"In fact, there has been a significant decline in middle-class purchasing power, and this is real," Josua Pardede of the Perbanas Institute said during a discussion titled "EV Incentives Removed: Where Is Indonesia's Automotive Industry Headed?" in Jakarta on Tuesday.
He added that data also shows the middle-class population has dropped sharply, while the number of vulnerable groups is increasing.
Josua explained that the downturn has hit sales of lower-priced cars, including low-cost green vehicles (LCGVs), which have suffered steep declines. By contrast, EV sales have emerged as a rare bright spot, particularly in the final quarter of 2025.
He said the surge in December was driven by consumers rushing to buy before government incentives were expected to expire.
"There was a very significant jump from November to December. Our assumption is that buyers acted out of concern that the EV incentives would not continue," he noted.
Currently, EV purchases are dominated by upper-middle-class consumers, many of whom are not first-time car buyers and are more resilient to economic pressures.
Yet Josua cautioned that without incentives, EV prices could rise, dampening demand and dragging down overall automotive performance in a sector already facing annual sales declines.
"If incentives are stopped without replacement, prices will rise and EV sales will fall. This will inevitably affect the industry's performance this year," he warned.
He suggested that conditional incentives, such as those tied to domestic component requirements or first-time car purchases, would be the most realistic option.
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While acknowledging the government's limited fiscal space, Josua emphasized that EV support remains vital given the segment's stability amid global economic uncertainty.
"EV incentives must continue, but with more targeted arrangements. Conditional incentives could be a win-win solution, encouraging domestic investment while safeguarding fiscal space," he said.
Earlier, the Ministry of Industry proposed a new fiscal incentive scheme for the automotive sector in 2026, aiming to balance technological priorities with domestic production requirements.
Industry Minister Agus Gumiwang Kartasasmita said the plan would consider vehicle segments, technology types, local content levels, and battery composition.
He noted that electric vehicles using lithium iron phosphate (LFP) batteries could receive smaller incentives than those powered by nickel-based batteries, reflecting the government's push to strengthen Indonesia's nickel industry.
Meanwhile, Coordinating Minister for Economic Affairs Airlangga Hartarto said the continuation of automotive incentives remains under comprehensive review, given the scale of fiscal support already provided.
"Automotive incentives should be reviewed. We have provided incentives worth Rp7 trillion (around US$417 million) over the past two years, and investment in the automotive sector, especially EVs, has already increased," Airlangga said at the Indonesian Business Council's Business Outlook 2026.
He added that the arrival of global EV manufacturers such as VinFast and BYD, following Hyundai's earlier investment, underscores the need to reassess policy direction.
The government, he said, wants to ensure that future measures not only extend past incentives but also strengthen the national automotive industry, including the development of a domestic car program.
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Translator: Adimas Raditya Fahky P, Aditya Eko Sigit Wicaksono
Editor: Anton Santoso
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