Automotive
After a GDP recession of -2.1% in 2020, followed by a partial rebound in 2021 (+3.7%), the Indonesian economy has resumed its long-term growth rate, with the GDP growing by +5.3% in 2022 (the highest in nine years) and projected to grow by +5% in 2023. This is largely thanks to household spending, foreign and national investments, and increased public expenditures.
The automotive sector is one of those benefiting from this favourable context, with the progressive increase in income, the level of consumer credit rates, and the competitiveness of Chinese vehicle prices making them highly competitive. Based on recent data from the Association of Indonesian Automotive Manufacturers (Gaikindo), total car sales in Indonesia reached 502,536 in the first half of 2023, up 8.0% year-on-year (YoY) from the same period one year earlier. This is a good result, and also means that it remains possible for car sales to meet Gaikindo’s full-year target. Gaikindo’s sales target was set at 1.05 million vehicles for 2023, with the sales being dominated by the multi-purpose vehicle and low-cost green car. Meanwhile, wholesales (referring to car units being transported from the factories to the car dealers) reached 505,985 units in the first six months of 2023, which was a 6.5% (YoY) increase from the previous year.
An increasingly strategic industry
The automotive sector, including motorcycles and supply chains, is becoming an increasingly strategic industry in Indonesia, accounting for 6% of the country’s GDP.
The auto parts industry is also growing, with double-digit growth expected, and experts predict better performance than the overall automotive industry. Today, Indonesia ranks as ASEAN’s second-largest producer of light vehicles after Thailand. The country’s Low-Cost Green Car (LCGC) programme is gaining traction among global automakers, attracting investments from companies like Honda, Mercedes-Benz, and Mitsubishi. To meet production targets, the government aims to reduce LCGC prices, boosting sales and encouraging automakers to expand local production. Additionally, the Indonesian government plans to increase the local content of domestically assembled cars to more than 90%. Indonesia’s emergence as a production hub is tied to the fact that the capacity utilisation rate of its plants is lower than that of its Thai counterparts. Capacity utilisation at original equipment manufacturing (OEM) sites in Indonesia often falls below 60%, while the Thai average exceeds 65%. This advantage continues to drive the shift of manufacturing operations to Indonesia, given its skilled low-cost labour force.
The automotive sector contributes to Indonesia’s economic rebound, creating jobs, promoting infrastructure and regional development, attracting investors, fostering innovation, while becoming more virtuous with green engines and the recycling of materials that make up vehicles. The automotive industry also attracts top talent, engineers, designers, etc., and has ties with the educational system to promote employability, thereby helping to generate jobs and reduce unemployment. This is especially important as unemployment is one of the major concerns in Indonesia.
The market today
As for the distribution of types of vehicles, pickup trucks dominate the light truck market, constituting over 60% of the segment. These versatile vehicles are commonly employed for logistical transportation, particularly in areas with road size limitations or other traffic constraints. Most pickup trucks in the Indonesian market are imported from Thailand, with the Isuzu Panther being the sole domestically produced pickup truck model. CRI projects that light truck sales in Indonesia will reach 1.06 million units by 2032, growing at a Compound Annual Growth Rate (CAGR) of approximately 8.9% from 2023 to 2032.
Japanese brands dominate the market, but Korean brands (particularly Hyundai) and Chinese brands (such as Wuling) are making progress:
Brand | First Half of 2022 | First Half of 2023 | Change |
Toyota | 146,202 | 156,830 | +7.3% |
Daihatsu | 90,765 | 102,517 | +12.9% |
Honda | 53,910 | 67,797 | +25.8% |
Mitsubishi | 55,687 | 43,260 | -22.3% |
Suzuki | 41,060 | 41,233 | +0.4% |
Others | 77,633 | 90,899 | +17.1% |
Total | 465,257 | 502,536 | +8.0% |
Source: Gaikindo | |||
The challenges of electric cars
The main challenge for manufacturers and consumers is the transition from thermal combustion engines to electric vehicles, given that they make up less than 1% of vehicles today.
There are many barriers to purchasing electric vehicles despite incentives, tax deductions, and bonuses, and the levels of pollution for which thermal engine is responsible.
- Financially, pricing is not affordable for middle and lower classes and directly competes with brands like Mercedes, Audi, or BMW. Those who can afford prefer buying a car with a prestigious image, even if it runs on a thermal engine.
- Materially, there are many doubts about actual power, battery life, possible mileage (considering weight, weather, traffic jams), the availability of charging stations (which seem non-existent outside large cities), charging time, the possibility of charging at home (but at what additional cost and under what technical conditions?). Some motorists are more tempted by hydrogen engines, another challenge for electric power.
As seen at the Indonesia International Motor Show in Jakarta, the Indonesian government widely promoted the production and sales of electric vehicles in the largest automotive market in Southeast Asia, but buyers didn’t come as expected. Or if they did, they purchased mini-cars for very short urban trips, like the Wuling Hong Guang Mini EV, which is not their primary vehicle. For now, electric vehicles are not in sync with the Indonesian consumer’s needs and lifestyle, who often prefers larger vehicles with five or seven seats.
Nevertheless, Indonesia has set a target to produce around 600,000 electric vehicles by 2030, which would be over 100 times the number of vehicles sold in Indonesia during the first half of 2023. This is possible since people like new automotive technologies, but there are issues with price and usage that hinder its popularisation.