The Indonesian automobile market is one of the key markets in the Southeast Asian region, with annual sales exceeding one million units, making it China’s second-largest automobile market. The market size continues to grow, demonstrating strong market potential and vitality. In recent years, the Indonesian automobile market has maintained steady growth. For instance, in 2022, Indonesia’s automobile production reached over 1.4 million vehicles, showing a robust upward trend. Chinese automakers are increasingly prominent in the Indonesian market. For example, within five years of production in Indonesia, Wuling Motors has entered the top ten in Indonesian automobile sales. In addition, automakers such as BYD and Geely also plan to or have already entered the Indonesian market, launching several electric vehicles.
Despite a general decline in the overall Indonesian automobile market from January to April 2024, the sales volume of electric vehicles from Chinese automakers continues to grow. For example, Wuling brand’s electric vehicle sales in the Indonesian market exceeded 5,000 units in the first quarter, accounting for 64% of the total electric vehicle sales in Indonesia during the same period. In the Indonesian automobile sales ranking, the Wuling brand, with its affordable prices and excellent quality, has successfully entered the top ten sales list and has been at the forefront in some months.
Opportunities for Chinese Automobiles in Indonesia
1. Indonesian New Energy Policy
The Indonesian government plans to have 20% of locally produced cars be electric vehicles by 2025, to only sell electric motorcycles from 2040, and to sell only electric vehicles from 2050. To this end, the Indonesian government has formulated a series of new energy vehicle-friendly policies, including tax incentives, purchase subsidies, and reduced tariffs.
The Indonesian government has included the expansion of electric vehicle production in the “Indonesian Economic Development Master Plan for 2011-2025” and has proposed the development plan for electric vehicle supporting infrastructure in the “National Medium-Term Development Plan for 2020-2024.”
At the tax level, the Indonesian government has also implemented a large number of tax incentives for electric vehicles:
– Cancellation of Luxury Tax on Electric Vehicles: The Indonesian government announced the cancellation of the luxury tax on electric vehicles in the fiscal year of 2024 to encourage the sale of electric vehicles.
– Reduction of Import Duties: The Indonesian government also plans to cancel import duties on electric vehicles by the end of 2025, further reducing the cost of imported electric vehicles.
– Value-Added Tax (VAT) Benefits: According to the regulations of the Indonesian government, starting from the end of 2023, when a domestic content level (TKDN) of an electric vehicle or bus reaches 40% and participates in a specific plan regulated by the Ministry of Industry, a 10% VAT incentive is available, reducing the VAT for electric vehicle buyers from 11% to 1%. For electric vehicles or buses with a TKDN level between 20-40%, a 5% VAT incentive is available, meaning that the VAT payable is 6%.
2. Brand Influence
Chinese new energy vehicle brands such as BYD, SAIC-GM-Wuling, and Chery have achieved certain results in the Indonesian market and have successively started local production in Indonesia, which helps to reduce production costs, improve market response speed, and attract the interest of many consumers.
3. Market Growth Potential
According to data from the Indonesian Automotive Manufacturers Association (Gaikindo), the sales volume of new energy vehicles in Indonesia has shown a rapid growth trend in recent years. Especially in 2022, sales reached 15,437 vehicles, an increase of nearly five times compared to 3,193 vehicles in 2021.
The Indonesian government has clearly set a target of 50,000 battery electric vehicle sales by 2024, showing a positive promotion of the electric vehicle market. From January to April 2024, the total sales volume of new energy vehicles in Indonesia was 24,343 units, a year-on-year increase of 96.7%, among which BEV (pure electric vehicles) sales increased by 151.5% year-on-year. This indicates that the new energy vehicle market in Indonesia is growing rapidly.
Challenges for Chinese Automobiles in Indonesia
1. Market Competition
The local automobile market in Indonesia is dominated by Japanese brands, forming a scale effect, which poses a high market entry barrier for latecomers. Japanese car companies have a long-standing dominant position in the Indonesian market, with high brand recognition and consumer loyalty. Chinese car companies need to continuously improve product quality and service levels to gain more consumer recognition.
2.Challenges in the Early Stages of Market Development
The new energy vehicle market in Indonesia is still in its early stages of development, with insufficient technical service guarantees, supply chains, and ecological construction. This requires Chinese companies to overcome these infrastructure and service system deficiencies when entering the market.
3.Policy Uncertainty
Due to historical reasons (the complete collapse of Chinese motorcycles in Southeast Asia), government departments may have doubts about Chinese brands. The incentives and subsidy policies of the Indonesian government are uncertain, which may bring certain risks to the operation of car companies in the Indonesian market. Chinese car companies need to pay close attention to policy changes and adjust market strategies in a timely manner.
China’s Competitive Relationship with Japan and South Korea in the Indonesian New Energy Vehicle Market
Japan
1. The decline of Japan’s trade share in ASEAN and the growth of China:
Nikkei reported on the 26th that in the past 20 years, Japan’s trade share in ASEAN has been reduced by half, while China’s share has tripled.
Chinese electric vehicles (EVs) are becoming more and more popular in the Southeast Asian market, challenging the traditional advantages of Japanese car brands in the region.
2. The rise of Chinese car brands in the Indonesian market:
Japanese car brands account for 90% of the new car market in Indonesia, but Chinese car brands such as GAC Aion and BAIC Group are actively entering the Indonesian market, mainly displaying and selling electric vehicles.
Japanese car companies are facing fierce competition from Chinese car companies in the Indonesian market, especially in the field of electric vehicles. Toyota’s car sales accounted for more than 50% in the first half of 2024 in Indonesia, but the expansion of Chinese car companies has put pressure on Japanese car companies.
Japanese car companies are trying to maintain a presence in the market by launching new hybrid vehicles, believing that hybrid vehicles are still attractive in Indonesia where charging infrastructure is not widely available.
South Korea
1. Hyundai’s construction of charging network in Indonesia:
According to the South Korean “Maeil Business Newspaper” on the 23rd, South Korea’s Hyundai Motor has established the “Hyundai EV Charging Alliance” with six charging companies in Indonesia, covering nearly 700 charging facilities in Indonesia, accounting for most of the private facilities.
Customers who purchase Korean brand electric vehicles in Indonesia can simplify the charging service process through the “My Hyundai” app, providing one year of free charging services and slow chargers, and enhancing the electric vehicle infrastructure.
2. South Korean companies’ investment and layout in the Indonesian electric vehicle industry:
As a country rich in nickel resources, Indonesia is actively developing the electric vehicle market and production center, with the goal of electric vehicles accounting for 20% of total sales by 2025 and producing 600,000 electric vehicles by 2030.
South Korea’s Hyundai Motor and LG Energy have jointly built the first power battery factory in Indonesia and Southeast Asia, with an annual capacity of 10 gigawatt-hours, supporting 150,000 electric vehicles, and plans to increase investment to expand production capacity.
South Korea’s Hyundai and LG plan to invest $11 billion in Indonesia to build a complete electric vehicle industry chain, using local mineral resources to promote the development of the Southeast Asian electric vehicle market.
Conclusion
In recent years, Chinese electric vehicle manufacturers have actively expanded the Indonesian market, attracting local consumers with cost-effective, innovative, and comfortable products. Among them, SAIC-GM-Wuling, as a pioneer, has established a production line locally and achieved significant sales performance. In 2024, more Chinese car companies such as BYD plan to build factories in Indonesia to increase production capacity. The Chinese automotive industry is accelerating its internationalization through excellent products and services, while adopting price strategies in the Southeast Asian market to enhance competitiveness. However, this strategy has also caused some controversies, such as price wars that may lead to consumer dissatisfaction and increased loan interest rates. To enhance the international image and competitiveness of Chinese cars, Chinese car companies should avoid vicious competition, learn from the successful experience of Japanese and Korean car companies, understand local culture and needs in depth, and take social responsibility to achieve sustainable development.
