JAKARTA: New Chinese carmakers have expanded into Indonesia over the past three years. By offering affordable yet feature-packed electric vehicles (EVs), they have begun to chip away at the dominant role of Japanese and South Korean brands in Indonesia’s auto market.

Despite shrinking new car sales in Indonesia in recent years, Chinese automakers are drawn to the country amid intense competition in their home market following massive capacity expansion, but also thanks to tax breaks Indonesia grants on imported cars.

In its 2023 annual report, Chinese automaker SAIC Motor highlighted intensifying market competition leading to price wars on “an unprecedented scale”. The fierce pricing battle continued through the end of last year, with EV prices slashed by an average of 10 per cent in December alone to boost deliveries and meet annual sales targets, according to a report from the South China Morning Post.

The shake-up saw SAIC Motor lose its position as the country’s top car seller to BYD last year. Spare capacity is another major challenge for Chinese carmakers that, like those in Germany and other countries, rely heavily on exports to sustain their operations.

Goldman Sachs estimates that Chinese EV manufacturers have the capacity to produce around 20 million units annually, of which only some 11 million were sold in the domestic market last year.

Between 2021 and 2024, the country’s auto exports more than tripled to around six million units, making China the world’s largest car exporter. Over the same period, automotive shipments from China to Indonesia doubled in value to US$3.2 billion.

Following the pre-pandemic arrivals of Wuling and DFSK, Indonesia has since welcomed imports of many other Chinese brands, including Great Wall Motors, Neta, BYD, BAIC, AION and Chery.

In the first two months of this year, Changan, Honri, Xpeng, Geely and motorcycle brand QJ Motor all announced their entry to Indonesia. Some of them have set up factories in Indonesia, while others are in the process of doing so, but a significant portion of Chinese cars sold in the country still arrive as completely built-up (CBU) imports.

Koketso Tsoai, an analyst at Fitch Solutions’ BMI Research, notes that Chinese automakers are targeting the Indonesian market with high-tech, feature-rich vehicles offered at competitive prices. “Brands like Wuling have effectively captured market share from established players like Hyundai by combining competitive pricing with a product lineup that resonates with Indonesian consumers,” he told The Jakarta Post on Friday (March 7).

Tsoai highlighted that Indonesia’s appeal was boosted by government incentives, including discounts on value-added tax (VAT) and luxury goods tax for EVs with varying levels of local content, as well as exemptions for import duties on CBU EVs until the end of this year.

Redseer Southeast Asia partner Roshan Raj cited the combination of a pressing need to diversify from their oversaturated home market, as well as government incentives and a low vehicle ownership rate as the key reasons for Chinese automakers to enter Indonesia.

However, he opined that the trend was unlikely to boost new car sales this year, after the figure fell 13.9 per cent year-on-year (yoy) to 865,000 units last year. “Chinese EV offerings have created incremental demand, but economic headwinds continue to dampen the broader market,” Roshan told the Post on Wednesday.

Data from the Indonesian Automotive Manufacturers Association (Gaikindo) show that Chinese automakers have steadily gained ground in Indonesia, with their market share rising from 3.4 per cent in 2021 to 6.4 per cent last year.

Meanwhile, Japanese brands saw their share decline from 95 per cent to 89.3 per cent over the same period. South Korea’s Hyundai, which aggressively pushed its Ioniq EV lineup, briefly reached a market share high of 3.5 per cent in 2023, but slipped to 2.6 per cent last year.

During a visit to Hyundai’s factory in February, House of Representatives Commission VII deputy chairman Lamhot Sinaga expressed concern over a surge of EV imports, mostly from China. He said that the trend had eroded Hyundai’s competitiveness and reduced its local plant utilisation by 30 percent since 2022.

“They [Hyundai] were the first to invest here, positioning themselves as pioneers of locally made EVs. They shouldn’t be treated the same as companies that simply import their products without investing in local manufacturing,” Lamhot said at the time. Hyundai was not immediately available for comment on how Chinese EV imports have affected its competitiveness.

At the opening of the Indonesia International Motor Show (IIMS) 2025 in February, Industry Minister Agus Gumiwang Kartasasmita called on foreign automakers to invest in local production, rather than just sell their vehicles in Indonesia. “We remind manufacturers not to solely import cars; [they also need] to strengthen domestic production, including meeting local content requirements (TKDN) to support small and medium enterprises,” he said at the time, as quoted by Kompas.com.

Yannes Martinus Pasaribu, an automotive industry analyst at the Bandung Institute of Technology (ITB), said Chinese automakers had a long-term strategy to later set up manufacturing plants and build local supply chains in Indonesia, but that won’t be an easy feat.

“So far, challenges remain, particularly with dealerships and after-sales services that are still concentrated on Java. Additionally, consumer perception of Chinese brands hasn’t fully turned positive,” he told the Post on Friday. – The Jakarta Post/ANN