Indonesia Plans to End Electric Vehicle Tariff Exemption Policy by End of 2025

According to Nikkei News, Indonesia is expected to abolish the electric vehicle tariff exemption policy by the end of 2025. This preferential policy had helped Chinese electric vehicle manufacturers such as BYD to increase their sales in Indonesia, but it also impacted the production of local factories in Indonesia.

Image source: BYD

An official from Indonesia's Ministry of Industry stated at an event in the country's capital, Jakarta, last week that there have not yet been discussions with other departments about extending the electric vehicle tariff exemption policy, which is likely to expire at the end of this year.

Previously, Indonesia exempted electric vehicles from import duties and luxury taxes in order to promote the popularization of electric vehicles. Chinese car brands have benefited the most from this policy. Sales of electric vehicles in Indonesia have performed strongly, with approximately 42,000 units sold in the first seven months of this year, representing a year-on-year increase of about 140%, and the share of electric vehicles in the country’s total new car sales has approached 10%.

BYD is one of the main beneficiaries, as all of its models sold in Indonesia are imported. In July 2024, BYD launched the popular M6 electric vehicle in Indonesia, with a price comparable to that of fuel-powered cars. Currently, BYD's market share in Indonesia’s electric vehicle market has exceeded 50%.

Meanwhile, Japanese car manufacturers with factories in Indonesia are facing difficulties. As more affordable cars flood the Indonesian market, the overall market share of Japanese car companies like Toyota in Indonesia has fallen below the usual 90%.

A representative of the Indonesian Automotive Industry Association pointed out that the factory capacity utilization rate in the country's automotive industry has dropped from 73% to 55%, and stated that although the country's tariff exemption policy has promoted the popularization of electric vehicles, it has also hindered the development of the domestic automotive industry.

The current focus is on whether Chinese automakers, who have long benefited from Indonesia's policy incentives, can fulfill their commitment to local production in Indonesia. The Indonesian government requires that the local production volume of automakers must meet or exceed their import volume, and that automakers must start local production in Indonesia before 2027.

BYD is building a factory in West Java, Indonesia, which is scheduled to start production in early 2026 with an annual production target of 150,000 units. However, overall, it remains uncertain whether other Chinese automakers will follow suit and implement local production in Indonesia.

Moreover, due to the significant decline in the purchasing power of Indonesia's middle class, overall new car sales have decreased despite the impressive performance of electric vehicle sales. The stagnation in demand for cars in the Indonesian market means that expanding local production capacity is unlikely to yield substantial returns for automakers.