With this demographic advantage comes a surprisingly advanced consumption mindset. “Young people are everywhere, and they spend ahead of their means,” said Teresa (alias), a Chinese entrepreneur who’s spent five years in Indonesia. “Most young Indonesians live paycheck to paycheck—or even in advance. They often request salary advances, even at the cost of a lower monthly salary, because their money is gone halfway through the month.”

This makes installment plans especially appealing when buying big-ticket items like vehicles.

Indonesia’s consumption power is still climbing. At its 2023 annual meeting, Indonesia’s central bank announced that GDP growth had returned to its pre-pandemic level of 5%—well above Thailand’s 1.9%, Malaysia’s 3.7%, or even Vietnam’s 5.05%. In fact, excluding the pandemic years, Indonesia’s economy has sustained 5% growth annually over the past decade.

That translates into a growing middle class. According to the national SUSENAS household income survey, as of 2022, Indonesia had 72 million middle-class consumers and 128 million emerging middle-class consumers, accounting for 26% and 47% of the population respectively. Since 2002, this middle class has grown at a 10% compound annual growth rate, with consumption rising 12% annually—accounting for nearly half of all national consumption.

With its demographic dividend, consumer optimism, and steadily growing spending power, Indonesia is proving itself worthy of the industry mantra: “To win Indonesia is to win Southeast Asia.”

A Natural EV Market: Low Car Ownership, Rich in Battery Minerals

Indonesia is the largest auto market in Southeast Asia. In 2023, it sold over 1 million vehicles—more than Thailand and Vietnam combined (775,780 and 301,989 respectively). Even Malaysia, which hit a historic high, sold 799,731 units.

Yet vehicle ownership remains low: just 83 vehicles per 1,000 people, leaving plenty of room for future growth. In contrast, Thailand has 269 per 1,000 and Malaysia a staggering 461.

Indonesia’s strategic value also lies underground. As the world’s largest archipelago, it’s rich in battery-grade minerals. It holds over 22% of the world’s nickel reserves and produces 37% of the global supply. It recently became the second-largest cobalt producer, accounting for nearly 5% of global output.

It also ranks second in tin reserves, third in cobalt, and seventh in copper. For years, Indonesia exported these raw materials with minimal processing. Today, it’s leveraging them to build a full EV and battery manufacturing chain.

Despite its resource advantage, EV penetration is still low—only 12,000 electric cars were sold in 2023, around 1% of all auto sales. That’s one-seventh the volume of Thailand and one-third of Malaysia’s. Yet with both resources and demand on its side, Indonesia is the most promising EV growth market in Southeast Asia.

Government-Backed Transition: Massive Incentives, Bold Goals

Indonesia is going all-in on electrification.

In 2020, the government banned exports of raw nickel ore to force investment in local refining and battery manufacturing. In March 2021, it released a “New Investment List” encouraging auto-sector development—with generous corporate tax breaks, import duty exemptions, infrastructure support, and supply chain guarantees.

At the same time, it set ambitious goals: by 2050, all vehicles sold in Indonesia will be electric. It also targets production of 400,000 EVs by 2025, 600,000 by 2030, and 1 million by 2035.

Four major state-owned enterprises—Mind ID (mining), Pertamina (oil), PLN (electricity), and Antam (resources)—jointly invested 238 trillion rupiah to form the Indonesia Battery Corporation (IBC), each holding a 25% stake.

Private capital followed. Hyundai and LG built Southeast Asia’s largest battery plant in Karawang, West Java. CATL committed USD 6 billion to six nickel-to-battery projects with local firms. Gotion established an Indonesian subsidiary for nickel mining and battery production. Foxconn formed a joint venture to manufacture EVs and batteries.

On the consumer side, the government rolled out purchase subsidies in 2022: up to 80 million rupiah (about USD 5,388) for new EVs. In March 2023, it launched a subsidy package for 200,000 electric motorcycles, 35,900 electric cars, and 50,000 ICE-to-EV conversions. In April, VAT on EV purchases was slashed from 10% to 1%.

But to receive these benefits, automakers must manufacture locally—and ensure that 40% of parts are sourced from within Indonesia.

Together, these policies have sparked a market surge. EV sales skyrocketed from 3,193 in 2021 to 15,437 in 2022, and Indonesia’s role in the EV supply chain is rising fast.

The Battle Is On: Early Movers, Familiar Playbooks

Historically, Japan has dominated Indonesia’s auto market. In 2021, even before EVs gained traction, all of the top seven selling brands were Japanese, accounting for a staggering 91.7% of total sales. Neither American nor German brands made a dent.

What enabled Japan’s dominance? Early entry, price-performance value, and local supply chains. Ironically, those same “three pillars” are now helping China disrupt Japan’s hold on the EV era.

In 2022, Wuling took 78% of Indonesia’s EV sales (8,053 units), with Hyundai second at nearly 20%. In 2023, the roles flipped: Hyundai sold 7,609 units, Wuling 6,141, and BMW ranked third.

Wuling’s success is no mystery—it followed Japan’s playbook. It entered early, setting up a subsidiary in 2015 and investing USD 700 million to build Indonesia’s first Chinese auto plant. The plant began producing ICE vehicles in 2017, establishing brand awareness. In 2019, SAIC Motor launched a local finance firm to support installment plans (a favorite among Indonesian consumers). In 2022, Wuling’s Air EV became the official car of the G20 Bali Summit and topped EV sales.

Other Chinese automakers are now copying this model. Dongfeng partnered locally in 2017 to produce the Super Cab mini truck. In 2021, Chery re-entered the market with SKD assembly and plant plans. In 2022, BYD began assembling electric buses for Jakarta’s transit system. Neta launched its Neta V model in 2023. Great Wall announced its official entry at the Indonesia Auto Show.

Chinese brands aren’t alone. Japanese and Korean players are also ramping up. Since 2020, Nissan has offered its e-POWER model. Lexus debuted its UX300e in Southeast Asia the same year. Hyundai introduced the Ioniq and Kona EVs and launched local production. Toyota plans to invest an additional 28 trillion rupiah by 2024 and release 10 EV models by 2026. Mitsubishi will invest USD 670 million between 2022 and 2025 to expand hybrid and EV output.

As in Thailand, where Chinese and Japanese brands are already battling for EV dominance, Indonesia is shaping up for a three-way war among China, Japan, and Korea.

A Promising Market, But Not Without Pitfalls

What looks like a golden opportunity also carries major risks.

The most obvious: infrastructure. As of March 2023, state utility PLN reported just 616 public EV charging stations, 1,056 battery-swap stations, and 6,705 regular charging points—mostly clustered around Jakarta.

Because Indonesia’s islands are connected by air and ferry, the lack of widespread charging infrastructure limits range and usability. With 16,000 EVs sold in 2023, the infrastructure shortfall is significant.

For automakers to succeed long-term, investing in local production alone won’t cut it—they must also plan for infrastructure development. Given Indonesia’s heavy-handed industrial policy, future regulations may require OEMs to build charging networks—similar to what Turkey has done.

Another hidden challenge: policy capture. In the past, Japanese carmakers partnered closely with the Indonesian government to write regulations that favored their own models and locked out rivals. Could history repeat itself?

Pricing and financing also matter. “Indonesians are extremely discount-sensitive,” Teresa noted. “If a brand stops offering discounts, they’ll switch immediately.” Loan availability and interest rates also affect purchasing decisions. Media reports suggest tight credit may have contributed to Indonesia’s slower 2023 auto sales.

The bottom line? To succeed in Indonesia’s evolving EV market, brands must offer compelling pricing, flexible financing, and local relevance.

Challenges abound for Chinese, Korean, Japanese, and Western players alike. But as the old saying goes, “What doesn’t kill you makes you stronger.” The brands that turn obstacles into advantages will claim the lion’s share of Indonesia—and Southeast Asia’s—electric future.