Japan carmakers raise worries over Indonesian content rules

Indonesia's move to mandate 60% local content for EVs by 2027 is a clear protectionist play. It aims to force foreign manufacturers to build out local supply chains. This strategy has seen limited success, with existing 40% rules failing to fully integrate EV makers with domestic suppliers. The new 60% threshold will likely increase production costs for companies like Toyota and Denso, which rely on established regional supply chains.

This policy creates a dilemma for Japanese automakers. They must either invest heavily in local Indonesian manufacturing or face higher import costs and reduced competitiveness. This benefits local Indonesian parts manufacturers, but it risks deterring new foreign investment. The challenge for Jakarta is balancing domestic industry growth with maintaining an attractive investment climate for major global players.

The test for Indonesia is whether it can attract the necessary foreign direct investment to meet these content targets. The 2030 target of 80% local content is ambitious. Watch whether Indonesia offers new incentives or relaxes some requirements to keep major players like Toyota committed to its EV market. Without further measures, the higher thresholds may slow EV adoption rather than accelerate local production.