Several cyclical factors have weighed on vehicle demand in recent years. Higher interest rates, tighter financing conditions and the normalization of post-pandemic purchasing patterns have affected affordability and delayed purchase decisions.

Bank Indonesia raised its benchmark interest rate from around 3.5 percent in 2022 to around 4.75–5.75 percent in 2025 in response to global economic uncertainty and inflationary pressures. Since an estimated 70–80 percent 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 (PPnBM), has contributed to higher vehicle prices.

As a result, Indonesia's new car sales were recorded at approximately 803,687 units in 2025, compared with around 1 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.

Battery electric vehicles (BEVs) 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.

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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 highlights this trend, showing strong year-on-year growth in electrified vehicle sales across the region. In Indonesia, EV sales continued to expand 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 percent year-on-year as of the third quarter of 2025 across six ASEAN countries. Indonesia's EV segment grew by 49 percent during the same period, with EVs accounting for 18 percent of total vehicle sales. The survey also found that 14 percent of respondents are EV owners, 70 percent are prospective buyers, and 17 percent remain skeptical 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 toward different vehicle segments and ownership models.

Indonesia remains one of Southeast Asia's most attractive automotive markets because its long-term fundamentals remain exceptionally strong.

The most important factor is low vehicle penetration. According to the Ministry of Industry 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.

Urbanization will further strengthen demand. According to Statistics Indonesia (BPS), the country's urbanization rate is projected to reach around 72.9 percent 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.

From Automotive Market to Automotive Hub

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 automotive industry, including electric vehicles (EVs),it i increased from US$1.6 billion in 2021 to US$3.2 billion in 2025, reflecting growing investor confidence in the market and its long-term growth potential.

Indonesia possesses the world's largest nickel reserves, providing a strategic advantage in the global EV value chain. Access to critical battery materials enables manufacturers to localize production, strengthen supply security, and potentially reduce costs.

The government has also invested heavily in logistics infrastructure, including facilities such as Patimban Port in Subang Regency, which is enhancing Indonesia's capability to export vehicles and automotive components to international markets.

As more automakers establish local manufacturing operations, Indonesia can benefit from greater localization of components, stronger industrial capabilities, increased employment, and more competitive vehicle pricing.

The opportunity extends beyond vehicle assembly. Battery manufacturing, component production, and broader EV ecosystem development could position Indonesia as a critical player in Southeast Asia's automotive future.

Looking Ahead

Indonesia's automotive market is not shrinking — it is evolving.

Short-term challenges, including affordability pressures and cautious consumer sentiment, are likely to keep overall vehicle sales relatively subdued in the near term. However, the industry's underlying fundamentals remain robust.

PwC ASEAN-6 5th automotive market snapshot shows that new car sales in Indonesia are projected to reach 812,000 units in 2026, representing only a slight increase due to the still-challenging market environment and shifting consumer preferences. Sales are expected to begin rebounding in 2027 as economic conditions improve.

Indonesia’s large and still-promising market remains a major advantage, provided economic conditions and government policies continue to support growth. If economic conditions improve and investment continues to expand, vehicle production could increase significantly, supporting both domestic demand and Indonesia's position as a regional export hub.

Low vehicle penetration, rapid urbanization, growing EV adoption, abundant critical minerals, and increasing manufacturing investment provide a strong foundation for future growth.

The next chapter of Indonesia's automotive industry will not be defined solely by how many cars are sold, but by how successfully the country transitions from being one of Southeast Asia's largest automotive markets to becoming one of its most important automotive production and electrification hubs.

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