Those who win Indonesia will get Southeast Asia: talk about the new battlefield of China's trams

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Indonesia is becoming a new battleground for cars going overseas. Last week, following SAIC-GM-Wuling, Chery, Nezha, and BYD, GAC Aion also announced plans to build a factory in Indonesia. BAIC announced its official entry into Indonesia and will launch two SUV models, the BJ40 and X55. Taking advantage of the increase in passenger flow before Eid al-Fitr, Nezha started an eco-friendly taxi for Jakarta Airport...... Similar news has not been interrupted since the beginning of 2024. There is a saying in the overseas circle, "Those who win Indonesia will get Southeast Asia". What kind of market is Indonesia for cars going overseas? Is it worth competing for by car companies? What are the hidden crises and opponents? Let's talk about it in this article.

Fertile soil for consumerism: young people everywhere have an amazing outlook on consumption

The demographic dividend is the scale of the consumer market, and the young population is the future potential of the consumer market. Indonesia happens to be the scarce player who has both confidence and strength. As of 2022, Indonesia has a total population of 275 million, second only to India, China, and the United States. Indonesia's population structure is significantly younger, with an average age of only 29.6 years (2022). It is also an important market in Southeast Asia, with an average age of 39.7 years in Thailand, 32.4 years in Vietnam, and 30.3 years in Malaysia.

Ahead of the curve and growing spending power, Indonesia has become a fertile ground for consumerism. "Young people everywhere have very advanced concepts", Teresa (pseudonym), an entrepreneur who has been involved in the Indonesian market for 5 years, concluded, "Indonesian young people are very timely and happy, they are basically moonshine people, and even moon debtors." "They like to advance their salaries, even if they want to reduce a part of their monthly salary," Teresa adds, "for the simple reason that they spend as soon as their salary is paid, and they have no money to live on before the middle of each month, so they have to borrow for the next month's salary." Therefore, Indonesian consumers will focus on whether they can take a mortgage when buying large items. Such a suitable market for consumption, its economic situation and consumption power are still growing.

In November 2023, Bank Indonesia said at its annual meeting that its economic growth rate had returned to pre-pandemic levels (around 5%), while the rest of Southeast Asia was not so optimistic, with Thailand growing by 1.9%, Malaysia by 3.7%, and Vietnam by 5.05%. However, Indonesia's economy has maintained a steady growth rate of 5% over the past decade, except during the pandemic. The steady growth of the economy has brought about the backbone of consumption that continues to expand.

According to Indonesia's National Household Income Survey (SUSENAS), Indonesia had 72 million middle class and 128 million new middle class in 2022, accounting for 26% and 47% of the total population, respectively. Since 2002, the middle class has grown at a compound annual growth rate of 10%, and its consumption has increased by 12% per year, accounting for almost half of the country's total consumption. The demographic dividend in the front row of the world, the optimistic and advanced consumption concept, the sustained growth of the economic situation and consumption capacity, "those who win Indonesia, get Southeast Asia" is indeed true.

Tianxuan Tram Market: There are few cars at home, but there are many good mines on the island

Indonesia is the largest consumer of automobiles in Southeast Asia, with 1,005,800 vehicles sold in 2023, much higher than other major auto consumption cities in Southeast Asia, and almost as much as Thailand and Vietnam combined for 775,780 units, Vietnam 301,989 units, and Malaysia hit a record high of 799,731 units. More importantly, the number of local cars in Indonesia is not high, with only 83 motor vehicles per 1,000 people, and there is still a lot of room for improvement in the future. In 2022, the number of cars in Thailand and 1,000 people in Thailand and 461 in Malaysia was 269 cars per 1,000 people.

And the reason why it is said to be "heavenly" is also because the world's largest island is rich in battery raw materials. Indonesia has one of the world's largest nickel deposits, with the world's largest nickel reserves (more than 22% of the world's total) and more than 37% of global nickel production, and last year it jumped to the second largest cobalt producer, accounting for nearly 5% of global cobalt production. In terms of metal ores for other parts and components, Indonesia also has ample reserves, with tin reserves second in the world, cobalt reserves third in the world, and copper reserves seventh in the world. In the era when electric vehicles were not yet popular, Indonesia has been engaged in the export of relatively primary raw materials and minerals as a mineral exporter. All these provide Indonesia with excellent resource advantages to promote the development of the battery and electric vehicle industry.

Indonesia's EV penetration rate remains low, with 12,000 EVs sold in 2023, accounting for about 1% of total vehicle sales, according to the Association of Automobile Manufacturers. Thailand sells seven times as many electric vehicles as Indonesia, and Malaysia currently sells three times as much. The double buff of resources and market makes Indonesia almost the best choice for the development of electric vehicles in Southeast Asia.

Promote the power of the whole country: pile up policy incentives, and transform under blood

Indonesia is determined to make the transition to electrification. In order to get rid of the low-end role of raw material supply, Indonesia implemented a ban on the export of nickel ore raw ore in 2020, aiming to promote local enterprises and attract foreign capital to build mineral smelters and battery factories in Indonesia. In March 2021, Indonesia issued a "New Investment List" to encourage the priority development of the automotive industry, and relevant enterprises can enjoy tax incentives such as corporate income tax exemption and import duties, as well as non-tax incentives such as convenient access to business licenses and supporting infrastructure, and ensuring the supply of energy and raw materials.

This year, Indonesia also clarified its goal of "all cars and motorcycles sold in Indonesia by 2050 will be electric", as well as a plan to produce 400,000 electric vehicles by 2025, 600,000 units in 2030, and 1 million units in 2035. At the same time, four Indonesian state-owned enterprises took the lead in announcing an investment of IDR 238 trillion to establish the Indonesian Battery Company (IBC). Mind Id, the state-owned mining holding company, Pertamina, the state-owned power company PLN, and Antam, a large state-owned resources company, each hold 25% of the shares. Subsequently, Hyundai, LG, CATL, Gotion Hi-Tech, Foxconn and other foreign companies have successively invested in the construction of battery factories in Indonesia. Hyundai and LG are building a lithium-ion battery production plant in Karawang, West Java, which is the largest in Southeast Asia, which is the largest in Southeast Asia, CATL is investing US$6 billion with local companies to build six sub-projects covering nickel mining and battery production, Gotion Hi-Tech has established a branch in Indonesia to engage in nickel mining and battery production, and Foxconn has also announced that it will establish a joint venture to produce electric vehicles and batteries......

On the one hand, to support the industry, and on the other hand, to encourage consumption, Indonesia has launched a series of subsidy policies for the purchase of electric vehicles since 2022. For example, the purchase of a new pure electric vehicle will receive a subsidy of 80 million rupiah (about 5,388 US dollars). In March 2023, another subsidy policy was introduced covering the sales of 200,000 electric motorcycles and 35,900 electric vehicles, as well as the conversion of 50,000 conventional gasoline vehicles. In April of that year, the VAT incentive for the purchase of electric vehicles was again issued, reducing the VAT on the purchase of electric vehicles from 10% to 1%.

Indonesia's subsidy approach is also highly geared towards the country's EV industry, requiring automakers to produce EVs locally and to produce or source 40% of their components locally.

A series of incentives to promote industrial construction and narrow the price gap have indeed stimulated the demand for electric vehicles among Indonesian consumers. Indonesia's NEV market has soared since 2021, with 15,437 units sold in 2022, nearly five times the increase of 3,193 units in 2021, while its position in the EV value chain continues to grow.

The situation of the war in Indonesia: the success of the three axes, the melee has not yet started

Looking at the competition pattern of Indonesia's automobile market, the share of fuel vehicles has been dominated by Japanese brands for a long time, and even American and German cars have no room to survive. In 2021, before the improvement of electric vehicles, the top seven car brands in Indonesia in terms of sales were all from Japanese companies, accounting for a whopping 91.7% of the market share.

The reason why Japanese car companies can dominate the Indonesian market is that the market enters the market early, the second is more cost-effective, and the third is that the supply chain goes overseas. Since this article focuses on the field of electric vehicles, I will not repeat the glorious context of Japanese fuel vehicles, and interested friends can search for it by themselves. But the important thing is that it is precisely the "three axes" of Japanese car companies that have squeezed Japanese cars out of the front row of Indonesia in the era of the rise of electric vehicles. Back to the node where the gears of an electric vehicle turn. In 2022, there have been subtle changes in the market landscape, with SAIC-GM-Wuling taking nearly 78% of the market share in Indonesia's EV sales with 8,053 units, and South Korea's Hyundai ranking second with nearly 20% of the market share. In 2023, they are still the same, but they have switched places, with Hyundai in first place (7,609 units), Wuling second (6,141 units), and BMW third (665 units). Many people don't understand that Wuling's success in Indonesia is actually a copy of the "three-plate axe" of Japanese going to sea.

As early as 2015, Wuling set up a subsidiary in Indonesia and invested US$700 million to become the first Chinese car brand to build a factory in Indonesia. In 2017, Wuling's Indonesian plant was put into operation, and the Confero S rolled off the assembly line to gradually cultivate popularity, in 2019, SAIC Motor established the first overseas financial services company in Indonesia to provide the preferred mortgage purchase method of Indonesian consumers, and in 2022, Air EV became the official car of the G20 in Bali, and won the "sales champion" of electric vehicles in the same year... Early entry, low price, great fame, coupled with the perfect supply and service chain, paved the way for occupying the market.

The Chinese overseas car companies that entered the game later have the same path as Wuling, and even the marketing routines are very similar. For example, Dongfeng Xiaokang, which follows Wuling, began a joint venture with an Indonesian company to produce Super Cab in 2017, Chery re-entered the Indonesian market in 2021 in the form of local assembly and production and announced the construction of a factory, and in 2022, BYD began to cooperate with a local bus assembly plant to provide pure electric buses for Jakarta bus operators and electric vehicles for taxi operators. In 2023, Nezha Neta V will be launched in the Indonesian market, and Great Wall will be unveiled at the Indonesian Motor Show to announce its official entry into ......

Of course, it is not only Chinese car companies that are gathering in Indonesia, but Japan and South Korea are also increasing their weight in the field of electric vehicles. Nissan has launched the e-POWER model in Indonesia since 2020, and in the same year, Lexus launched its UX300e, which debuted in Southeast Asia, and Hyundai announced the Ioniq Electric and Kona Electric, and plans to open production at a new plant in Indonesia. Toyota announced that it will invest an additional IDR 28 trillion in Indonesia in 2024 and launch 10 electric vehicles in 2026. Mitsubishi plans to invest USD 670 million in Indonesia between 2022 and 2025 to expand production and accelerate the development of hybrid and electric vehicles......

Just as Chinese and Japanese car companies started a war in Thailand, as the Indonesian market pays more and more attention to and continues to support the electric vehicle industry, the continuous investment of Chinese, Japanese and South Korean car companies in the field of electric vehicles is bound to usher in a melee on the battlefield in Indonesia.

Behind the new cake: It looks beautiful and the challenge is deep

What looks good, there are no fewer hidden challenges.

One of the major challenges in Indonesia's electrification transition is the age-old lack of charging infrastructure. As of March 2023, data from the State Electricity Company (PLN), which is mainly responsible for building EV infrastructure, shows that there are only 616 public EV charging stations, 1,056 public EV swap stations, and 6705 public charging stations in and around the country, and these charging facilities are concentrated in and around the Jakarta area.

Due to the fact that Indonesia's main islands are transported by plane and ferry, the current distribution of charging stations limits the range of electric vehicles that can be driven. Based on an estimate of 16,000 EV sales in 2023, there is a large infrastructure gap, which may affect the use and promotion of EVs.

If we want to make efforts in the Indonesian electric vehicle market in the future, the author believes that it is necessary to consider charging infrastructure on the basis of joint ventures and local production. Judging from the Indonesian government's past policy support and requirements for the electric vehicle industry, it is likely that like Turkey, there will be regulations on the charging facilities of car companies in the future, and it is necessary to plan ahead.

In response to future regulations, it is recommended that automakers learn from Japan and pay close attention to its trends, as there may be a hint of a crisis. In the era of economic take-off, Japanese car companies through cooperation with the Indonesian government wrote more favorable rules for their own development into local auto industry standards and policies, and even tilted Japanese cars in policy planning, which fundamentally limited the local development of other car companies. I don't know if such a conventional market competition "repertoire" will be staged again.

In addition to infrastructure support and policy standard guidance, how to adapt pricing strategies and loan policies may also become a challenge for car companies. "Indonesians are extremely concerned about discounts, and if a brand's discount is suspended, they will immediately consider other brands," Teresa said of Indonesians' spending habits, stressing that "the mortgage method and the loan interest rate will also affect the consumption decision". Overall car sales in Indonesia in 2023 are not as good as in 2022, and there have been media reports that tighter loans are one of the reasons for the impact on sales. How to find the most suitable sales method for consumers' psychological price and mortgage needs is a long-term test throughout the sales context.

Of course, in the process of electrification transformation, whether it is Chinese overseas car companies, or Japanese, South Korean, European and American car companies, they will inevitably face various challenges. The chicken soup saying goes, "Those who can't kill you will eventually make you stronger." In the same way, companies that can turn challenges into opportunities will take a more critical position in the electrification market in Indonesia and Southeast Asia.