Indonesian Automotive Industry Faces Downturn, Calls for Government Intervention

Jakarta – The Indonesian automotive industry is experiencing a meaningful downturn, prompting urgent calls for government intervention to safeguard it’s contribution to the national economy. The Ministry of Industry (Kemenperin) stresses the critical need for incentives to bolster the entire industrial ecosystem,from upstream suppliers to downstream manufacturers. These measures are vital to maintain production levels, protect investments, prevent job losses, and enhance the competitiveness of domestically produced vehicles.

Data from the Association of Indonesian Automotive Industries (Gaikindo) reveals a concerning trend.Wholesale car sales (factory to dealer) for January-October 2025 totaled only 634,844 units – a 10.6% decrease compared to the 711,064 units recorded during the same period last year. Retail sales (dealer to consumer) also suffered a decline, reaching 660,659 units, down 9.6% from the previous year’s 731,113 units.

Further analysis by the Directorate General of Metal, Machinery, Transportation Equipment and Electronics Industry (ILMATE) indicates a drop in overall vehicle production, falling from 996,741 units in 2024 to 957,293 units this year.

The most substantial declines are concentrated in segments crucial to the national automotive landscape. Vehicles priced under IDR 200 million have seen a dramatic 40% decrease in sales. The IDR 200-400 million segment experienced a 36% drop, while commercial vehicle sales fell by 23%. These segments traditionally cater to domestic consumers, notably the middle class, and represent the largest production base within the country.

“We view that incentives are needed to reverse this situation,” stated Ministry of Industry spokesperson Febri Hendri Antoni Arief. He emphasized that proactive policy intervention is essential to revitalize the motor vehicle market and ensure the long-term sustainability of the Indonesian automotive industry.

The potential consequences of inaction are severe. A continued weakening of the market could lead to reduced factory utilization, decreased investment, and, critically, threaten employment within both the automotive and component sectors.

“The absence of policy intervention will allow these pressures to deepen, and the effects could impact the structure of the industry as a whole,” Arief warned.Incentive policies are thus considered not just beneficial for industry players, but a necessity for preserving a vital pillar of the Indonesian economy.

How can proactive crisis management, like Volkswagen’s battery strategy, mitigate the financial strain of the EV transition for legacy automakers?

Auto Industry Crisis: Urgent Action Needed to Prevent Catastrophic Impact

The Convergence of Challenges Facing Automotive Manufacturers

The global auto industry is currently navigating a multifaceted crisis, far exceeding the typical cyclical downturns. A perfect storm of factors – from persistent supply chain disruptions and the escalating costs of electric vehicle (EV) transition to shifting consumer behavior and geopolitical instability – threatens the long-term viability of numerous manufacturers. This isn’t simply a matter of reduced profits; it’s a potential systemic shock with far-reaching economic consequences. Understanding the core issues is the first step towards mitigating the damage.Key areas of concern include:

* Semiconductor Shortages: While easing, the impact of the global chip shortage continues to ripple through production lines, limiting vehicle output and driving up prices.

* Raw Material Costs: Lithium, nickel, cobalt – essential components for EV batteries – have experienced meaningful price volatility, increasing production costs and potentially hindering EV affordability.

* Inflation & Interest Rates: Rising inflation and subsequent interest rate hikes are impacting consumer spending, making vehicle purchases less accessible.

* Geopolitical Risks: Conflicts and trade tensions introduce uncertainty into supply chains and market access, further exacerbating existing challenges.

The EV Transition: A Double-Edged Sword

The push towards electric mobility is arguably the most significant conversion the auto industry has ever faced. While crucial for achieving sustainability goals, the transition is proving far more complex and expensive than initially anticipated.

financial Strain of EV Investment

Manufacturers are pouring billions into EV progress,battery technology,and charging infrastructure. This massive capital expenditure is straining financial resources, particularly for legacy automakers burdened with existing internal combustion engine (ICE) infrastructure. The return on investment remains uncertain, and the timeline for profitability is longer than many predicted.

Battery Supply Chain Vulnerabilities

The battery supply chain is heavily concentrated in a few countries, creating vulnerabilities to geopolitical risks and potential disruptions. Securing a stable and ethically sourced supply of battery materials is paramount. Furthermore, the environmental impact of battery production and disposal needs careful consideration.

Charging Infrastructure Gap

A widespread and reliable EV charging infrastructure is essential for mass adoption. The current infrastructure is inadequate in many regions, creating “range anxiety” and hindering consumer confidence. Investment in charging networks needs to accelerate dramatically.

Shifting Consumer Behavior & Market Dynamics

Consumer preferences are evolving rapidly, adding another layer of complexity to the crisis.

Demand for Connected & Autonomous vehicles

Consumers increasingly demand connected car technology and, eventually, autonomous driving features. Developing and integrating these technologies requires significant investment and expertise.

Rise of New entrants & Disruptive Business Models

New players, like Tesla and Rivian, are challenging established automakers with innovative technologies and direct-to-consumer sales models. Conventional manufacturers need to adapt to this changing competitive landscape.

The Used Car Market Impact

The inflated prices of new vehicles have driven up demand for used cars, creating a parallel market dynamic.This impacts new car sales and profitability.

Urgent Actions Required: A roadmap for Recovery

Addressing this crisis requires a coordinated and proactive approach from automakers, governments, and industry stakeholders.

Government Intervention & Policy Support

* Incentives for EV Adoption: Continued and expanded tax credits and subsidies for EV purchases can stimulate demand.

* Investment in Charging Infrastructure: Public funding for the development of a robust and accessible charging network is crucial.

* Supply Chain Resilience: Policies to diversify supply chains and reduce reliance on single sources for critical materials.

* Trade Agreements: Negotiating trade agreements that facilitate the flow of essential components and materials.

Automaker Strategies for Adaptation

* Strategic partnerships: Collaborating with battery manufacturers, technology companies, and other automakers to share costs and expertise.

* Focus on Core Competencies: Streamlining operations and focusing on areas where they have a competitive advantage.

* Flexible Manufacturing: Investing in manufacturing processes that can quickly adapt to changing demand and technology.

* Value Engineering: Finding ways to reduce costs without compromising quality or performance.

real-World Example: The Volkswagen Group’s Battery Strategy

The volkswagen Group’s enterprising investment in battery cell production, including establishing its own battery factories (PowerCo), demonstrates a proactive approach to securing its battery supply chain and reducing reliance on external suppliers. This strategy, while costly, aims to provide greater control over costs and quality.

Benefits of Proactive Crisis Management

* Enhanced Brand Reputation: Demonstrating a commitment to sustainability and innovation.

* Increased Market Share: