JAKARTA: Indonesia’s automotive market is not in decline but undergoing a reset.
While higher interest rates and affordability pressures have softened new car sales, the market’s long-term fundamentals remain intact.
Electrification, urbanisation and manufacturing investment are reshaping the industry and creating the foundation for its next phase of growth, says Lukmanul Arsyad, an Industrials & Services leader and partner at PwC Indonesia.
Several cyclical factors have weighed on vehicle demand in recent years.
Higher interest rates, tighter financing conditions and the normalisation of post-lockdown purchasing patterns have affected affordability and delayed purchase decisions.
Bank Indonesia raised its benchmark interest rate from around 3.5% in 2022 to around 4.75% to 5.75% in 2025 in response to global economic uncertainty and inflationary pressures.
Since an estimated 70% to 80% of vehicle purchases rely on financing, higher borrowing costs have significantly increased the cost of ownership.
At the same time, the expiration of government automotive incentives, including the sales tax on luxury goods for motor vehicles, contributed to higher vehicle prices.
As a result, Indonesia’s new car sales were recorded at 803,687 units in 2025, compared with around one million units in 2022.
Malaysia’s automotive sales consequently overtook Indonesia’s sales with 820,752 units sold.
While noteworthy, this shift reflects differences in market maturity and consumer purchasing power rather than a fundamental loss of Indonesia’s competitiveness.
Despite softer overall vehicle sales, one segment continues to grow rapidly: electric vehicles (EVs).
Battery electric vehicles and hybrid models are gaining momentum as consumers become increasingly receptive to electrified mobility.
More models are entering the market, prices are gradually becoming more competitive, and charging infrastructure continues to expand.
The transition remains in its early stages. EV ownership across Asean remains relatively low, but consumer interest is rising sharply.
A large proportion of prospective buyers indicate plans to purchase an EV within the next five years, suggesting that electrification will become one of the industry’s most important growth drivers.
The PwC Asean-6 eReadiness 2025 Report highlighted this trend, showing strong year-on-year growth in electrified vehicle sales across the region.
In Indonesia, EV sales continued to climb despite the broader slowdown in the automotive sector, demonstrating growing consumer confidence in electric mobility.
According to the report, EV adoption is accelerating, with EV sales rising 62% year-on-year as of the third quarter of financial year 2025 across six Asean countries.
Indonesia’s EV segment grew by 49% during the same period, with EVs accounting for 18% of total vehicle sales.
The survey also found that 14% of respondents are EV owners, 70% are prospective buyers, and 17% remain sceptical about EV adoption.
At the same time, rising financing costs and weaker purchasing power, particularly among middle-income households, have accelerated growth in the used-car market, where affordability remains a key consideration.
These developments suggest that consumer demand is not disappearing, rather, it is shifting towards different vehicle segments and ownership models.
Indonesia remains one of South-East Asia’s most attractive automotive markets because its long-term fundamentals remain exceptionally strong.
The most important factor is low vehicle penetration.
According to Industry Ministry data, Malaysia has approximately 490 cars per 1,000 people, while Indonesia has only around 99 cars per 1,000 people.
This gap highlights the significant room for future growth as incomes rise and mobility needs to expand.
Malaysia’s automotive market is relatively mature and saturated, making significant future growth less likely.
Urbanisation will further strengthen demand. According to Statistics Indonesia, the country’s urbanisation rate is projected to reach around 72.9% by 2045.
As secondary cities such as Surabaya, Balikpapan, Manado, and Makassar continue to grow economically, demand for personal mobility is expected to increase beyond Indonesia’s traditional two-wheeler market.
Improving access to financing, rising household incomes, and the availability of more affordable vehicle options, including EVs, should gradually broaden access to car ownership over the coming decade.
Indonesia’s automotive story is no longer solely about domestic demand.
The country is increasingly positioning itself as a regional manufacturing and export hub.
Investments in vehicle assembly, battery production, and EV supply chains continue to rise, supported by Indonesia’s abundant natural resources and growing industrial ecosystem.
A recent report on automotive investment in Indonesia found that the EV sector holds significant promise.
Investment in the automotive industry, including EVs, increased from US$1.6bil in 2021 to US$3.2bil in 2025, reflecting growing investor confidence in the market and its long-term growth potential. — The Jakarta Post/ANN
