Japanese automakers, long competitive in Indonesia, Southeast Asia’s largest market, are facing pressure to reassess production capacity as they grapple with a shrinking market and the rise of Chinese electric vehicles.
“The new vehicle market pie is getting smaller,” said Hiroyuki Ueda, president director of Toyota Astra Motor, an Indonesian unit of Toyota Motor. “There are more players in it, and it’s a dog-eat-dog situation.”
At least five Chinese brands entered the Chinese market in 2024 alone, including such big names as BYD and GAC Group.
Indonesia is the world’s fourth most populous nation, with some 280 million people. New automotive sales here came to 860,000 vehicles in 2024, surpassing 810,000 in Malaysia and 570,000 in Thailand.
Toyota and Honda Motor set up local production in Indonesia ahead of rivals from the 1970s, building networks of suppliers and dealers basically from scratch.
Based on data from the Association of Indonesia Automotive Industries, Japanese automakers together controlled more than 90% of the market back in 2012, the first year for which comparable statistics are available. Japanese players had dominated even before then, according to the association and industry insiders.
But the entry by Chinese competition has shifted the landscape. Chinese automakers captured 6.4% of the market in 2024, raising their share by roughly three percentage points on the year. Japanese companies lost approximately two points, pulling their market share down to 89.5%.
Sales of Japanese automotives have rapidly declined in Thailand in recent years, and their footprint has shrunk elsewhere in Southeast Asia as well. Now Japanese automakers’ dominance is starting to crumble in Indonesia, considered their last bastion.
The ascent of Chinese rivals was evident at the Indonesia International Motor Show held in Jakarta in mid-February. Among the roughly 30 brands put on display, nearly half hailed from China.
Eagle Zhao, president director of BYD Motor Indonesia, told reporters at the show that BYD had claimed a 36% share in Indonesia’s EV market in just seven months.
BYD launched the M6 all-electric vehicle in Indonesia last July. The hit multipurpose vehicle started at IDR 379 million (USD 22,800). This made it less expensive than a gasoline MPV, which would usually go for around IDR 400 million (USD 66,490).
With the Trump administration imposing additional tariffs on China, “Chinese makers will further accelerate their expansion” into Indonesia, an executive at a Japanese manufacturer said.
The abrupt emergence of Chinese competitors in Indonesia can be traced to Indonesia’s agenda to develop its industry. The country produces half of the world’s nickel, a key ingredient in making EV batteries.
As president, Joko “Jokowi” Widodo sought to harness the wealth of natural resources into growing a native EV industry. This included subsidies noticeably biased toward electrics.
EVs that were 40% locally produced had their value-added taxes slashed to 1% from 11%. The luxury tax was cut to zero, compared with about 20% for a gasoline MPV.
The government introduced in 2024 import and luxury tax waivers for manufacturers that commit to localize production in Indonesia. The luxury tax alone would normally account for around half of the vehicle’s price.
Meanwhile, the government raised the luxury tax on hybrid cars in 2021, targeting a bread-and-butter vehicle category for Japanese automakers. As a result, EV sales climbed to some 40,000 vehicles in 2024, compared with roughly 60,000 for hybrids.
This ushered in Chinese EV makers facing a slowing market at home. Their competitively priced products hit the Indonesian market.
The slowdown plaguing the Japanese players could persist.
“The market is not in a position to grow easily, given the fundamental problem of the weakening purchasing power of the middle class,” an executive at a Japanese manufacturer said.
Indonesia’s middle class grew 55% to 60.72 million people during the five years through 2018, according to research from the University of Indonesia. By 2023, it had dwindled to 52.03 million. The Covid-19 pandemic cost many workers well-paying jobs.
Against this backdrop, the central government raised the value-added tax to 12% from 11%. Local governments have been empowered to collect additional motor vehicle taxes and title transfer fees.
“We thought [sales] would recover to 900,000 units in 2025, but the number may fall far below that of 2024 if the extra regional government taxes are put into place,” said Atsushi Kurita, president director of Mitsubishi Motors Krama Yudha Sales Indonesia.
New automotive sales in Indonesia came to 1.2 million vehicles in 2013, and the volume was expected to rise to two million. Counting on this, Japanese automakers invested in capacity expansion in the early- to mid-2010s.
But a combination of factors, such as cuts to fuel subsidies and stiffer tax levies by local governments, stood in the way.
The year 2013 ended up being the peak. With the EV incentives also swaying sales trends, “the estimates have constantly veered off course,” an executive at a Japanese manufacturer said.
Indonesian President Prabowo Subianto has pivoted somewhat from the EV incentives. Luxury taxes on hybrid vehicles have come down in 2025, prompting Toyota and Suzuki Motor to discount prices on mainline hybrid models. Honda and Mitsubishi Motors are thinking about expanding their hybrid lineups.
“If things continue like this, we may have to reorganize production in Indonesia,” said an executive at a major Japanese automaker. In Thailand, Suzuki and Subaru have decided to withdraw from local production of four-wheeled vehicles.
Toyota, subsidiary Daihatsu Motor, Honda, Mitsubishi Motors, and Suzuki all have Indonesian factories and produce main models locally, including engines and other key parts. Factories of Japanese suppliers are also concentrated here.
Although the market is sluggish, there is a steady shift in demand from two-wheeled to four-wheeled vehicles. Caught between expectations for a market recovery and declining profitability, Japanese automakers are struggling to chart a way forward.
This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.