Opportunities in Indonesia’s Automotive Market

Publish Date : May, 2020

The Indonesian automotive industry has now obtained the status of a primary domestic car sales market as the second-largest car manufacturing nation in Southeast Asia and the ASEAN region. With the Morris Garage, owned by SAIC, Dongfeng China entered the Indonesia Automotive Market many Chinese OEMs are viewing this market with a desire to get a foothold on it.

Automobiles play an essential role in developing countries. Indonesian Automotive Industry has a huge part in shaping the economy. The decline and building of the PV and CV have effects on the economy. Let’s look at various reforms and changes the industry underwent.

However, due to a decline in consumer spending power, the number of units sold by the Passenger and Commercial vehicle industry dropped by around 10.8% from 1.15 million units being in CY 2018 to 1.03 million sold in CY 2019.

Indonesia Automotive Market Trend and Outlook

COVID-19 has left a significant impact on all the industries, and the Indonesia Automotive Industry is not an exception. It has seen that more than 65% of car sale credit and leases. Alone in Greater- Jakarta 30-40% car sales have been affected due to COVID 19.

It is speculated that the Indonesian Automotive Industry will record a 30% to 45% decline by the end of 2020. The industry has suffered production halts of OEMs and components and consequently, temporary layoffs. The digital market has helped to provide a platform to push online sales. However, sales have slumped to a large extent in light of the recent pandemic.

The incentives and special offers are minimal as compared to the usual scenario. But, the country has appropriately maintained its industry and has taken enough care that it won’t suffer much loss. Recently the Indonesia Government announced to provides subsidy on a car loan to push sales volume.

Hence, we have seen all the changes and reforms that took place in the Automotive industry of Indonesia. Various challenges await before the country, and thus it is crucial to study the case. The entry plan of Chinese OEMs will also have a new outlook on the industry and its development.

Competitor Analysis – Passenger Vehicle:

Toyota dictates the market in the Passenger Vehicle segment with an almost 42% stronghold in 2019. Its close competitors, Honda and Daihatsu follow behind in their popularity in the market. Sporting extravagant growths of 322%, 1876%, 614295% in the last 5 years respectively, Daihatsu, Wuling, and Mitsubishi enjoy a comfortable foothold over the Indonesian Passenger Vehicle Industry. Another company, Dongfeng doubled its sales in under a year.

Indonesia Car SUV and MPV market Analysis and Forecast

Owing to its comfort and safety features, the MPV segment is the largest segment in the Indonesian market. Toyota Avanza, Suzuki Ertiga, and Daihatsu Xenia, which had a significant hold over the market, have declined drastically in the last 5 years. On the other hand, the Mitsubishi Xpander and Toyota Calya have seen a jump in their market share at the same time. Over this time, Chinese manufacturers have climbed up the ranks of market share with its Wuling Confero S and Cortez models at 9th and 15th positions.

Market Entry Strategy of Wuling in Indonesia Automotive Market – MPV Segment

In recent times, the SUV segment has become popular among consumers in the Indonesian market. This transition from sedans to SUVs has been advantageous to Toyota and Chinese Automobile manufacturers. Toyota’s Rush has steeped by almost a 10% market share in the last 5 years. Over the same period, the Terios stooped down 4%. The prices of these two models range from Rp 255,15 – Rp 262,5 Million. This is significantly lower than the Honda HR-V, which comes third place, with price ranging from Rp 301,6 – Rp 420,8 Million. The SUV segment’s premium section is led by Mitsubishi Pajero Sports and Toyota Fortuner.

Indonesia SUV market Analysis and Competitor Analysis with Wuling entry Strategy in Indonesia

On the other hand, Chinese Manufacturers with their competitive prices and advanced features like tire pressure monitoring system, vehicle running recorder, smart key system, and electric sunroofing have also been successful in this market. Wuling and Dongfeng motors launched their models within the price range of Rp 150,15 – Rp 341,5 Million.

Analysis of Buyer Segment:

The urban population contributes to more than 70% of the country’s GDP. More developed cities like Surabaya, Bandung, and Makassar are attractive spots for car sales. These cities have grown in GDP of more than 7% than the largest city, Jakarta.

The middle class comprises of almost 90% of the buyer segment in Indonesia. This segment of people spends from Rp 100 up to Rp 170 Million on both used and new cars. Honda is one of the leading car manufacturers in India, closely followed by Toyota, Daihatsu, and Suzuki. Agya, Ayla, and BRIO models, sporting 1000-1200 cc engines are the front runners of the Indonesian car market.

Surprisingly, the number of dollar millionaires has more than tripled in the last 5 years. The demographics of the Indonesian population leans more towards people aged under 40. With the median age of youth being 29, almost 60% of the population is under 40. The increase in spending power and GDP can be accounted for by the rapidly growing urbanization and Indonesia coming up fast as a leading global consumer market. Many of the youth prefer buying premium cars like Mercedes, BMW, and Audi as a lucrative status symbol.

With globalization and increased technological advancement, the percentage of people living In urbanized areas is on the rise. From 42% in 2000, this number is predicted to cross 71% by the year 2030.

Out of the 150 million Internet users in Indonesia, 95% amounting to 142 million have mobile phones and almost 60% of all adults have a smartphone. With the rise in wanting to stay connected all the time, consumers prefer having a car with access to the internet and connectivity with their mobile phones.

Electric Vehicle Policy:

Even in the Electric Vehicle segment, the industry seeks to start domestic production in the next 2 years and begin exporting by the year 2025. One of the major advantages of this industry in Indonesia is the availability of Nickel for making batteries. This can aid in significantly lowering the cost of production to prices comparable to that of ICE vehicles.
Companies like Amperex Technology Co. Ltd., miner Vale SA, and Japan’s Sumitomo Metal Mining Co. have already begun to show interest and this is supplemented by the government initiatives put in order to promote the sales and manufacturing of electric vehicles in the country. The government has given many benefits such as tax incentives to establish the Indonesia Electric Vehicle hub in the ASEAN region.

According to the improvised EV policy, the production of local components will increase from 40% in 2022 to 80% in 2026. This EV policy can be used to the advantage of Chinese OEMs like BYD and JIC.

Charging Stations and Regulations on BEV Electricity Tariffs:

The EV industry also faces the challenge of allocating provisions for charging infrastructure. This will be arranged by energy-related, state-owned companies. The state electricity provider can partner with a state-owned business firm, and with an electricity supply business license, it can impact the sale of charging stations.

OEM Investment Plan in Indonesia:

Many car manufacturers, global and local have already invested billions of dollars before the new policies have been enforced. Sources have reported that Toyota has in its plans to invest 2 billion dollars over the coming four years to develop the hybrid and electric vehicle segment in Indonesia. Plans to set up an electric car plant in Karawang are already placed by Hyundai. A billion-dollar investment by the Japanese Softbank group further looks to make improvements in the electric vehicle segment.

New product launches:

2020 will see the launch of many models such as BMG HS, Honda WRV, DFSK Glory E3, Suzuki Karimun Wagon R, Nissan Kicks 2020, Suzuki Swift 2020, Audi A4, Suzuki Vitara Brezza and Nissan leaf in Indonesia. Mercedes-Benz Indonesia has also introduced its new GLE and GLC cars. In Feb 2020, Honda launches Civic Hatchback RS cars. Maruti Baleno, closely competing with a BS6-compliant 1.2-liter petrol engine in 2019 also made its presence known as the largest selling B2 segment hatchback in the country. Suzuki has also been successful with its Suzuki XL7, sporting a 7 seater premium. The Toyota Camry Sedan and Avanza made its debut last year in Indonesian markets.

Market Challenges:

In view of sluggish sales and its small market segment, US carmaker and owner of Chevrolet, General Motors announced a cessation of all its cars in the Indonesian market at the beginning of last year. On the other hand, Nissan announced that it would cancel the production of its Datsun cars from January 2020.

Indonesia Commercial Vehicle Market:

The Indonesia Commercial vehicle market declined by 16% in 2019 compared to 2018. FUSO being the market-country commercial vehicle in Indonesia in the truck and bus segment. The other key players of the CV industry are Daihatsu, Toyota, Isuzu, and Suzuki.

Indonesia Commercial vehicle market Analysis and GDP Growth rate

The company has a rich portfolio for medium and giant fleet owners’ customers and different Truck Applications. There are multiple variants available with varying configurations of axle like 4×2, 6×2, 6×4 with various wheelbases, better power output Light in Light and Medium Duty truck segment. The Canter and Hino Ranger FM 260 JD being the best-selling model in its category.

The Fuso expanded it’s after-sales network also in the last couple of years to serve better its customers, and this step helps the company to increase its market share. Hino is another top OEM in Indonesia CV Market.

Chinese OEMs are planning to have a significant market share in the Indonesia CV market. FAW and Dongfeng are eyeing on the Indonesia market and position their products between an affordable price (Budget Truck) and Value Plus range. These Chinese players must compete with quality Japanese and advance German technology trucks.

Chinese OEM Entry Strategy in Indonesia CV Market

The key challenge for Chinese OEMs will be giving the best TCO for applications like mining, construction, and logistics.

Tata Motors also launched a wide product range Tata ACE, LPT, Prima, and Ultra Truck range in Indonesia.

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