Indonesia's tire market is on course for growth

Companies producing in Indonesia sold around 84 million passenger car tires in 2018. This represents an increase of 27% compared to 2014. In addition, 69 million motorcycle tires were manufactured in factories in the archipelago, which is an increase of 30% over the same period. Aircraft and bicycle tires comprised of a much smaller market.

Further market prospects are good as production figures in the automotive industry are growing. Every year, more than one million cars are produced in Indonesia, plus nearly 300,000 commercial vehicles. In addition, the Japanese manufacturers are expanding their Indonesian export hub. In 2018, they exported 350,000 automobiles (in whole or in part) all over the world. The export figures have been rising rapidly for years. Hyundai, for example, is one major car manufacturer to soon start manufacturing in Indonesia. Indonesia already produces about 6 million motorcycles a year, peaking at up to 8 million.

About 70% of passenger car tires produced in Indonesia and 30% of motorcycle tires are exported to more than 70 countries into every continent. The vast majority of it is delivered to the USA. Since the US increased tariffs on passenger car tires from China in 2015, it has been possible to continuously increase delivery volumes there. However, since then, the Chinese manufacturers are looking for new sales markets and are also targeting Indonesia.

Nearly $ 1.6 billion was earned by Indonesia in 2018 with the export of tires of all kinds. Thus, this industry is one of the largest foreign currency donors in the country. According to UN Comrade, as of 2017, the archipelago is the eighth largest exporter of passenger car tires in the world, just behind seventh-placed France.

Hurdles against imports
In the worldwide import list of tires of the same year, Indonesia ranks only 50th. That means in practice, tires are reluctant to enter the country. This is due to import restrictions for 38 tariff lines introduced in early 2017. Following its introduction, the import levy of the income tax - article 22 (also known as import income tax) for tires was increased from 2.5 to 7.5% in September 2018 as a result of higher taxes on imported consumer goods.

The Indonesian Association of Tire Manufacturers, or APBI, also claims that up to 40% of all tire imports do not meet the national product standard (locally abbreviated as SNI – a notoriously used non-tariff barrier). According to market analyst Data Consult, the Indonesian Ministry of Trade has introduced new reporting requirements, effective March 1, 2019, for tire importers under ministerial regulation 5/2019, whose non-compliance may lead to the withdrawal of import license.

Above all, Indonesia imports large truck tires that domestic factories cannot produce. According to APBI, the importation of passenger car tires is usually the result of warranty agreements with the car manufacturers, which grant the buyer a set of original tires. The already low German deliveries consist mainly of high-tech tires that Indonesian producers either cannot produce because they are technically unable or because they lack the corresponding patents.

Second largest rubber production worldwide
Easier than the export of tires to Indonesia is on-site production for foreign manufacturers. Finally, Indonesia has a great comparative advantage over other countries in this regard: its large acreage of rubber. Only Thailand produces more of this raw material. Natural rubber accounts for almost 20% of tire production costs, more than labor costs.

As a result, many large tire manufacturers are represented in the archipelago with state-of-the-art factories such as Bridgestone, Goodyear, Hankook or Michelin. There are a total of 14 tire manufacturers in the country. The largest manufacturer is Gajah Tunggal, which is just under 49.5% owned by the Singaporean Denham Holdings and 10% Michelin. Gajah Tunggal produced 43 million tires in 2018 according to its annual balance sheet. The second largest producer is Bridgestone with two production sites near Jakarta, in Bekasi and Karawang.

Also among the largest players in the market is Multistrada Arah Sarana (MAS), which exports 80% of its production. MAS was acquired by Michelin in early 2019. The purchase price for 80% of the shares was US$439 million. Coincidentally, the American manufacturer Goodyear has been in the country since 1917, but is one of the smaller players.

Production of car tires by manufacturers (in Million units)

Source: APBI/ICN

GTAI is the foreign trade and inward investment agency of the Federal Republic of Germany. The organization advises foreign companies looking to expand their business activities in the German market. It provides information on foreign trade to German companies that seek to enter into foreign markets.