric vehicle batteries and their infrastructure, such as creating technology i>fast charging and makes electric vehicle battery production costs cheaper per KWh.

BRIN, universities, science-technology park (STP)/ technopark, and related corporations (LEN and Pindad) need to work together to mobilize resources to support the new national electric vehicle industry will develop at the level of "infant" (infant).

However, Indonesia needs cooperation with countries that are more technologically advanced, especially for digitalization and manufacturing automation. Of course not easy. The alternative is buying a license, bringing in experts from other countries, reverse engineering, and others.

President Joko Widodo and Vice President Ma'ruf Amin chaired a closed meeting regarding the development of the electric vehicle ecosystem at the Merdeka Palace on Friday (13/1/2023).

Export and added value

The development (ecosystem) of the electric vehicle industry, both FDI and national, is an entry point to create massive added value.

From various studies, the added value of electric vehicles ranges from 30-70 percent. This can also be observed from the financial reports of electric vehicle corporations which present how much the cost of goods sold is so that it can be seen how much added value can be calculated from profit plus workers' wages. Added value on a national aggregate basis is gross domestic product (GDP), which has been a measure of national income.

The higher the level of domestic components (TKDN), the higher the value added. The development of domestic electric vehicle battery industry is very strategic in supporting the electric vehicle industry, as it can increase TKDN by 30-40 percent.

For example, the target production of SUV electric cars is 2 million units. If the average price is Rp 500 million with a value added of 50 percent, the total value added from the electric car industry is Rp 500 trillion. To create massive value added, Indonesia must be able to dominate at least the electric car market in ASEAN and Australia.

If the production rate is 10 million units/year, the added value will reach IDR 2,500 trillion/year. That doesn't include electric motorbikes, electric buses, charging stations, and spare parts.

Perhaps it is not exaggerated if in the next two decades we expect a value-added contribution of IDR 5,000 trillion per year (in present value) from the electric vehicle industry and related industries, as long as we can dominate the ASEAN plus Australia electric vehicle market. That amount is equivalent to Q1-2023 GDP.

To create massive added value, Indonesia must be able to dominate at least the electric car market in ASEAN and Australia.

Exit the trap

The development of a national electric vehicle ecosystem and later hydrogen cell vehicles can become a basis for Indonesia to quickly get out of the middle-income country trap. With Indonesia's current GDP value of IDR 19,588 trillion, it needs at least a three-fold increase in the next one or two decades to become a high-income developed country.

This means that an additional Rp. 40,000 trillion is needed from the current GDP. If the electric vehicle industry plus supporting industries are targeted to contribute Rp. 5,000 trillion, other sectors, including non-electric vehicle manufacturing, need to contribute an increase in added value of Rp. 35,000 trillion, excluding the current GDP. These numbers are based on present value (present value).

Other sectors, especially non-electric vehicle manufacturing, must be able to increase their production and productivity by at least three times in one or two decades ahead, except for sectors with saturated commodities such as petroleum, gas, coal, and palm oil.

These leading sectors may include (downstream) marine fisheries and marine products, agro-industry, ICT/hi-tech, even the household appliance industry, which is part of the manufacturing industry, as well as possibly tourist. In the energy sector, nuclear power plants (PLTN) and hydrogen energy provide bright hope.

The three-wheeled electric vehicle called E-Trike, created by the Bandung Institute of Technology, is ready to be commercialized by PT Allied Harvest Indonesia. The vehicle, which was first researched in 2016, will begin production in 2022.

If the electric vehicle industry and related industries can contribute Rp 5,000 trillion and the non-electric vehicle manufacturing industry can grow by an average of 7 percent per year, in the next two decades the contribution of the manufacturing sector as a whole will reach around one third of GDP.

As with the electric vehicle industry, the development of other sectors to multiply added value requires STI investment support through R&D activities, in addition to human resources and infrastructure which are also vital. No country can suddenly become a high-income developed country without adequate STI investment. jer basuki mawa bea. This Javanese saying is true.

South Korea, for example, during a decade before breaking free from the trap in 1995, increased its R&D expenditure to nearly 2 percent of GDP, and in the last decade even to 5 percent of GDP, making it known as The Global Innovation Powerhouse. Meanwhile, China's R&D expenditure only reached 1 percent of GDP in the early 2000s and now has touched 3 percent of GDP.

Most of the R&D spending is to support the growth of the manufacturing industry. Now, South Korea's per capita income has reached 32,255 US dollars, China 12,720 US dollars, and Indonesia 4,788 US dollars. Meanwhile, the new lower limit for entering high-income countries is US$13,845/capita as stated by the World Bank.

If this momentum is wasted, it may take another half or a century for Indonesia to escape the middle-income country trap.

From various studies, it is known that the contribution of science, technology, and innovation (STI) to China's economic growth reaches more than 50 percent. Meanwhile, the contribution of STI to the economic growth of South Korea between 1970 and 1995 was around 30 percent, and now it is certainly much higher considering South Korea's massive investment in STI, most of which is private contribution.

Thus, the momentum for the development of the electric vehicle industry ecosystem, which involves foreign players, the national private sector, and BUMN, must be utilized as well as possible as an entry point for accelerating growth. If this momentum is wasted, it may take another half or a century for Indonesia to escape the middle-income country trap.

Wihana Kirana Jaya,Professor of FEB UGM and Special Staff of the Minister of Transportation

FEB UGM

Wihana Kirana Jaya