Hyundai to make IONIQ 5 in Indonesia, EV hub for ASEAN market

Hyundai Motor Co. has started mass producing its iconic all-electric crossover IONIQ 5 at its newly built plant in Indonesia, a country that the top South Korean automaker aims to use as its base for an aggressive foray into the Southeast Asian market.

At the opening ceremony for the assembly plant in the Deltamas industrial complex in Bekasi Regency, about 40 km east of Jakarta, on Wednesday, Hyundai Motor said it will invest $1.55 billion to increase its annual production capacity to 150,000 units by the end of this year, and further expand to 250,000 cars in the long run.

“Indonesia is Hyundai Motor’s core base for its future mobility strategy in Southeast Asia,” Hyundai Motor Chairman Chung Euisun said at the ceremony, which was joined by Indonesian President Joko Widodo and other Indonesian government officials.

“Our Indonesian plant will play a crucial role in the country’s ambition to make electric vehicles one of the main pillars of its future-oriented industry.”

The plant started operations in mid-January and is currently producing the Hyundai Creta subcompact crossover utility vehicle. The completion ceremony was originally scheduled for January but was postponed due to the COVID-19 pandemic.

The mass production of the IONIQ 5 in Indonesia on Wednesday is significant in that it is the first time the all-electric model is produced outside of Korea.

The IONIQ 5, Hyundai’s first car to sit on its proprietary Electric-Global Modular Platform (E-GMP), was revealed globally in February of last year.

Hyundai Motor said its Indonesian plant will also produce the Santa Fe SUV in the first half and a small multi-purpose vehicle (MPV) in the second half. Hyundai didn’t reveal the name of the MPV, but industry watchers said it will be named Stargazer.

The company said the plant is also eco-friendly with part of the factory powered by solar energy generation facilities.

Vehicles made at the plant will be sold in Indonesia and exported to neighboring countries, targeting the Association of Southeast Asian Nations (ASEAN) market, according to Hyundai.

STRONG GROWTH POTENTIAL

Hyundai is focusing on Southeast Asia, given the strong growth potential in the region. Indonesia, the world's fourth-most populous country, is a high-potential market with about 1 million new units sold a year, with the current ratio of car ownership to total inhabitants standing at fewer than 100 cars per 1,000 people.

Indonesia also has ample mineral resources such as nickel and cobalt, key raw materials for EV battery production. The Southeast Asian country is the world’s top nickel producer with the largest reserves.

With the IONIQ 5, Hyundai aims to crack the Southeast Asian market dominated by Japanese carmakers such as Toyota and Honda.

Last year, Hyundai exported a total of 6.05 million Ioniq Electric and Kona Electric to Indonesia, taking 87% of the local EV market.

To secure a stable supply of battery cells, Hyundai has forged a partnership with LG Energy Solution Ltd. to build a battery plant in Karawang, Indonesia.

In September of last year, the two companies began construction of the $1.1 billion battery cell plant. Commercial production is scheduled for the first half of 2024 with an annual capacity of 10 GWh of battery cells, enough for over 150,000 EVs.

TAX INCENTIVES

Indonesia is offering tax incentives for global automakers operating in the country as part of the government's efforts to expand the country's EV penetration rates.

Any foreign carmaker operating in Indonesia is exempted from a 15% tax if it uses local auto components and employs local workers.

With the tax benefits, Hyundai Motor also plans to enter other countries in the ASEAN region, which allows for a tax-free trade among member countries if parts localization rates reach 40% under the ASEAN Free Trade Area (AFTA) agreement.

Currently, the ASEAN auto market is dominated by Japanese carmakers, which control 70% of the market.

Write to Byung-Uk Do at dodo@hankyung.com
In-Soo Nam edited this article.