Hyundai Motor Group is poised to produce electric vehicles, including the flagship Ioniq 5, in Indonesia equipped with battery packs made at its manufacturing plant there from August 2024, ramping up production to allow hefty EV tax incentives.

“Hyundai Energy Indonesia will be producing battery packs from July 2024 using cells made by Hyundai Motor Group and LG Energy Solution’s joint battery manufacturing plant. A month later, the packs will be put into EVs produced in Indonesia,” said Lee Young-tack, president of ASEAN Headquarters at Hyundai Motor Group, during a panel discussion at the Business Forum on 50 years of Indonesia-Korea Relations held at a Seoul hotel on Tuesday.

Hyundai Energy Indonesia is a battery pack manufacturing joint venture by Hyundai Motor Group and its automotive parts unit Hyundai Mobis.

The event was co-hosted by The Korea Herald, the Indonesian Embassy and the Indonesia Investment Promotion Center Seoul.

Producing electric cars with battery packs made in Indonesia "will help Hyundai to manufacture more than 40 percent of EVs locally and even up to 60 percent,” Lee added. “It will allow us to be the only automaker eligible for tax incentives, including exemption on the 15 percent luxury tax.”

The Indonesian government cuts value-added tax from 11 percent to 1 percent and provides exemptions on the 15 percent luxury tax once more than 40 percent of the manufacturing process of EVs is carried out locally. Hyundai’s Ioniq 5, together with the China-based Wuling Air EV, are eligible for additional subsidies worth 70 million rupiah ($4,700) per car.

Highlighting the company’s grand plan to expand exports to Southeast Asia from Indonesia, Lee said, “ASEAN countries, (like Indonesia), grant tariff-free exports if a carmaker meets the 40 percent requirement. Thailand and Indonesia, in particular, are scrambling to secure the upper hand in the EV market. We can export battery cells and packs from Indonesia to Thailand and benefit from Thailand (government’s EV incentives) as well.”

With a $1.1 billion investment, Hyundai Motor Group and LG Energy Solution set up a joint venture called HLI Green Power. It plans to construct a battery cell manufacturing plant in Karawang, Indonesia, adjacent to Hyundai’s Indonesia plant in Bekasi. Scheduled for commercial operation in April 2024, its annual production capacity is projected to be 10 gigawatt-hours.

According to Gabungan Industri Kendaraan Bermotor Indonesia, Hyundai’s Indonesia branch sold a total of 18,208 cars, up 93.1 percent from last year, during the January-June period. The Ioniq 5 sold over 3,500 units. Its market share increased to 3.6 percent.

Following the Indonesian government’s incentives, the automaker increased its monthly target production volume to more than 1,000 units from May.