9 Chapter 2 LITERATURE REVIEW The literature review consists of the helicopter view of the electric vehicle ecosystem in Indonesia. This chapter uses the Political, Economy, Social, Technology, Law, and Environment (PESTLE) analysis to elaborate the varying interests and conditions of stakeholders regarding the issue. Furthermore, a market sizing approach is provided in this chapter to touch upon the market share of EV cars in Indonesia. 2.1. EV Roles in Indonesia’s Net Zero Emission Targets Net zero emission refers to achieving a balance between the greenhouse gases emitted into the atmosphere and the greenhouse gases removed from it. In Indonesia, the pursuit of net zero emission is a crucial part of the national strategy to address climate change and transition towards sustainable energy sources. The Indonesian government has set ambitious targets to reduce greenhouse gas emissions, aiming to achieve net zero emission by 2060 (Ministry of Energy and Mineral Resources, 2021). A significant component of this initiative involves the promotion of EVs as a cleaner alternative to traditional internal combustion engine vehicles, which are a major source of carbon emissions due to their reliance on fossil fuels (International Energy Agency, 2022). The integration of electric vehicles into the Indonesian market is supported by various governmental regulations and incentives designed to facilitate the adoption of EVs. These include tax reliefs, import duty exemptions, and financial subsidies for both manufacturers and consumers (Strangio, 2024). Moreover, the development of a domestic EV industry is encouraged through investment in EV manufacturing facilities and battery production plants (Kaur, 2023). This not only helps reduce the carbon footprint associated with transportation but also aligns with Indonesia’s broader economic goals of enhancing technological innovation and industrial competitiveness in the global market. Overall, by promoting electric vehicles, Indonesia aims not only to curtail its carbon emissions but also to modernize its automotive industry, boost economic growth, and ensure energy resilience. The shift towards electric vehicles is seen as a critical pathway for Indonesia to meet its net zero emission goals, contributing significantly to global efforts in mitigating climate change and promoting environmental sustainability. 10 2.2. Implementation and Realization of Incentive Indonesia's electric vehicle (EV) incentive program, which began in the second quarter of 2023, represents a significant policy shift aimed at accelerating the adoption of environmentally friendly transportation. The new legislation specifically targets the reduction of the car purchase tax for battery EVs that are manufactured domestically with at least 40% local content. Under this policy, the tax rate on eligible vehicles has been drastically reduced to 1% from the previous 11%, providing a substantial financial incentive for potential EV buyers. Currently, only two models meet the criteria for this tax reduction within the Indonesian market: the Hyundai IONIQ 5 and the Wuling Air EV. These vehicles not only comply with the local manufacturing requirement but also represent the spectrum of market segments being targeted by this initiative. The Wuling Air EV, priced below IDR 280 million, is positioned as an affordable option for th e broader market, potentially attracting a larger demographic keen on transitioning to electric vehicles without the steep financial outlay. This pricing strategy could significantly boost its sales, given the price sensitivity of the average Indonesian consumer (Rajen, 2023). On the other hand, the Hyundai IONIQ 5, despite its higher price tag of over IDR 650 million even after the tax incentive, is tailored more towards the medium to high- income bracket. Although this segment represents a smaller portion of the market, it is crucial for driving the adoption of new technologies, including EVs, which are often seen as premium products initially. Consumers in this income bracket are more likely to value the advanced features and the environmental benefits associated with electric vehicles, potentially serving as early adopters who can pave the way for broader societal acceptance (Rajen, 2023). This tiered approach to incentivizing EV purchases reflects a nuanced strategy by the Indonesian government, aiming to cater to different segments of the market while fostering a robust domestic EV industry. Such targeted incentives are expected to spur not only consumer interest but also encourage further investments in local manufacturing capabilities, which are essential for the sustained growth of the EV sector in Indonesia. As these policies take root, the increase in EV adoption is anticipated to contribute 11 significantly to the country's environmental goals, reducing carbon emissions and decreasing dependence on imported fossil fuels (Fitch Ratings, 2023). 2.3. Social Perception of Electric Vehicle in Indonesia The modern day society today heavily relied on transportation for maximum mobility to get from one place to another. Despite infrastructural and technical readiness, there are market readiness issues as well. Numerous factors, including both technological and psychological ones unique to each individual, affect the adoption of EVs. It is a vital aspect for various parties to elaborate a specific roadmap, integration, planning and collaboration. A maximum efficiency of resources should also be considered regarding it’s successful penetration to the market. The result of the electric car market depends on how well consumers accept the electric vehicle itself. In other words, consumer intention to purchase electric cars is based on consumer perception (Wang, Cao and Zhang, 2021). Many consumers do not fully understand that electric vehicles are energy efficient and a more sustainable and environmentally friendly option. This perception has caused consumers to have a hesitation in terms of electric car usage. If consumer perceptions have positive feedback, their perceived value and trust in electric cars itself will also increase along the way (Zhang et al., 2022). Influence of interest in buying vehicles in general is generally produced by consumer perception correlating the benefits and risks of the product itself. Regarding fuel economy, energy costs, and maintenance costs for services, repairs and spare parts are the main considerations for interest in buying an electric vehicle. Meanwhile the cost and risk of charging and changing the battery for electric vehicles is a quite major obstacle and a hindrance for people to buy electric vehicles (Kim et al., 2018). Purchasing interest is also something that a manufacturer should thoroughly be examined by market perpetrator to gain success in operating the electric vehicle market. Purchase interest can be used to predict future consumer behavior. There are three sets of factors that influence EV intention: personal factors, product attributes, and context factors.