EU–Indonesia: new opportunities for the automotive sector

On 23 September 2025, the European Union (EU) and the Republic of Indonesia concluded negotiations onComprehensive Economic Partnership Agreement (IEU-Cepa), which will probably be operational in 2027providing for the elimination of tariffs on more than 98% of tariff lines: approximately 80% will be liberalized upon entry into force, while the remainder will be progressively removed within five years, covering 96% of bilateral trade. Within the agreement, a strategic role is reserved for the regulated automotive sector from the Automotive Annexwhich includes Indonesia’s commitment to adopt the standards Unece 1958 for vehicle approvals, simplifying mutual recognition of certificates and significantly reducing costs and time for European manufacturers. To this aspect, the IEU-CEPA adds the commitment of Jakarta for a gradual one 50% reduction of duties on European cars, facilitating the access of houses from the Old Continent to the local market.

1 Bridge between EU and Indonesia

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The Comprehensive Economic Partnership Agreement (Ieu-Cepa), in its Automotive attachmentaims to promote integration between the European and Indonesian sectors. The agreement, which will come into force on January 1, 2027 after ratification by the European Union and Indonesia, it provides for the accession of Jakarta to the 1958 UNECE Agreement. If accession occurs earlier, Indonesia will recognize European vehicles certified according to 86 UNECE international regulations. This way, European manufacturers will be able to avoid duplicate testing and marking, reducing time and costs, while Indonesian vehicles compliant with international standards will be able to access the European market more easily.

The Agreement Unece 1958managed by World Forum for Harmonization of Vehicle Regulations (WP.29)defines, for the countries adhering to the agreement, a global framework relating to the mutual recognition of vehicle approvals, covering over 170 Regulations relating to vehicle safety, performance and component standards. Historically, Indonesia maintained a cautious position on the 1958 UNECE Agreement, mainly due to the stringent technical requirements and the possible impact on the domestic automotive industry. However, under the presidency of Joko Widodothe country has undertaken a gradual alignment with UNECE standards, focusing in particular on those relating to lighting and vehicle safety. This strategy should reconcile export competitiveness with domestic political needs, while strengthening Indonesia’s position in global value chains.

In this framework, the IEU-CEPA plays a key role: it accelerates the integration process thanks to the creation of a automotive working groupconceived as a platform for technical dialogue, capacity building and resolution of regulatory issues. With this phased approach, Indonesia can modernize its automotive sector without penalizing local manufacturers, while promoting technological innovation, from electric vehicle technologies to advanced safety systems. Looking ahead, the full implementation of the IEU-CEPA should place Indonesia in a stable and predictable international regulatory framework, strengthening the competitiveness of the sector and its integration into European and global markets.

2 The industrial potential of IEU-CEPA

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For the European automotive sector, theJehu-Cepa it could represent an important tool for the implementation of technology transfer and production policies in the electric vehicle (EV) sector. This consideration is reflected in the growing EU-Indonesian bilateral trade which, according to European datareferring to 2024, reached i 27.3 billion euroswith EU exports amounting to 9.7 billion euros and imports of 17.5 billion euros. In the automotive sector, EU car exports to Indonesia were estimated at approx 500 million dollarsunderlining the growing importance of vehicle trade. In recent years, the Indonesian automotive industry has become one of the most important in the Southeast Asian region. In 2024, it has experienced a significant transformation, characterized by a decline in sales of traditional vehicles and an increase in the adoption of electric vehicles. According to data from Pwc reportoverall car sales fell 13.9%, reaching 865,723 units, mainly due to economic uncertainties and restrictions on auto loans. However, the EV segment recorded notable growth, with sales more than doubling to 43,188 unitsrepresenting 5% of the national market share.

Indonesia, in addition to presenting an automotive market with great expansion potential, has become a hub of interest for the main Chinese (BYD, Geely), Japanese and South Korean automotive groups. The abundant ones nickel resources they have also attracted significant foreign investment. Looking to the future, the country aims to produce 600,000 vehicles electricity nationwide by 2030, leveraging its nickel deposits and strategic location to become a regional hub for EV production. Proactive government policies, coupled with foreign investment, position Indonesia as a leader in the transition to sustainable mobility in Southeast Asia. The combination of a large internal market and a rich supply of critical minerals provides a solid basis for vertical integration and technology partnerships, where the EU can leverage EU-CEPA to secure a strategic position in Southeast Asia’s dynamic electric vehicle market. In the next paragraph we will analyze the opportunities and risks for the automotive sector linked to the implementation of the agreement.

3 Ieu-Cepa and the Fit for 55

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From the European industrial perspective, the Ieu-Cepa does not only represent an instrument for the liberalization of trade with Indonesia, but also an important piece for the implementation of the Fit for 55 projects and the European Green Deal. The transport sector produces around a quarter of total greenhouse gas emissions in the EU, making the decarbonisation crucial mobility to achieve -55% emissions by 2030 and climate neutrality by 2050. In this scenario, Indonesia plays a key role for at least three reasons:

1. Critical raw materials and the battery value chain. The European Union, approving the Critical Raw Materials Actaims to reduce dependence on Chinese imports and diversify sources of supply. In this context, the Indonesian nickel represents a strategic opportunity for European car manufacturers, ensuring stable supplies of batteries and accelerating the transition towards electric mobility.
2. Technology transfer and industrial competitiveness. Cooperation with Indonesia could help strengthen the presence of European car manufacturers in the electric vehicle sector.
3. Climate cooperation. The agreement between the EU and Indonesia could support both the transport decarbonisation program in Europe and sustainable development in Indonesia.

The IEU-Cepa thus supports the green transition, the resilience of supply chains and the global diffusion of EU standards in the Indonesian automotive sector.

4 Industrial opportunities and risks

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For European car manufacturers, the Ieu-Cepa offers two important opportunities: access to one of the largest automotive markets in the South-East Asia region and, secondly, the possibility of entering the battery value chain, in particular in mining sector (nickel). However, these opportunities come with significant risks. Indonesian nickel downstream policies and export restrictions could raise operating costs for European investors; while the local market is highly competitive, with Japanese and Chinese players already well-established and rapidly expanding. Furthermore, macroeconomic factors, such as weak consumer confidence and interest rate volatility, can slow down demand, while regulatory uncertainties and infrastructure deficiencies in charging networks limit their diffusion. For European car manufacturers, balancing these dynamics will be crucial to exploit the potential of the IEU-Cepa and consolidate their presence in the Indonesian automotive market.

5 Who is it suitable for?

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For European car manufacturers, IEU-Cepa represents more than access to the Indonesian and European markets Southeast Asia: allows you to strengthen integration into local value chains and plan a strategic insertion in the production sector, especially in the EV and research and development sectors. Jakarta’s gradual alignment with Unece 1958 standards and the recognition of European certificates reduce duplicative testing, time and costs, enhancing technological expertise and safety leadership. For Indonesia, Ieu-Cepa consolidates its position as a regional hub for electric mobility, given the huge resources of Critical Raw Materials (CRMs) and proactive industrial policies. It is therefore crucial that the European Union supports technology transfer and technical cooperation; while the Indonesian government guarantees stable rules on investments in batteries and protects the national automotive sector, encouraging development projects.