The automotive industry, one of Indonesia’s key manufacturing sectors, has yet to show satisfactory results at the mid-point of 2019, with business players citing weaker economic indicators and slow progress on regulatory improvements as the main challenges.

The Association of Indonesian Automotive Manufacturers (Gaikindo) has kept its annual automotive sales target at 1.1 million units since the start of the year, unchanged from its 2018 target and lower than last year’s actual sales of 1.15 million units.

The industry suffered a blow in the first half of the year as sales declined 14 percent from the same period last year.

“Almost all brands have posted lower sales,” Gaikindo deputy chairman Jongkie Sugiarto told reporters on the sidelines of the 2019 Gaikindo Indonesia International Auto Show (GIIAS), which opened on Thursday.

“First, it is because we saw lower-than-expected economic growth, and second, because people had been too focused on the presidential election [in April], so they only began to think about buying new cars recently.”

Jongkie was referring to GDP growth of 5.07 percent in the first quarter of 2019, a marginal increase from 5.06 percent in the same period last year and a far cry from the government’s full-year target of 5.3 percent.

Astra International, Indonesia’s largest automotive conglomerate, also fell victim to the downturn after having maintained its market share in recent years. The company saw its domestic market share for cars drop to 45 percent in June, the lowest level in years.

The government has set a target of 1 million car exports by 2025, which would be quadruple last year’s 264,553 units. One fifth of those 1 million cars is expected to be electric vehicles, with domestic production expected to kick off in 2021 or 2022. The challenge remains that no regulation had been issued to this day to support electric vehicle production, Jongkie said.

He was referring to a planned revision to base the calculation of the luxury goods tax (PPnBM) for vehicles on their carbon emissions rather than their engine capacity. That would make electric vehicles subject to low or no taxes at all. Jongkie also pushed for a regulation to bring down import tariffs on electric vehicle components.

“Once the tariffs have been determined, businesses will be able to assess what cars or components are [economically feasible] to import,” Jongkie said. “The government also has to prepare the infrastructure to accommodate electric vehicles, [...] especially the plug-in and full electric ones.”

Speaking on the same occasion, Industry Minister Airlangga Hartarto said the regulations should be issued before the end of the third quarter of 2019.

“The luxury goods tax [revision] has been approved by the lawmakers, so we do not have any issues. There are only some technical matters [left to deal with],” Airlangga said. “Going ahead, the government will encourage more [domestic production] of electric vehicle components, especially the batteries.”

He added that two Asian automotive giants, Toyota and Hyundai, had committed to investing a total of Rp 50 trillion (US$3.58 billion) in Indonesia until 2025, some of which would be used to develop domestic electric vehicle production.

“In any case, this is just the beginning. I have been informed of new potential investment to build supporting factories, such as for batteries. So I’m optimistic to see a total of Rp 100 trillion of investment in the automotive industry over the next five years,” he added.

Vice President Jusuf Kalla, who opened the exhibition, urged the industry to push further into export markets amid tight competition in Southeast Asia.

“[Our exports] still lag behind Thailand’s, which means we are late, even though we have [entered] partnerships with various automotive firms,” Kalla said in his speech.

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