Indonesia: Favoring EVs more than LCGC under revised luxury tax scheme
Production and sales plunge in 2020 due to COVID-19 crisis, impacting heavily on exports
According to statistics of the Association of Indonesian Automotive Industries (GAIKINDO), production volumes in 2019 declined by 4.2% year-over-year (y/y) to 1.287 million units and sales volumes fell by 10.5% y/y to 1.03 million units. Exports for completely built-up (CBU) vehicles in 2019 increased by 25.5% y/y to 332,000 units and those for completely knocked-down (CKD) units grew to 511,000 units, 6.2 times as many as the previous year. The presidential election led political uncertainties in 2019, making consumers hesitant to purchase high-priced goods. Thus, new vehicle sales decreased by 10.5% y/y, but production fell only by 4.2% y/y as exports increased significantly.
As most of the manufacturers suspended operations at their plants in April and May due to prevention measures against the COVID-19 pandemic and lower demand, production volumes fell by 45.1% y/y to 370,000 units and sales volumes declined by 46.0% y/y to 261,000 units for the period from January to June 2020. Exports of CBU vehicles also decreased by 24.4% y/y to 104,000 units and those of CKD units dropped by 45.1% y/y to 144,000 sets. In July 2020, GAIKINDO forecast that production volumes through 2020 will fall to 700,000-800,000 units, sales volumes to 600,000 units or less, and CBU exports to 175,000 units.
The Indonesian government announced its plans to start the production of EVs in 2022, targeting EVs to reach a 20% share of total production by 2025. The government has banned the export of nickel ore, which is abundant in Indonesia, and intends to develop the local industry to process nickel ore and produce chemicals to be used for EV batteries. In addition, the government decided to revise the luxury tax scheme for vehicles. The new rules, which will come into effect in October 2021, will increase the effective tax rate on LCGCs (Low Cost Green Cars) from 0% to 3%, make the effective tax rate on PHVs, EVs, and FCVs 0%, and shift preferential treatment from LCGCs to electric vehicles.
The Indonesian government presented measures to subsidize interest on auto loans in May 2020 as stimulus schemes for the automotive industry that was deeply impacted by the COVID-19 pandemic. Moreover, the Coordinating Ministry for Economic Affairs promised to spend IDR 70 trillion in assistance for the industry. GAIKINDO is asking the government to reduce the vehicle tax and simplify the import process, among other things.
Regarding vehicle production in Indonesia, Hyundai Motor is building a new plant with an annual production capacity of 150,000 units. Mitsubishi Motors has increased the production capacity for its Bekasi Plant. Meanwhile, Nissan closed its Indonesian plant in May 2020. Daihatsu will reverse import the Gran Max light commercial vehicle to Japan to sell it as a Daihatsu brand model and to supply it to Mazda as the Bongo.
|Vehicle production and sales in Indonesia||Daihatsu Gran Max Cargo (to be imported to Japan from September 2020) (Photo: Daihatsu)|
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