Jakarta – The growth trend of electric vehicles in Indonesia is threatened with slowing down as the government plans to discontinue various fiscal incentives starting in 2026. This policy will certainly have a direct impact on the selling price of electric cars, which has the potential to surge following the end of tax breaks and import facilities for electric vehicles.
Coordinating Minister for Economic Affairs Airlangga Hartarto stated that the government will not extend electric car incentives in 2026. The budget that has been used to encourage the adoption of electric vehicles is planned to be diverted to support the national car programme.
One of the incentives that will be discontinued is the exemption of import duties on electric vehicles in the form of completely built-up (CBU) cars, which has been reduced from the normal tariff of around 50 per cent to zero per cent.
In response to this plan, the Institute for Essential Services Reform (IESR) believes that ending the incentives risks triggering a significant increase in electric car prices. The loss of the 10 per cent Value Added Tax (VAT) discount and CBU import incentives is expected to be passed on directly to consumers.
IESR warns that this price increase could suppress electric vehicle sales and slow down the development of supporting industries, from batteries to electric vehicle components. In addition, the momentum of accelerating electric vehicle adoption, which has contributed to reducing fuel consumption and energy imports, could also be hampered.
IESR assesses that the initial phase of electric vehicle adoption still requires significant policy support in order for demand to grow exponentially. This growth is considered crucial for creating an integrated battery industry ecosystem from upstream to downstream, which has the potential to generate economic benefits of at least Rp544 trillion per year until 2060.
Although it understands that electric vehicle incentives are designed to be temporary to attract manufacturing investment, IESR believes that this policy should still be extended as long as it proves to provide greater economic and industrial benefits. Currently, although there are already eight electric car manufacturers producing vehicles domestically, this number is not considered sufficient to create healthy market competition.
The government’s target of increasing the Domestic Component Level (TKDN) to 60 per cent by 2027 and 80 per cent by 2030 is also considered difficult to achieve without a larger and more diverse electric vehicle manufacturing base.
The IESR study shows that incentives play an important role in driving electric vehicle sales. By October 2025, national electric car sales had reached a record 68,827 units, with vehicles enjoying incentives dominating the market. Conversely, the discontinuation of incentives for electric motorcycles in 2025 had a significant impact, with sales plummeting by 80 per cent in the first quarter compared to the same period the previous year.
IESR Chief Executive Officer (CEO) Fabby Tumiwa emphasised that vehicle electrification is in line with President Prabowo Subianto’s vision of energy security and independence. Based on IESR’s analysis, the use of one electric car for 20,000 kilometres can reduce fuel imports by up to 1,320 litres and save users around Rp6.89 million per year.
“With the number of electric vehicles on the road reaching around 140,000 units by October 2025, the potential savings will reach 185,000 kilolitres of fuel and compensation costs of around Rp315 billion in the current year, while also contributing to a reduction in emissions,” said Fabby.
He added that the electrification of motor vehicles is the backbone of reducing emissions in the transport sector. “Its contribution could reach 45 to 50 per cent of the total reduction in emissions in the transport sector. The benefits will be even greater if combined with the Avoid–Shift–Improve approach, which in the long term can reduce emissions by up to 76 per cent and around 18 per cent by 2030,” he explained.
According to Fabby, accelerating electrification requires policy consistency through a combination of mutually reinforcing regulations and incentives. He considers the rationalisation of fuel subsidies to be an urgent step, as they have so far weakened the competitiveness of electric vehicles.
Meanwhile, IESR Energy Demand Management Research Coordinator Faris Adnan Padhilah revealed that national banks’ interest in financing the electric vehicle industry and electric vehicle ownership loans continues to increase. According to him, the government needs to take advantage of this opportunity to strengthen green financing for sustainable mobility.
In addition to financing, Faris emphasised the importance of supply-side policies, such as electric vehicle mandates, the implementation of economic instruments including carbon taxes on fuel, and non-fiscal incentives such as exemptions from odd-even traffic restrictions.
“This combination of policies will increase the appeal of electric vehicles and encourage consumer interest,” he said.
IESR also encourages the government to review its plan to discontinue electric vehicle incentives, considering that a number of manufacturers are still in the process of building factories, and Indonesia still needs investment from global brands in order to remain competitive with other countries in Southeast Asia. Without policy adjustments, there are concerns that the grand plan for electric vehicle transition will lose momentum just as the market begins to grow. (Hartatik)
Banner photo: Electric car showcased in PEVS 2023 in Jakarta. nsh/tanahair.net
