Thinking 360 for the EV space

As the world looks at going green, investors around the globe are keeping an eye on government policies and actions that will spur a revolution to create a green supply chain.

Within Asean, there have been some very impressive announcements, with Indonesia being top-of-mind in so many key parts of the value chain.

Going through the list, we have quality investors piling into Indonesia from France, Australia, Switzerland, Brazil and China (three different groups) for nickel mining and smelting.

For the production of electric vehicle (EV) batteries, parts and components, we see global players from Korea in the mix with China, while EV production is concentrated in Korea, Japan and Taiwan. For the charging stations and swapping infrastructure, we are seeing various local Indonesian names as well as the large conglomerate names from Switzerland and Germany.

Indonesia has a huge advantage over the other Asean countries, namely its very large domestic market. However, Thailand is also pushing their EV manufacturing, as they have been Asean’s hub for well-known carmakers from Japan, Korea and Europe for decades.

When I visited an auto parts manufacturer in Thailand over 15 years ago, I remember thinking how far ahead they were in terms of production capacity and utilisation rates, compared to the other component part manufacturers in the region. Even in those days, they were focused on the ecosystem within their manufacturing niche.

With plenty of momentum gathering in this space, one can’t help but do a double-take when reading some of the ludicrous statements made by certain governments.

For example, one government recently announced the “allocation of a billion-dollar fund to finance ‘marginally bankable energy projects’”. No prizes for guessing what will happen to that fund (and which country made that statement!).

Another classic faux pas was this recent announcement by Indonesia’s financial regulator, Otoritas Jasa Keuangan (OJK), which is considering making coal-fired power plants that supply electricity to electric vehicle battery manufacturers eligible for green financing.

According to OJK chairman Mahendra Siregar, under Indonesia’s review of its “green taxonomy”, OJK would consider expanding its green label to loans for coal-fired power plants used by industries that make sustainable products, including batteries for electric vehicles.

Indonesia’s green taxonomy is a framework defining what investment is considered environmentally friendly, and is currently being revised to include funding for early retirement of coal power plants, to match the taxonomy agreed by Asean.

In a Reuters report, Mahendra was quoted as saying, “In the end, we need to see the whole result, the end product of the whole supply chain,” in justifying why such funding could be considered environmentally sound.

Not everyone agrees. The Institute for Energy Economics and Financial Analysis (IEEFA) has come out to say that if this were adopted, it would relegate Indonesia to the bottom of the pack of global green or sustainable finance taxonomies.

IEEFA said that it went against scientific evidence to claim that new coal-powered generation could protect or improve the environment.

I would have to agree. Ensuring the traceability of the product and that the supply chain is all-encompassing is, of course, critical. Ultimately, there needs to be a greater move away from coal-fired power, in order for the EV story to be effective in helping to reduce carbon emissions.

For instance, if you still have a huge number of EV cars on the roads, you will still need EV charging stations and if they run off fossil fuels, we are only dealing with half the problem.

In addition, we will also need to focus on ensuring that the mass transport system is EV-powered. Focusing on only one side of the supply chain will not transition a country to where it needs to be, or even help in the overall goal of reducing carbon emissions.

In this regard, Indonesia does deserve some credit: their government has announced that they aim to electrify their public bus system. This should be the focus throughout the region: public transport with an aim to reduce the number of cars on the road.

Moreover, I often wonder how any government can talk about developing its EV auto sector, if they haven’t resolved other environmental issues, such as flooding. If EV cars are to become more affordable and accessible to the population, one can’t imagine how you will be able to readily charge your EV car if you live in a flood-prone area.

These three major systemic problems – massive traffic jams, major floods and fossil fuel-powered charging stations – just do not add up to a sustainable green automotive sector.

The thought process behind some of the “green decisions” in the region really makes you wonder if we are entering another period of tulip mania. - FMT

The views expressed are those of the writer and do not necessarily reflect those of MMKtT.