Indonesia’s Automotive Industry: Recent Trends and Challenges

Abstract

Indonesia's growing middle class is the key driver of the rapid growth of the country's automotive industry over the last decade. Stable economic growth and government policies are other contributory factors, especially during the commodity boom period (2006-15). While there is some indication of improvements in the competitiveness of the industry, several structural weaknesses continue to hamper its growth. Traditionally, the industry has been dominated by Japanese car manufacturers, but Korean and Chinese carmakers have recently entered the sector. Although Japanese players have a strong comparative advantage in producing Internal Combustion Engine (ICE) cars, the newcomers are targeting a fresh segment-Electric Vehicles (EVs). The latter has been identified as one of the new priority industries based on global trends. This paper examines the recent developments and challenges in Indonesia's automotive industry. It examines key policies and their implications for the future of the sector.