CORE: Indonesia's Automotive Industry Needs Strengthening via Component Industry
The economist from the Centre of Reform on Economics (CORE) Indonesia, Yusuf Rendy Manilet, believes that Indonesia’s automotive industry needs to be strengthened through the development of the component industry to ascend to the status of a production base, rather than merely serving as a vehicle assembly location.
Speaking in Jakarta on Friday, Yusuf noted that while the increase in completely built-up (CBU) vehicle exports shows positive progress, a strong production base is not determined solely by assembly volume, but also by the depth of the industrial structure and its supply chain, including the component industry.
He assessed that Indonesia still lags behind Thailand and Vietnam as an automotive production base in the region. Thailand has built a network of second and third-tier component suppliers over several decades, while Vietnam has successfully attracted investment through rapid licensing processes and integration with the electronic industry supply chain.
On the other hand, Indonesia possesses significant capital in the form of a large domestic market and abundant mineral reserves. However, Yusuf noted that these advantages remain comparative and are not yet sufficient to make Indonesia a competitive production base.
He stated that the government needs to strengthen the industrial ecosystem by reducing production costs through energy price certainty, improving logistical efficiency, providing fiscal incentives linked to exports and industrial deepening, and expanding access to financing for medium-scale component suppliers. “Without strengthening the component industry, only assembly activities will develop,” he remarked.
According to Yusuf, one instrument that can be utilised to strengthen the component industry is the Local Content Requirement (TKDN) policy. However, he argued that such policies should serve as instruments to deepen the industrial structure rather than merely fulfilling administrative requirements. “So far, many companies have focused more on chasing certificates than on improving technological capabilities,” he said.
Local content, he added, should not stop at simple components such as tyres or seats, but must evolve into high-tech components, such as propulsion systems, vehicle electronics, and software.
Minister of Industry Agus Gumiwang Kartasasmita stated that Indonesia is currently transforming from being merely an automotive market into a vehicle production base. During the opening of the Gaikindo Indonesia International Auto Show (GIIAS) 2026 in Tangerang, Banten, on Thursday (30/7), Agus said this transformation is reflected in the increasing performance of the national automotive industry.
Throughout the first semester of 2026, motor vehicle production reached 615,000 units, representing an 11.3 per cent growth compared to the same period the previous year. Wholesale sales increased by 15.9 per cent to 436,000 units. Regarding exports, CBU vehicle exports rose by 7.7 per cent, CKD (completely knocked down) exports increased by 38 per cent, and component exports surged by 46 per cent. Meanwhile, CBU vehicle imports fell by 49 per cent.