PwC Indonesia launch Automotive Supplier Survey 2021/2022

Jakarta, 21 March 2022 - The automotive industry is undergoing revolutionary change that poses an existential threat to suppliers. This has been the case for a while, of course, but the 2020 pandemic has further accelerated the dominant trends and drivers.

Today, PwC Indonesia in partnership with Gabungan Industri Alat-Alat Mobil and Motor (GIAMM), released the PwC Indonesia Automotive Supplier Survey 2021/2022, aiming to analyse the automotive suppliers segment in Indonesia, assess the current situation, and predict future developments in the sector. The survey was run from last December 2021 to the beginning of 2022 for key automotive supplier companies in Indonesia. The survey describes a comprehensive summary of the current perspective and expectations of industry players and anticipated challenges for the sector in Indonesia.

Hamdhani Dzulkarnaen Salim, Chairman of Gabungan Industri Alat-alat Mobil dan Motor (GIAMM), added, “The resilience and determination shown by Indonesia’s automotive industry in light of the economic turbulence of the COVID-19 pandemic, is something that all industry stakeholders have been working on. The findings of this report show that suppliers share the belief of car manufacturers that Indonesia is a market worth investing in and one which has strong growth prospects. Global supply chain disruptions and ongoing external economic threats are on the minds of many industry players and we see them responding by seeking localised alternatives. The forecast is that supply chain disruptions may continue, but that players are willing and able to adapt to these challenges.In coming years we will see this trend continue, with consumer sentiment calling on car manufacturers to supply them with vehicles that are aligned to their modern, digital tastes, and also, progressively, the need for EVs as the answer for sustainability issues promoted by the government.”

Indonesian automotive highlights

From the report, as automotive players pivoted and adopted new business plans, business leaders wondered whether these changes, which accelerated trends already in motion, would be fleeting or permanent, there are sure to be many challenges ahead for the supplier industry. 2020 saw Indonesia’s automotive industry experiencing a total industry volume decline of 48.4% while 2021, in turn, saw a strong rebound for the industry with data showing a 36.3%. Market data shows that at least 58% of respondents report that, in comparison to revenue for 2020, they saw revenue in 2021 rebound by more than 30%. Overall, only 10% of respondents indicated that their revenues decreased from 2020.

While Indonesia still continues to address the economic and health challenges from the COVID-19 pandemic, the year ahead may bring a further increase in consumer spending, which will have a positive impact on both Original Equipment Manufacturers (OEMs) and automotive suppliers. Respondents indicate that they, overwhelmingly, expect revenues to grow in the year ahead.

Hendra Lie, PwC Indonesia Automotive Industry Leader, commented, “The Indonesian automotive industry does not apart from the transformation, and the future success of the sector is a key for the whole economy of Indonesia. We found that 85% of respondents were either optimistic or very optimistic about the future despite COVID-19 and that stability in demand and likelihood of growth may drive the automotive industry forward. This optimism could dwindle, however, if, for example, the current global inflation boom and raised interest rates in countries have a knock-on effect on the Indonesian economy.”

Shifting demand of EVs

According to PwC’s recent global CEO Survey for 2022, executives are optimistic about the outlook for their economies in 2022; while 46% of CEOs within the automotive industries highlighted that they are grappling with component shortages, particularly for semiconductors. As the EV market continues to grow in coming years, we will see an expansion of demand for components fit for purpose. This shift to electrified mobility will require parts suppliers to supply products that meet demand. In the Indonesian context, however, adoption of EVs has been slower than in other markets, but industry players are gearing up for a future where these vehicles play a more prominent role in the market share.

Emerging Technologies to support Industry 4.0

The adoption of advanced technologies, including automation, robots, big data, and related smart factory solutions, will help automotive players unlock competitive advantages. The shifting role of  workers will be something to consider, and will require an evolution in skillsets. With technologies offering more efficient solutions to many tasks, workers may find themselves deployed to other areas. Competition for technical experts in the automotive supply sector will continue and even increase, with many players seeing the need to adapt the skillsets of workers to emerging technologies.

As digital integration becomes more hardwired into the production process and the final products (particularly in EVs), respondents note that technology solutions also pose a threat to their companies. Cyber threats are on-going and evolving, and companies are employing various strategies to be more cyber-resilient.

Advanced and interactive networks of machines and processes, built on frameworks of effective data use and machine learning, are set to significantly impact the operations of automotive industry players in future. Seen as a competitive advantage, utilising these emerging technologies may help manufacturers reduce costs while boosting output capacity.

Hendra Lie also stated that, “In Indonesia, we see that 23% of respondents have already implemented such technologies into their production process, while a further 19% will invest in such technologies within the next two years. Confirming statements regarding R&D and innovation, 34% of respondents note that their approach to Industry 4.0 will be handled at a group level.”

The imposition of the Omnibus Law

Respondents see the effect of the Omnibus Law in the area of labour management, business dealings, tax, and trade decisions.

“Since the enforcement of Omnibus Law, many companies have seen their businesses affected by its provisions. Respondents have seen that this legislation has, in over 70% of cases, had a significant or limited impact on how they regulate manpower and business permit in their organisations. Very few organisations saw no impact from the legislation on these two aspects. Meanwhile, over 50% of respondents indicate that the law also positively impacted their ability to be involved in investment and national strategic projects,” as mentioned by Hendra.

Sustainability

Indonesia has pledged itself to be a net-zero country by 2060. Over 70% of all respondents indicated that they are either working towards or have already made commitments to be carbon-neutral or net-zero.

Manufacturers, like other polluting industries, are under increased pressure from governments, investors, clients and the public to adopt operational methods more aligned with environmental, social, and corporate government (ESG) metrics and many companies are committed themselves to reduce greenhouse gas (GHG) emissions to near zero, and removing remaining unavoidable emissions.