Indonesia’s automotive sector has achieved remarkable milestones, with investments reaching USD 2.06 billion as of September 2024. This surge reflects the country’s growing role as a manufacturing hub in Southeast Asia, driven by proactive government policies and foreign investor confidence.
A 43% Surge in Five Years
The Investment Coordinating Board or BKPM reported significant growth in Indonesia’s automotive investments over the past five years. During a recent discussion titled “Automotive Industry Prospects 2025 and Government Incentive Opportunities,” BKPM’s Director of Investment Deregulation, Dendy Apriandi, highlighted the sector’s impressive performance.
“This figure has increased by 43% compared to 2019, which only reached USD 717.6 million,” said Dendy in Jakarta on January 14, 2025, as reported by kompas.com. This growth illustrates the effectiveness of Indonesia’s investor-friendly policies.
Foreign Investment Drives Industry Growth
Indonesia’s automotive sector has benefited greatly from foreign and domestic investors. Of the USD 2.06 billion invested, USD 1.83 billion came from foreign direct investment (FDI), with USD 234 million sourced domestically.
Between 2019 and 2024, Japan led the way, investing USD 4.88 billion in the sector. South Korea followed with USD 2.88 billion, while Singapore, Hong Kong, and China contributed USD 357 million, USD 233 million, and USD 67.6 million, respectively.
Car manufacturing dominated investment at USD 6.96 billion, followed by USD 1.09 billion for two- and three-wheelers. Meanwhile, USD 1.44 billion was directed toward battery production, reflecting the industry’s shift toward sustainable technologies.
How BKPM Supports Automotive Investment
Strategic initiatives by the Ministry of Investment and BKPM have bolstered investments in Indonesia’s automotive sector. These include vocational training programs to prepare workers for evolving market demands, making the workforce more attractive to investors.
Incentives specifically designed for the electric vehicle sector have been another critical factor. These include tax holidays, tax allowances, and exemptions from import duties for EV-related industries.
Additionally, Presidential Regulation No. 79 of 2023 introduced further incentives such as 0% import duties and 0% luxury goods sales tax for battery-based electric vehicles. These measures have positioned Indonesia as a prime destination for investments in electric mobility.
Driving Economic Growth Through Investments
Indonesia’s automotive investments have significantly boosted the economy. These investments have created jobs, strengthened local industries, and enhanced export capabilities. Car manufacturing remains the backbone of this growth, supported by investments in two- and three-wheelers and battery production.
Moreover, the automotive sector’s growth has fortified local supply chains by increasing demand for domestically sourced materials. This has fostered innovation and collaboration among international and local stakeholders, ensuring Indonesia remains competitive globally.
The Future of Automotive Investment in Indonesia
With targeted incentives, car sales in 2025 could reach 900,000 units, reversing the 13.9% decline in 2024, where sales dropped to 865,723 units. However, without additional support, such as extended tax incentives, import duty exemptions, and workforce development programs, sales could fall below 800,000 units, highlighting the importance of government intervention in sustaining market momentum.
Indonesia’s automotive sector is still poised for continued expansion, with electric vehicles and battery technologies leading the charge. By leveraging strong government policies and sustained investor interest, Indonesia can further solidify its position as a leader in the global automotive industry, setting the stage for transformative growth.
Source: kompas.com, anataranews.com, liputan6.com
Image: Getty Images
