Subsidies fuel Indonesia’s 2W EV growth, but at what cost?

In Indonesia, government subsidies and venture capital funding have been significantly funneled into the two-wheeler (2W) electric vehicle (EV) sector in recent years. Despite this support, the local market remains flooded with low-quality products.

An EV tester who used to do commission work for the government says that overheating is a common problem for many 2W EVs in the country, especially for users who live in cities like Bandung, which is known for its hilly roads.

“When it’s used on a long climb, the electric motor quickly gets hot due to overworking. And if the safeguard works, the motor would turn off automatically. But if it doesn’t, the motor would go up in flames,” explains the tester.

This further undermines consumers’ already fragile confidence in the segment.

Industry sources told Tech in Asia that the lack of enforced standards in the country has led some EV brands to depend on fully knocked-down kits from China – pre-made vehicles that require only basic assembly. These generic, white-labeled imports often aren’t built to withstand Indonesia’s varied road conditions. 

Together with battery reliability, these issues have forced some users to abandon their 2W EVs entirely. 

Given that subsidies alone may not be enough to propel the transition to EVs, how should Indonesia move forward?

High demand but low confidence

Since March 2023, the Indonesian government has run a subsidy program that provides a flat 7 million rupiah (US$451) discount for every new 2W EV purchase.

Initially, customers were hesitant to switch to 2W EVs. By the end of that year, only around 11,500 purchases benefited from the subsidies – far below the government’s target of 200,000.

For 2024, the government lowered the target to 50,000 purchases and simplified the eligibility requirements. This strategy has proven effective, with the program hitting its quota as early as August. 

In response to the high demand, the government added 10,000 purchases to its quota, which was then quickly exhausted the following month.

“Race to the bottom”

A much-needed revamp?