Indonesia's 2W Market - What’s driving the decline?
Indonesia: Nearly 10 million people have slipped out of Indonesia’s middle class since 2019, according to government statistics
Indonesia’s economy is suffering from the aftershocks of COVID-19 in the form of a shrinking middle class which shrank by 10 million people between 2019 to 2024. The decline in this income group can be ascribed particularly to the job losses in the manufacturing sector paired with the recent increase in consumption tax and gaps in the country’s social safety net. Further, strong competition from lower-cost destinations such as China particularly in the textile sector has squeezed factories leading to increased layoffs in the country.
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Middle class economic position and its impact on two-wheeler demand in Indonesia
Motorcycles, being lightweight and affordable are ideal daily commuting choice for majority income groups in Indonesia. Between 2018 to 2022, the demand for motorcycles grew by 17.3%. However, due to the deteriorating middle class in 2024, the market has reduced speed from a strong 2023, registering negative growth of -1.7% from the previous year.
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Electric vehicles attract attention amid deteriorating purchase class
The electric two-wheeler market is still in the early stages of development and is growing rapidly. Indonesia is witnessing a strong shift towards EV on account of policy incentives and continuous launch of new products from EV manufacturers. Additionally, robust domestic demand for e-commerce online shopping has resulted in delivery giants gradually changing their 2W motorcycle delivery fleet to electric vehicles in order to transform to zero carbon emissions. Further, established ICE players have also begun to inject electric vehicle product lines.
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Government efforts to revive the domestic two-wheeler demand
The Indonesian government has committed $455 million to subsidize the purchase of electric two-wheelers aiming to cover the purchase of 800,000 new electric motorcycles along with the conversion of 200,000 combustion engine motorcycles into electric ones. The subsidy offers around $435 discount on the purchase of electric motorcycles. The electric motorcycle segment is increasing by more than 96% this, however starting from a very low level. Further, the newly elected President has also promised to boost economic growth and create 19 million jobs.
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Competition struggles amidst shrinking two-wheeler demand
Honda and Yamaha, that collectively account for more than 95% of domestic two-wheeler demand in Indonesia registered declining sales in 2024. Both the industry majors registered negative growth of -1.15% and -3.91% respectively. Kawasaki was the only significant player that registered positive growth of just over 3% during the current year.
Yadea – the Chinese giant and EV leader in Indonesia announced huge investment to produce electric scooter and motorcycles in the country. The Yadea production base boats state-of-the-art facilities and cutting-edge technologies with an annual production capacity of 300,000 units.
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