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Automotive Industry Still Prospective


By: Kiara Rahayu)*

The recession issue does pose a slight threat to the industrial and investment sectors, but in Indonesia, the automotive industry is considered to still have prospects and is believed to continue to grow in 2023.

The threat of a global economic recession has the potential to hit all over the world in 2023. This condition is likely to be difficult to avoid given the central bank’s response in increasing efforts to contain inflation with larger interest rate hikes.

            This condition will worsen as a result of the unfinished war between Russia and Ukraine.

            In the midst of these challenges, there was  a significant rebound   from the automotive industry. In fact, during the COVID-19 pandemic, the automotive industry is estimated to have reached its worst point after the 1998 crisis.    

            However, the automotive industry is rumored to be getting more and more stretched. In April 2022, the number of sales and transactions at the Indonesia International Motor Show (IIMS) Hybrid 2022 increased by 108.35 percent from 2021 sales.

            For 11 days, the exhibition has succeeded in making transactions of Rp. 3,435,634,425,990 with total sales of 9,634 vehicles. The achievement of IIMS 2022 certainly gives a positive signal to the revival of the automotive industry in Indonesia.

            The surge in car sales was due to stronger demand as economic activity normalized, even as auto tax discounts were gradually withdrawn, reflecting healthy growth.

            Airlangga Hartarto as the Coordinating Minister for Economic Affairs assessed that the Indonesian automotive industry is the largest motor vehicle market in ASEAN. By the government, this sector is projected to have promising prospects in the future for the national economy.

            The economic growth was driven by a high absorption of labor, the use of domestic components, an increase in investor attractiveness, and a reduction in imports in the domestic automotive sector.

            The promising prospect of the automotive industry is further strengthened by various achievements, such as  factory  wholesales  to new car dealers  in June 2022, which recorded 79.1 thousand units or grew 8.87 percent (yoy).

            In addition, the transportation equipment industry sector itself also experienced significant growth in Q2-2022 to reach 7.35 percent (yoy) with a contribution to National GDP of 1.36 percent.

            On a different occasion, Deputy Minister of SOEs, Pahala Mansury, said that the automotive sector is very important for the government’s vision to reduce carbon gas emissions.

            Moreover, Indonesia has the potential to become one of the key players in the supply chain of electric vehicle components in the future. Indonesia has the largest nickel reserves in the world.’         

            Based on the records of the Ministry of Investment / BKPM, the realization of investment from Japan in Indonesia from 2017 to June 2022 reached 20.86 billion US dollars or equivalent to Rp. 312 trillion and was ranked second in the country of origin of investment to Indonesia.

            During the 2019-2022 period, countries in Southeast Asia have received  foreign direct investment  or foreign direct investment for the development of the electric vehicle industry amounting to US$25.57 billion.

            This was reported by the ASEAN Secretariat in the  ASEAN Investment Report  released in September 2022.

            The report explains, despite the pandemic, automotive industry investors in ASEAN remain active, especially in the electric vehicle supply chain.

            Investment activities range from nickel mining and smelting, battery and electric vehicle production, as well as research and development of new infrastructure.

            Meanwhile, during 2019-2022, the flow of foreign investment for the electric vehicle industry in the ASEAN region entered Indonesia the most, with a total value of 17.8 billion US dollars.

            Next in line are Thailand, Malaysia, the Philippines and Singapore as shown in the chart. Meanwhile, other ASEAN countries, namely Myanmar, Cambodia, Laos, Vietnam and Brunei Darussalam, are not recorded to have received similar foreign investment flows.

            The Ministry of Investment found that four world giant companies entered the battery and electric car ecosystem. The investment strengthens the government’s plan to encourage downstream nickel and make Indonesia the world’s center for battery and electric car production.

            The four giant companies are; LG Energy Solutions, Contemporary Amperex Technology or CATL, Foxconn and British Volt.

The country’s population of 270 million people is also a potential for the advancement of the electric vehicle acceleration program. No wonder the Indonesian government targets to only sell electric vehicles in 2050.

On a different occasion, the President Director of Bank Danamon, Yayushi Itagaki, said that the automotive industry has a very important role for the national economy.

Meanwhile, after the Covid-19 pandemic, during the 2019-2022 period, countries in Southeast Asia have received  foreign direct investment  or foreign direct investment for the development of the electric vehicle industry amounting to US$25.57 billion.

            This shows that the automotive industry sector in Indonesia is in very good condition. Especially in Indonesia where 270 million people are spread across various islands.

)* The author is a contributor to Persada Institute 

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