Indonesia, the last bastion of Japanese cars begins to collapse

In December 2024, the Nikkei conducted a documentary titled "The Disappearing Engine Sounds in Thailand," which tells how Chinese electric vehicles have seized the market in Thailand, which was once dominated by Japan.

The article describes: "In Thailand, where Japanese cars once held a market share of 90%, the development momentum of Chinese car manufacturers is unstoppable. More than 20 Chinese brands, including BYD, have entered Thailand, causing the market share of Japanese car companies to drop to 76% within two years. There has also been a significant shift in talent within the automotive industry, with a sharp increase in employees from Japanese dealerships moving to Chinese car companies."

Now, Indonesia is facing a similar situation.

On March 30, 2025, Nikkei Asia published an article titled "The Dominance of Japanese Cars in Indonesia is Being Eroded by China." The article states that for a long time, Japanese brand cars held an absolute dominant position in Indonesia, the largest market in Southeast Asia. However, in recent years, as more and more Chinese new energy vehicles have entered Indonesia, the country's automotive market is quietly changing.

The article indicates that Japanese car manufacturers are under pressure to reassess their production capacity in response to market shrinkage and the rise of Chinese electric vehicles. "The pie of the new car market is getting smaller," lamented Hiroyuki Ueda, president of Toyota Astra, Toyota's subsidiary in Indonesia. "There are more and more competitors in the market, and the competition is extremely fierce."

Indonesia is the largest economy in Southeast Asia and the largest country by area (14th in the world) and population (4th in the world) in Southeast Asia. Since the 1970s, Japanese car manufacturers such as Toyota and Honda have begun establishing factories in Indonesia and building supplier and dealer networks. By 2012, Japanese car manufacturers collectively held over 90% of the market in Indonesia.

In recent years, Japanese car sales in Thailand have rapidly declined, and their market share in other Southeast Asian countries has also shrunk. Now, in Indonesia, which has been regarded by Japanese car manufacturers as the "last bastion," their dominance is also beginning to crumble.

Change is happening in the Indonesian market.

Chinese Cars to the Left, Japanese Cars to the Right

In 2024, car sales in Indonesia fell by 13.9% year-on-year, but it still maintained the top position in Southeast Asia with 866,000 units sold. Indonesia is not only the largest automotive market in Southeast Asia but also the second-largest automotive producer in Southeast Asia, after Thailand.

As the largest traditional fuel vehicle market in Southeast Asia, although Japanese cars have built a solid fortress in the Indonesian market, Chinese brands are still using electrification as a breakthrough to successfully pry open this seemingly impregnable defense.

Data shows that in the first half of 2025, sales of pure electric vehicles in the Indonesian market surged by 267% year-on-year to 35,749 units. Among them, Chinese automotive brands accounted for 93% of total sales. In the same period last year, Indonesia's pure electric vehicle sales were only 9,729 units.

Accompanying this is the rapid increase in market share for Chinese brands. According to Gaikindo, the market share of Chinese brands (especially electric vehicles) grew from 3.4% in 2023 to 6.4% in 2024, and reached 10.4% in the first quarter of 2025 In this process, the survival space for Japanese cars is continuously being squeezed. In terms of market share, Japanese car manufacturers accounted for over 76% of the Indonesian automotive market in the first half of 2024, while the share for the first half of 2025 is around 71%.

In 2024, Toyota's sales in Indonesia reached 289,000 units, with a market share of 33.4%, maintaining its leading position in the Indonesian automotive market. In fact, starting from 2024, Toyota's production and sales in Indonesia have begun to decline.

In the first half of 2025, Toyota sold a total of 123,800 units in Indonesia, a decrease of 5% compared to 129,700 units in the same period last year, while its market share remained around 33%. Although there was a slight decline, it remained relatively stable. The sales data for other major Japanese car manufacturers is not very optimistic either. From January to June this year, Mitsubishi sold a total of 31,000 units in Indonesia, down 15% from 36,000 units in the same period last year. The sales of Daihatsu, Honda, and Suzuki also declined in the first half of this year, dropping by 25%, 31%, and 18%, respectively.

Despite the sluggish domestic market, Indonesia's automotive exports have risen against the trend.

In the first half of 2025, Indonesia exported 233,600 vehicles, an increase of 7% compared to the same period last year. Data from the Indonesian Automotive Industry Association (Gaikindo) shows that domestic sales during the same period fell by 8.6%, down to 374,740 units, continuing the downward trend since 2023.

Yohannes Nangoi, chairman of the Indonesian Automotive Association, stated, "Indonesia exports cars to over 90 countries, including developed countries like Japan." "The export of unassembled vehicles and automotive parts has also increased significantly," he added. Bob Azam, vice president of Toyota Motor Manufacturing Indonesia, stated that exports are increasingly contributing to its business, currently accounting for 60% of the company's revenue.

The subsidiary of Japan's Toyota Motor Corporation is the largest automotive manufacturer in Indonesia, holding about 30% of the domestic market share. From January to June this year, the company exported 80,326 vehicles from Indonesia, a 0.9% increase compared to the first half of 2024. However, this slight growth sharply contrasts with its domestic sales in Indonesia, which fell by 4.5% to 123,846 units during the same period.

Daihatsu Motor Company (ADM), Indonesia's second-largest automotive exporter, is optimistic about the export situation in the coming months, despite its overseas shipments declining by 2% to 51,404 units from January to June, with exports accounting for 25% of the company's sales.

"Policy + Resources" Combination Punch

Becoming a global hub for the electric vehicle industry has always been Indonesia's strategic goal. From mineral resource management to the layout of the entire industry chain, this archipelagic nation has shown a firm determination to create a closed-loop electric vehicle industry.

To accelerate the development of the electric vehicle industry, the Indonesian government has recently established a multi-level policy incentive system, covering tax reductions, localization production requirements, import preferences, and consumer subsidies.

To promote the sales of electric vehicles, the Indonesian government launched a series of encouraging policies in March 2023. For electric vehicles with a domestic parts rate of 40%, the sales tax was reduced from 11% to 1%, and production subsidies were provided. In addition, companies investing in building factories in Indonesia will enjoy tax incentives, including exemption from import duties and a preferential tax rate of 15% on luxury goods sales tax, which will take effect at the beginning of 2025 According to the Indonesian government's plan, by 2030, the domestic market for electric vehicles will reach 2.2 million units, with an annual production capacity of 500,000 electric vehicles, making it the center of the electric vehicle industry in Southeast Asia; by 2050, only electric vehicles will be sold.

Why is Indonesia so fond of electric vehicles?

Indonesia's electric vehicle strategy is built on its unique resource endowment. Unlike other Southeast Asian countries, Indonesia has abundant geological resources. Metals such as nickel, cobalt, and manganese are core raw materials for power batteries, and Indonesia is the world's largest producer of nickel and the second-largest producer of cobalt.

Data from the United States Geological Survey (USGS) shows that in 2020, the world's nickel resource reserves were approximately 94 million tons, with Indonesia ranking first in resource reserves at about 21 million tons, accounting for 22%.

In 2014, Indonesia issued a ban that completely prohibited the export of unprocessed raw ores, including nickel and bauxite, which must be smelted or refined locally before export. In 2020, Indonesia again implemented a ban on nickel ore exports. Behind this move is Indonesia's ambition to seize the dominant position in the global electric vehicle supply chain.

The effects of this initiative are evident. In recent years, companies such as Hyundai, LG, and CATL have successively invested in building battery plants in Indonesia.

In July 2024, Hyundai and LG Energy Solution jointly announced that the power battery manufacturing plant they are building in Indonesia officially commenced operations. This factory marks the arrival of Indonesia's first electric vehicle battery production base, with an initial annual production capacity set at 10 gigawatt-hours (GWh).

On June 29, 2025, CATL's joint venture battery factory project in Indonesia officially broke ground. The initial production capacity is set at 6.9 GWh, with plans to officially start production by the end of 2026; the long-term goal is to gradually expand production to 15 GWh, which can meet the battery demand for 250,000 to 300,000 electric vehicles.

In the new energy sector, Indonesia is simultaneously achieving dual breakthroughs in the aggregation of the battery industry chain and the clustering of electric vehicle companies.

Investment Hotspot for Electric Vehicles

For many years, the Indonesian government has frequently extended olive branches to Tesla, hoping that this electric vehicle giant would settle and invest, but has not yet succeeded. However, this has not dampened the enthusiasm of other electric vehicle manufacturers; currently, the Indonesian market has become a battleground for global new energy vehicle companies.

In fact, many car manufacturers invest in building factories in Indonesia not only to meet local market demand but also to position Indonesia as an export center for Southeast Asia and even globally.

On July 24, XPeng Motors Chairman He Xiaopeng announced on social media that XPeng's first overseas intelligent manufacturing base has officially commenced production, and the first locally produced XPeng X9 in Indonesia has been officially delivered to Indonesian owners. This marks a milestone in XPeng's global localization production strategy. Starting from Indonesia, XPeng Motors will officially launch its global localization production strategy.

Earlier, on June 10, GAC Aion's first local assembly plant in Indonesia also officially commenced production. This factory is located in Purwakarta, West Java Province, Indonesia, and was built in cooperation with the well-known Indonesian dealer group Indomobil Group. GAC not only views Indonesia as a core market in ASEAN but also positions its smart factory strategy as "local manufacturing + radiating to the Asia-Pacific." Starting with a production capacity of 20,000, the plan is to gradually expand to a capacity of 50,000, covering the demands of pure electric and hybrid platforms.

In addition, the BYD factory in Indonesia, which began planning in May 2023, is also scheduled to be completed by the end of 2025, creating over 18,000 new jobs locally. The total investment in this factory amounts to $1 billion, with an annual production capacity of 150,000 electric vehicles, primarily targeting the export market in the long-term plan.

In 2015, SAIC-GM-Wuling was the first Chinese car company to invest in a factory in the suburbs of Jakarta, Indonesia. In this process, Wuling also facilitated the entry of 17 Chinese automotive parts companies into Indonesia, developing over 100 local Indonesian suppliers. In April 2023, Wuling further signed a memorandum of understanding with the Indonesian government for a new energy project, planning to expand electric vehicle production capacity and explore exports.

Japanese and South Korean car manufacturers are also increasing their investments in Indonesia. The day before, on July 23, Japanese automaker Toyota announced that it would start electric vehicle production in Indonesia this year. As a result, Indonesia will become the third country to produce the Toyota bZ4X pure electric SUV, following Japan and China. Mitsubishi Motors plans to continue investing $670 million in Indonesia from 2022 to 2025 to expand production capacity and accelerate the development of hybrid and electric vehicles.

In March 2023, Hyundai Motor's factory in Indonesia began production. As Hyundai's only factory in Southeast Asia, the vehicles produced there will not only be sold in the Indonesian market but also exported to nearby Southeast Asian markets.

Indonesia is being viewed by global automakers as an export hub for Southeast Asia, especially as a right-hand drive electric vehicle production base. More and more car manufacturers plan to leverage Indonesia's low-cost manufacturing and free trade policies to reach the ASEAN and global markets.

The vigorous wave of electrification is changing the traditional landscape of Indonesia's automotive industry, and this is believed to be just the beginning.

Indonesia, the last bastion of Japanese cars, is beginning to crumble.

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