Indonesia motorcycle market – the driving factors and development trend

Overview of two-wheelers in Indonesia

Driven by multiple driving factors such as policy subsidies, surging sales in the 2C market, the government’s active purchase of electric vehicles, the implementation of green transportation in the new capital, and the promotion of distribution and leasing industry leaders, Indonesia’s “oil-to-electricity” industry upgrade is accelerating.

Local emerging companies in the Indonesia motorcycle market, Chinese car manufacturers, and traditional Japanese car manufacturers are actively developing the Indonesia motorcycle market. In the future, intelligent green new energy electric vehicles will gradually replace traditional petrochemical energy motorcycles. The current development trends of various types of electric vehicles in Indonesia are as follows:

• Electric mopeds: The space for electric mopeds in the Indonesia motorcycle market is relatively small, and the leading companies have exited the Indonesia motorcycle market;
• Electric bicycles: Indonesian electric bicycles have ushered in a peak, and the developing trend is good in 2023;
• Electric motorcycles: The electric motorcycle market has gained momentum and is expected to have a three-year gestation period;
• Electric tricycles: The market for electric tricycles has not yet opened in Indonesia.

Development environment of Indonesia motorcycle market

• Demographic advantage:

Indonesia is the largest economy in ASEAN, the third largest two-wheeler market in the world, and the fourth most populous country in the world. Indonesia’s overall population structure is young and dynamic. From 2011 to 2021, the proportion of Indonesia’s adult population has increased, and the number of people aged 15-64 was approximately 215 million. Moreover, Indonesia’s GDP is growing rapidly, per capita disposable income continues to rise, the population continues to become younger, and the potential user base of lithium battery two wheeler continues to expand.

• Economic development:

In 2022, Indonesia’s average monthly wage increased to nearly twice that of 2013. Disposable income continues to rise. It is expected that per capita wages in urban areas will double in the next five years. Indonesia’s GDP in 2021 increased by nearly 10% compared to the previous year. In 2023, Indonesia’s GDP will exceed IDR 5,296.0 trillion, and it is expected that Indonesia’s GDP ranking in the world will be among the top 15 in ten years.

• Policy environment:

The subsidy policies in Indonesia’s two major markets demonstrate its determination to electrify, and the demonstration effect is expected to drive overall promotion in ASEAN countries. Indonesia ranks among the top three motorcycle sales in ASEAN, accounting for 50% of ASEAN motorcycle sales in total, and has a strong influence in the ASEAN market.

The average annual sales of motorcycles in Indonesia is more than 5 million, but according to the Indonesian Ministry of Finance’s plan, the subsidy policy will only cover 200,000 new electric motorcycles in 2023. Although the subsidy scale for Indonesian electric motorcycles is smaller than the market size, it demonstrates the government’s determination to transform into new energy.

• Development of electric vehicle manufacturing industry:

The government hopes to exchange the Indonesia motorcycle market for technology and realize the transfer and undertaking of electrification technology and manufacturing. The electrification rates of Thailand and Indonesia motorcycle market in 2022 based on sales were only 0.7% and 0.6% respectively, which is far lower than that of Vietnam, and they are in the early stages of electrification development.

The Indonesia government is eager to develop its local manufacturing industry and hopes to transfer the electric vehicle industry in China and the United States that are already relatively mature to Indonesia through subsidies. Electric two-wheelers are technically similar to electric cars, and they are more accepted by local consumers, so it is reasonable for the government to provide subsidies together.

Compared with tariff reduction and exemption, policies for Indonesia motorcycle market are placed more emphasis on localization, making it more attractive to build factories overseas. The threshold for tariff reduction and exemption is relatively low, and Chinese two-wheeler companies can generally enjoy tariff preferences by exporting to China.

However, the subsidy policies introduced by Indonesia generally have certain localized production requirements and strive to promote the development of the entire local industrial chain. In 2023, the government stipulated that electric motorcycles must be produced locally in Indonesia and the proportion of domestic parts must reach more than 40% in order to enjoy subsidies. In 2024, the proportion of locally produced and domestic parts and components will reach more than 65%, and the localization rate is expected to reach 80% in 2026.

The supply and demand for Indonesia motorcycle market

Indonesia is the third largest two-wheeler market in the world and the largest in ASEAN. The two-wheeler ownership rate among Indonesian households is expected to reach 85% in 2023, ranking among the top three in Asia. Sales are expected to exceed 6.5 million units in the next three years. Moreover, Indonesia has the highest penetration rate of two-wheelers in ASEAN, in 2023, among Indonesia’s approximately 270 million people, the number of two-wheeler users will reach 130-150 million.

The current penetration of electric two-wheelers in Indonesia is similar to that in China ten years ago, and the market shows huge growth potential. The penetration rate of electric two-wheelers in mainland China was only 0.5% in 2015, but it rapidly increased to 19.7% in 2021, and the penetration rate will be even higher in 2023.

In 2020, there were 3,000 electric two-wheelers registered in Indonesia and 15 electric two-wheeler companies. As of the end of 2022, Indonesia has 26,000 electric motorcycles registered, and 35 companies have registered. As of October 2023, the sales of electric two-wheelers were 1 million, and there were 230 registered related motorcycle industry companies. Currently, electric bicycles are the most popular host. Sales channels mainly include B2B and B2C purchase and use, etc.

From 2021 to 2023, the ASEAN electric two-wheeler market grew rapidly. It is expected that the overall market size will exceed 2 trillion in 2023 and 3 trillion in 2025. As Indonesia motorcycle market continues to accelerate the replacement from oil to electricity, the Indonesia motorcycle market has huge potential for future development.

• The Indonesian two-wheeler market is growing rapidly:

From 2019 to 2022, the two-wheeler market stock increased by 17.3%. In 2023, the Indonesia motorcycle market size will be approximately IDR 105 trillion, accounting for 0.44% of GDP; according to forecasts, the Indonesia motorcycle market will maintain a compound annual growth rate of 8% in the future. And the Indonesia motorcycle market size will be close to IDR 196 trillion in 2032.

Among various types of motorcycles, light scooters occupy the main market share and have the highest usage rate in Indonesian residents’ daily life. Compared with other means of transportation, the number of two-wheelers in Indonesia is much higher than that of four-wheeled vehicles and is growing rapidly.

• Mainstream usage scenarios of two-wheelers in India:

For 2C users’ own use, 2B’s instant delivery, shared electric vehicles and government procurement, the market demand mainly comes from 2C’s self-use replacement. The main driving factors for the popularity of two-wheelers in Indonesia are hot climate, few parking spaces for four-wheelers, lower prices of two-wheelers, and convenience of riding.

There are two main scenarios for Indonesian locals to use motorcycles: commuting and express delivery or online ride-hailing. In addition, Indonesia is accustomed to catching motorcycle taxis, and the starting price is only about 10,000 rupees.

Current situation of Indonesia motorcycle market

Traditional fuel two-wheelers are still the mainstay in Indonesia motorcycle market, supplemented by emerging electric two-wheelers. The leading companies account for more than 90% of the market, and the core competitors are Japanese companies like Honda and Yamaha.

The core competitors in the Indonesia motorcycle market mainly include Honda, Yamaha, Suzuki, Kawasaki, and Vespa. In 2022, the combined market share of Honda and Yamaha reached 97%. Among the other three, only Vespa is an Italian company, and the other two are also Japanese companies. Other players include TVS, Viar, Husqvarna, Piaggio, Diablo, Keeway, etc.

Driving factors of the development of two wheelers in Indonesia

Policy factors

• The policy objectives of replacing oil with electricity:

The government is actively purchasing electric vehicles and implementing green transportation in the new capital. In order to reduce carbon emissions, the Indonesian government has launched a plan to replace fuel two-wheelers with electric two-wheelers, and has formulated a plan to change 20% of the fuel two-wheelers by 2025. It aims to reach the target of 1.8 million electric two-wheelers, and plans to sell only electric two-wheelers in Indonesia from 2040.

• Accelerate the construction of electric vehicle charging stations:

Battery swapping services are an emerging solution to the charging problem of electric two-wheelers (E2W) in urban areas. On September 1, 2020, Indonesia launched the first-ever electric motorcycle battery swap station to reduce the cost of using electric vehicles and create new business opportunities. On September 17 of the same year, the Indonesian Ministry of Industry issued Regulation No. 27/2020, formulating an electric vehicle industry development plan. It is expected that by 2030, Indonesia will have more than 30,000 electric motorcycle charging stations.

• Corporate tax reduction and subsidy plan:

The Indonesian government announced on March 6, 2023 that it will launch an electric vehicle subsidy program from March 20. According to the Indonesian Industry Minister, the plan includes the sale of 200,000 electric motorcycles and 35,900 electric vehicles as well as 50,000 modified conventional gasoline vehicles.

The amount of the subsidy will be determined based on factors such as battery capacity, cruising range, and degree of localization. The purchase of electric motorcycles that meet the requirements will be eligible for a subsidy of 7 million Indonesian rupiah. Internal combustion engine motorcycles converted into electric motorcycles will also receive the same subsidy.

The subsidy policy stipulates that electric motorcycles that receive government subsidies must be produced in Indonesia, and the proportion of locally produced parts should be more than 40%. At the same time, qualified electric motorcycle manufacturers are not allowed to increase their sales prices due to government subsidies.

• Indonesia promotes local production of nickel-based batteries:

As one of the world’s largest nickel exporters, Indonesia plans to use the country’s rich nickel ore resources to become a power battery production center. Indonesian state-owned enterprises and domestic and foreign battery-related companies will work together to establish an electric vehicle and power battery industry chain and jointly promote projects such as nickel mining and smelting, precursor and cathode material production and recycling.

Economy

Electric two-wheelers are more economical and economical: From the perspective of comprehensive purchase cost + operating cost, the five-year comprehensive cost of purchasing a 50cc automobile and motorcycle is IDR 12.8 million + fuel cost IDR 45 million + maintenance cost IDR 9.6 million = IDR 67.4 million.

The five-year comprehensive cost of purchasing a two-wheeled electric vehicle is IDR 11 million + charging cost IDR 1.7 million + battery replacement cost IDR 2.5 million = IDR 15.2 million, saving an average of IDR 10.44 million per year. Choosing an electric motorcycle will save an Indonesian family about 2 to 3 months of salary every year, which makes it an option with strong economic benefits.

The cost of using a motorcycle can be divided into purchase cost, fuel cost and maintenance cost. According to AC Ventures and AEML reports, compared with traditional fuel two-wheelers, electric two-wheelers can save more than 40% in energy costs and 50% in usage costs. Comparing the oil motorcycles and electric two-wheelers currently on the Indonesia motorcycle market, the latter is more expensive.

The subsidy range for oil-to-electricity introduced in Indonesia in 2023 (7 million Indonesian rupiah per vehicle) can already make up for the cost difference between the two. However, the range, speed and other performance of existing electric two-wheelers in Indonesia are generally still slightly inferior to traditional fuel two-wheelers.

Industry leaders

Indonesian delivery leaders Grab and Gojek both intend to change their two-wheeler fleets to electric vehicles. Currently, Grab and Gojek have taken steps to cooperate with electric vehicle manufacturers to provide their drivers with electric motorcycles and electric cars.

• Gojek:

Gojek announced its zero-carbon emission plan in late April 2021, becoming one of the first startups in Southeast Asia to publicly set ESG goals. In a statement in May 2021, Gojek pledged to switch all fleets from fuel to electricity and achieve carbon neutrality by 2030. At the same time, it is planned to deploy 5,000 electric motorcycles in South Jakarta. The vehicles are from the Indonesian brand Gesits and the Taiwanese brand Gogoro. Users pay a certain daily fee to rent them.

• Grab:

Grab has also announced a zero-carbon emission commitment, ordering 6,000 electric motorcycles from local manufacturer Viar Motor in 2021, and launching a new service – GrabElectric starting from July 14, 2021, allowing users to order an electric car at the same price as taking a taxi with a fuel car.

GrabElectric (Electric Motorcycle) provides free maintenance services to riders. Riders registered on the platform between the ages of 18 and 55 can apply to participate in this project. Riders who are not registered on the platform can collect and use the vehicle after paying a deposit. The vehicle will be automatically returned after the contract expires. The usage fee is 50,000 rupees per day. The minimum rental period is 30 days. And do not require a deposit for Grab riders. The project also provides battery replacement services at 8,000 rupees each time.

Limiting factors for the development of Indonesia motorcycle market

• Uncertainty in policy factors: The Indonesian government’s policy to encourage electrification is still in its early stages. The Indonesian government’s ruling party in February 2024 is uncertain about subsidies and implementation efforts. There are risk factors such as unstable two-wheeler electrification process and demand.
• Intensified market competition and market chaos: As the electrification rate of Indonesian two-wheelers increases, more and more manufacturers may enter the Southeast Asian electric two-wheeled market, including Chinese two-wheeler manufacturers and Japanese motorcycle manufacturers, and local manufacturers in Southeast Asia, etc., which may have an impact on market prices and patterns.
• Safety issues in the use of two-wheelers: The two-wheeler industry is relatively mature, but if new energy solutions and intelligent new functions such as LiFePO4 battery and sodium batteries cause major safety accidents, they may affect consumer judgment and lead to a decline in consumer enthusiasm for purchasing.

Development trend of Indonesia motorcycle market

The development of the Indonesia motorcycle market is still in its early stages. The government has issued a mandatory and auxiliary “motorcycle ban” policy to replace motorcycles with electric vehicles, and the market is expected to usher in a period of transformation. Compared with China and Vietnam, Indonesia’s current major manufacturers in electric two-wheelers have not yet established a stable and competitive market share, and there are also fewer existing product types and forms.

Two-wheelers are suitable for the Indonesia motorcycle market environment and demand is strong. The congested traffic in Indonesia makes the driving experience of two-wheelers significantly better than that of four-wheeled vehicles. In addition, most areas have low economic incomes, and two-wheelers are more suitable for social forms with low economic development levels. In addition, Indonesia has a low latitude, hot and humid seasons, which leads to high possibility of battery over discharge. Electric two-wheelers are an ideal means of transportation for local consumers.

Consumers in Indonesia and ASEAN generally prefer commuter motorcycles below 125cc, which are cost-effective and can cope with the rugged local terrain. With the continuous breakthroughs in technology, electric two-wheeler manufacturers have launched high-performance products equipped with motors of more than 2kW and large-capacity batteries of more than 20Ah. In terms of top speed and cruising range, they are already approaching the current best-selling 110cc motorcycles, with alternative possibility ti replace the traditional fuel motorcycles.