Hyundai Motor Co. will invest about 1.8 trillion won (US$1.55 billion) to build a car production base in Indonesia.
The company signed an MOU on investment cooperation with the Indonesian government at its office in Ulsan, Korea, on Nov. 26 in the presence of Indonesian President Joko Widodo, Hyundai Motor senior vice chairman Chung Eui-sun, Hyundai Motor president Lee Won-hee.
Hyundai Motor will build the factory on a site of about 776,000 square meters in the Deltamas Industrial Complex in Bekasi, about 40 km east of Jakarta, by 2030. The factory will start to produce vehicles in 2021. Annual output will be 150,000 units initially but will expand to 250,000 units. Hyundai will mainly produce sports utility vehicles (SUVs) and multipurpose vehicles (MPVs) targeting ASEAN consumers and will also push forward with production of electric vehicles in line with market trends.
Car sales in the ASEAN region increased from 3.07 million units in 2015, 3.16 million units in 2016, 3.34 million units in 2017, and 3.56 million units in 2018. In particular, Indonesia ranked first in the ASEAN region with 1.15 million units. Indonesia was followed by Thailand with1.04 million units and Malaysia with 598,714 units. Market observers expect the ASEAN auto market to reach about 4.49 million units by 2026.
Hyundai Motor plans to use the Indonesian plant as an outpost for the Southeast Asian market. The company will make it a strategic bridgehead for the development of new markets. Fifty percent of the plant’s production volume will be sold in the Indonesian market, with the remaining 50 percent to be exported to ASEAN countries such as Thailand, the Philippines and Vietnam, and the Middle East and Australia.
Of course, there are hurdles for Hyundai Motor to clear in the ASEAN market. Japanese cars are a strong competitor that accounts for more than 90 percent of the market. In Indonesia, Japanese car brands accounted for 97.5 percent of the auto market last year. The top five carmakers are all Japanese firms -- Toyota, Daihatsu, Honda, Mitsubishi, and Suzuki.
Car industry watchers say that a thorough localization of all processes from product development to production and sales is the right strategy for the Indonesian auto market. “Hyundai Motor’s entry into the Indonesian market will offer a wider range of choices to Indonesian consumers,” Indonesian President Widodo said during his visit to Hyundai's Ulsan plant. “We are very impressed with Hyundai’s hydrogen cars and electric vehicles which are totally pollution-free.”
Hyundai Motor has already begun developing strategic ASEAN models and plans to go ahead with the establishment of joint ventures and technical alliances between Korean and local parts suppliers. This is because Hyundai Motor judges that localization is essential from the parts stage in order to make competitive products locally.