Chinese EV makers are rapidly dominating Southeast Asia, with Indonesia emerging as a key battleground. Their rise could either transform or sideline the country’s traditional automotive sector.

Across the ASEAN-6, overall light-vehicle sales fell 5.4% last year to 3.28 million units. Yet while the broader market shrank, EV adoption leapt from 9% in 2023 to 13% in 2024, driven largely by Chinese brands like BYD, Chery, and Wuling.

Nowhere is this disruption more visible than in Indonesia. Despite the country’s overall car sales dropping 8.6% in the first half of 2025, Chinese EV makers are seeing a rise in a nation that has long been the stronghold of Japanese carmakers. A report from the automotive association Gaikindo shows that the country’s top 10 best-selling EV brands in March 2025 all came from China, with no Japanese models making the list.

Why China is leading the charge, and Indonesia’s dilemma

The roots of China’s EV dominance lie in policy. For over a decade, Beijing poured subsidies, incentives, and industrial backing into EVs, creating the world’s largest market and the scale to make cars affordable. Unlike internal combustion engine (ICE) cars, EVs are simpler; motors replace engines, software drives innovation, and batteries decide cost and performance. This lowered the barriers to entry, allowing Chinese firms to leap ahead. Meanwhile, Japanese, European, and American carmakers hesitated, clinging to hybrids or hydrogen instead. By the time the global EV wave arrived, China was already leading by miles.

This head start now plays out in Southeast Asia. Chinese brands offer affordability, integrated battery supply chains, and the ability to scale fast. They also enjoy an edge denied them in Europe or the United States: ASEAN offers fewer political obstacles, a geographic proximity to southern China, and governments eager for green investment.

Indonesia is the ultimate prize. It is ASEAN’s biggest car market, targets 20% of EV penetration by 2025, and holds the world’s richest nickel reserves. BYD is investing US$1.3 billion in a plant in Subang, West Java, to produce 150,000 units annually and is set to employ 18,000 people by late 2025. Rivals like GAC Alon and Great Wall Motors are also entering with projects already underway.

Indonesia should take note of its northern neighbour. Thailand, once ASEAN’s automotive hub, has experienced a rapid transition to EVs, with affordable Chinese models now making up over 70% of the market. BYD led the pack with a 49% market share in 2023. This influx triggered intense price competition, squeezing out weaker players such as Neta, whose market share plummeted from 12% in 2023 to just 4% by early 2025.

 

Oversupply also strained Thailand’s production scheme, forcing deadline extensions and tougher requirements, while many smaller parts makers shut down as EVs require fewer but more advanced components like batteries and motors.

 

Analysts warn of a “China shock”. In 2024, EVs and other low-cost Chinese goods made up to 1.4% of China’s exports to the region, surpassing flows to the U.S or EU. Without a rapid pivot to EV-related components, Indonesia risks following Thailand’s path, where weaker suppliers collapse and survivors face inevitable attrition.

 

What must be done

For Indonesia’s automotive industry, survival depends on adaptation. While Gaikindo projects sales to rebound to 900,000 units in 2025 from 865,723 in 2024, this recovery is being driven not by ICE vehicles but by the rapid adoption of affordable EVs. The very recovery that dealers cheer may accelerate the eclipse of local suppliers. Traditional Japanese manufacturers cannot afford to treat Indonesia merely as an ICE stronghold while Chinese brands dominate the new frontier.

So, what should Indonesia do? The first imperative is to accelerate EV readiness. Charging infrastructure must grow far beyond Jakarta, and urban planning must adapt to accommodate electric mobility. Workers displaced from ICE industries need retraining, while government policy should prioritise technology transfer rather than just vehicle assembly. Without this, Indonesia risks becoming a workshop for foreign manufacturers and missing the chance to build its own technological base.

Second, policy must be recalibrated to balance global investment with local development. The current 40% local content requirement for EVs is a reasonable starting point, enough to stimulate domestic participation without scaring off foreign players. Over time, this threshold can be raised to ensure gradual but sustained local integration into the EV supply chain. To achieve scale and access advanced technologies, partnerships with established Chinese, American, and European players may be unavoidable.

Finally, Indonesia’s suppliers need to reorient themselves to remain relevant. Competing in advanced batteries or software may be out of reach, but opportunities remain in areas such as vehicle bodies, tyres, and assembly. Leveraging the nation’s resource advantage in nickel and other key minerals, the government can incentivise domestic battery production while insisting on local value addition. The shift will be painful, but inaction will be fatal.

Can ASEAN respond collectively to the China shock? Realistically, no. The region is too diverse for a unified EV strategy. Singapore relies on imports, Vietnam backs VinFast as its national champion in the local EV industry, Thailand targets exports, and Indonesia protects local capacity. The country’s best chance is regional leadership that leverages its market, resources, and nickel reserves to become an EV hub. Globally, it can be a selective player in components.

Chinese EVs are here to stay, and their rise is both a threat and an opportunity for Indonesia. If the country’s traditional automotive sector clings to the past, it risks being sidelined, as has happened to parts of Thailand’s supply chain. If it embraces the transition through partnerships, investment, and innovation, it can emerge as a regional powerhouse in the EV era.

The article was first published in Katadata.