Indonesia’s auto sector expands on the back of local and international demand

Rising domestic and international demand is driving new investment in Indonesia’s automotive industry, with increases in both manufacturing and materials capacity to boost the sector’s growth prospects.

Domestic vehicle sales totalled 661,093 in the first seven months of the year, according to data issued by the Association of Indonesian Automotive Industries (GAIKINDO) in mid-August, a 6.8% year-on-year (y-o-y) increase.

While overall sales are up, there has been some fluctuation in the market, with y-o-y declines posted in February, March and June offset by increases in the other four months of the period, culminating in a year-to-date high of 107,431 units sold in July.

GAIKINDO forecasts 1.1m new vehicles will be sold this year, up from 1.08m in 2017.

Manufacturers strengthen production capacity

The rise in sales is being met with an increase in production among manufacturers, indicating confidence in the market’s medium- and longer-term prospects.

In late August Mitsubishi announced it was scaling up production of its Indonesian-made Xpander model by 20% this year to meet rising demand in the local and ASEAN markets.

The Japanese auto manufacturer had originally planned to turn out 100,000 units of its seven-seat, multipurpose vehicle in 2018, but an expansion of production capacity – including an increase in welding and assembly lines at its Bekasi plant – is expected to raise this to 120,000 units this year and 150,000 units next year.

The Xpander has helped Mitsubishi increase sales in the domestic market, with the firm selling more than 87,000 units in the first seven months of the year, a 126.2% increase y-o-y.

Rival Japanese brand Toyota is also looking to boost production of its Rush sport utility vehicle, announcing in mid-July that it intended to export the car to 53 markets internationally. Currently, the Rush – which is exclusively manufactured in Indonesia – is only shipped to the Philippines.

Toyota’s export plans form part of a $1.9bn local capacity-building programme due to be completed next year.

Increased shipments of products like the Xpander and the Rush should support growth in Indonesia’s auto export segment. In the first half of the year the country exported 110,135 completely built-up units, on the back of 2017’s total of 231,000, according to GAIKINDO.

New entrants shake-up market mix

The strength of the automotive industry has also encouraged new players to enter the market.

In July last year Chinese manufacturer Wuling opened a $700m, 120,000-unit-capacity factory in Cikarang, West Java, while fellow Chinese firm DFSK Motors invested $150m in the construction of a local plant.

The introduction of new competitors is expected to have an impact on the make-up of the automotive market, where Japanese automakers account for around 90% of sales.

Between July 2017 and August of this year Wuling said it sold a combined 14,000 units of its Confero minivan and Cortez multipurpose vehicle, giving the company a 1.4% market share in the first seven months of this year, according to GAKINDO figures, ahead of established Japanese players Datsun and Nissan.

Higher activity sees expansion of supply lines

Production growth is also leading to an increase in output from parts and materials providers.

One such material supplier, Krakatau Nippon Steel Sumikin, a joint venture between Japan’s Nippon Steel & Sumitomo Metal Corp and local firm Krakatau Steel, announced it would be expanding production of automotive flat steel products following the opening of its new $300m plant in Cilegon, in north-western Java, in early August.

The company’s annual output stands at around 120,000 tonnes of anti-corrosion and high-strength steel for automotive industry use, but it expects to increase this to 480,000 tonnes once the new plant is fully operational.