Pacific Money | Economy | Southeast Asia

Gojek and Foxconn Enter Indonesia’s Electric Vehicle Race

In the race to become the region’s EV powerhouse, Southeast Asian nations are seeking the involvement of state companies with a strong stake in fossil fuels.

Gojek and Foxconn Enter Indonesia’s Electric Vehicle Race

Gojek drivers await passengers on Jalan MH Thamrin in Jakarta, Indonesia, on August 28, 2019.

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In Southeast Asia the race is on to become a regional electric vehicle (EV) powerhouse. VinFast, a subsidiary of Vietnamese conglomerate Vingroup, has big plans for a range of electric scooters and cars. Thailand recently saw the formation of an EV joint venture between Foxconn, Chinese start-up Hozon, and state-owned oil and gas giant PTT. Given the resources and political muscle behind these undertakings, as well as Thailand’s historical position as Southeast Asia’s leading auto exporter, the region’s nascent EV industry is worth taking seriously.

Now we have some new entrants on the Indonesian side. Foxconn, in addition to its Thai investment, announced last week that it will be part of an $8 billion joint venture to build a 200-hectare factory in Central Java (that is an estimate of the total investment value from all parties over time). As , the facility will “make battery cells, cathode precursors and telecommunication spare parts in addition to [electric] vehicles.” Some of the other partners include energy firm PT Indika Energy, Taiwanese electric scooter company Gogoro and the Indonesia Battery Corporation.

The Jokowi administration has been chasing Foxconn for a while, so they will certainly consider this a win. Even better for Indonesia’s larger EV ambitions, the announcement of ride-hailing app Gojek announcing its own partnership with TBS Energi Utama. Their plan is to invest about $1 billion in EV production over the next five years, first focused on supplying their massive fleet of motorbike drivers and then presumably scaling up from there.

I will be the first to admit, I am pleasantly surprised at how quickly things have moved in this area. Last year in an I detailed how Indonesia was using nickel export bans to create the favorable investment conditions for EV and battery production. But I wouldn’t have expected that less than a year later there would be so many newly minted EV companies emerging across the region. Not only that, but these joint ventures are being structured in ways that crucially address one of the biggest obstacles to a thriving EV industry in any country: the role of fossil fuel companies.

Clean energy transitions, of which EVs are obviously an important part, threaten the dominance of any legacy company built around fossil fuels. The biggest puzzle in pulling off an effective transition is not really about the financing or the technology; it’s about the political economy of energy production in countries that have powerful fossil fuel interests. That’s why it’s so crucial that PTT, the state-owned oil and gas giant, is an equity partner in Thailand’s EV plans. Now it has a financial incentive in seeing the EV industry grow.

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We see the same pattern in the structure of Indonesia’s new EV ventures. Massive state-owned companies, like oil and gas giant Pertamina or the state-owned electric utility PLN, are deeply tied up with fossil fuels. They exert such control over the production and distribution of energy in Indonesia that they could pretty much single-handedly hold up any transition to cleaner energy if they wanted to. And if we simply left it up to the market to decide, they likely would throw up roadblocks since clean energy threatens their business models.

Enter the Indonesia Battery Corporation, a state-owned holding company that includes Pertamina and PLN and which will now be an equity partner in Foxconn’s new 200-hecatre production facility. Like Thailand’s PTT, these powerful corporate interests now have a financial interest in the success of the EV industry, even if it comes at the expense of their fossil fuel revenue. Gojek’s EV venture includes a similarly strategic partner, TBS Energi, which is a large coal company with strong political ties.

For people who insist on taking principled stands in all matters, there is likely something a bit unsavory about EV companies partnering with such fossil fuel giants. But from a practical point of view, getting the buy-in of companies like PTT, Pertamina, PLN and TBS Energi is essential for charting a realistic path toward a cleaner energy future. Those companies need to have off-ramps from fossil fuels if they are going to genuinely support renewable energies and electric vehicles. And those off-ramps are starting to take shape.