Two workers installing the wheels of a Chinese car at a plant run by Indonesian general assembler Handal Indonesia Motor. - Photo: courtesy of Handal Indonesia Motor
BEKASI, West Java (Indonesia): Along the production line, technicians secure an engine, cables and window frames onto an automobile body. Down the assembly line, a finished car emerges.
The Handal Indonesia Motor (HIM) plant, an hour’s drive from Jakarta, began in the 1970s as a small facility that assembled cars for Nissan, but the Japanese brand stopped production there in 1981.
Later, South Korea’s Hyundai began assembling its cars there in 1995, before opening its own plant in 2022.
Since December 2023, a different breed of vehicles has been rolling off HIM’s assembly lines.
The plant now assembles electric vehicles (EVs) under Chinese brands Chery and Neta, in addition to traditional petrol cars from both companies and another Chinese carmaker, Jetour.
Indonesia is South-east Asia’s largest auto market, with a million vehicles sold each year.
To boost EV adoption, the government has lifted the luxury tax and the import tax on them until the end of 2025, among other incentives for car buyers.
Sales of battery-operated electric cars in Indonesia surged by 65.1 per cent to 17,051 vehicles in 2023, from 10,327 the year before, according to wholesale data from the Indonesian Automotive Manufacturers Association.
Sales of hybrid cars also jumped by 4.2 times to 54,179 in 2023 from 2022.
Besides advancing Indonesia’s progress towards net-zero targets, a strong EV market would also encourage manufacturers to produce in the country.
To lure investment, the government has promised tax exemptions to manufacturers, depending on the value of their investment and their use of locally sourced components.
Indonesia has been a well-known manufacturing hub for Japanese petrol cars since the 1960s, but now, it is also looking to expand its EV production capabilities, following in the footsteps of neighbours like Thailand.
At least 10 brands, including five Chinese ones, have invested in the country in the past few years.
More locally assembled Chinese EVs will also enhance the competitiveness of Indonesia’s automotive industry, said Koketso Tsoai, automobile analyst at Fitch Solutions’ research unit BMI.
“The increased availability of more affordable Chinese EV brands, manufactured locally, will benefit consumers due to lower costs, leading to higher EV sales and adoption rates in the country,” he told The Straits Times.
Several other Chinese brands, including Geely, will also begin production at HIM in 2025, said Jongkie Sugiarto, deputy main commissioner of the company.
HIM is one of three general car assemblers in Indonesia.
Venturing into a market by using local assemblers gives brands a chance to test the market before pouring sizable investment into building their own plants, he told ST.
“As a general assembler, we can do orders from any brand... If their brands are welcomed in Indonesia, they may build their own factories in the future,” he said.
To serve its new Chinese clients, HIM will open a new facility in February 2025 on a 38ha site it owns in Purwakarta, West Java province.
Employing around 1,000 local workers, it will have an annual capacity of 90,000 conventional or EV cars – triple that of its existing plant that has about 450 workers.
In November 2024, HIM exported its first EVs – 120 Chery cars, bound for Vietnam. HIM president director Denny Siregar said its overseas shipment may increase up to 400 a month in 2025.
“Some of the EV makers really see that Indonesia can become a production base in the region,” he told ST.
He pointed to several factors, such as Indonesia’s growing EV ecosystem including battery production that may allow efficient sourcing, tax incentives to spur the growth of the EV industry, and regional trade agreements.
While the demand for EVs has slowed in the US and other countries, and stiff competition has led to price wars in places like China and Thailand, EV makers are still betting on Indonesia, the world’s fourth-most populous nation of about 278 million people.
Hyundai and China’s Wuling Motors are already running their assembly lines in West Java’s Cikarang.
China’s BYD, the world’s biggest EV maker, is developing a US$1.3 billion (S$1.75 billion) plant in West Java’s Subang, where Vietnam’s EV maker VinFast is also building a US$200 million assembly facility.
VinFast expects to produce up to 50,000 cars a year once the factory opens in late 2025.
As public awareness and interest in the shift to EVs in Indonesia grows, driven by the government’s support through various policies and incentives, “there are clear opportunities for EV players like VinFast”, the company’s Asia chief executive Pham Sanh Chau told ST.
“While the number of EV manufacturers in Indonesia is limited, the annual growth rate of electric vehicles in the country is among the highest in the region. We see great potential in Indonesia,” he added.
Frost & Sullivan Asia Pacific’s mobility practice senior consultant Thurisina told ST that the country’s EV ecosystem would get a boost as Chinese companies would need a network of component suppliers when producing EVs locally.
“With more original equipment manufacturers in the market, production capacity increases, enabling economies of scale for the suppliers. This creates a win-win situation for all,” said Thurisina, who goes by one name.
Indonesia seeks to produce 600,000 EVs annually by 2030 and one million EVs by 2035. It is also leveraging its rich nickel reserves to establish itself as an EV production hub.
The increasing investments, especially from Chinese firms, will enable Indonesia to climb the ranks in EV manufacturing in South-east Asia, positioning it on a par with other key players such as Thailand and Malaysia, said Thurisina.
But it will be tough for Indonesia to realise its ambition of becoming a regional production base for EVs, as the competition is stiff.
Thailand, which has the largest EV market in Asean, offers more liberal policies compared with Indonesia. Foreign investors see it as an attractive manufacturing hub, as they are not bound by requirements to source locally made components for their vehicles, unlike in Indonesia, said Fitch’sTsoai.
Indonesia’s rich nickel mines have attracted global players to build battery factories, including HLI Green Power, a joint venture between South Korean battery producer LG Energy Solution and Hyundai Motor.
But Thurisina pointed out that “investment efforts have been largely concentrated on developing the upstream industry, such as nickel mining and EV battery cells, rather than on the actual production of the battery electric vehicles”. - The Straits Times/ANN
