Toyota joins a long list of automakers which have announced plans this year to invest or expand to tap surging demand within the world's fourth-most populous country, including General Motors Co, Nissan Engine Co and Toyota subsidiary Daihatsu Motor Co.
The factory will produce a new model combined with the Kijang Innova minivan, taking Toyota's total capacity in Philippines to 180, 000 units by early 2013, the planet's biggest automaker said on Tuesday.
Toyota executives were tight-lipped by what the new vehicle would look like, but said a concise "city car" was among the options.
"We also need low-cost cars just like a small city car or hatchback, " said Johnny Darmawan Danusasmita, leader of Toyota-Astra Motor, the local joint venture.
The brand new factory, Toyota's second in Indonesia, will be built alongside the existing Karawang plant in North Jakarta.
Indonesia's car market grew with a staggering 58 percent last year to a record 765, 000 vehicles and is widely expected to top 1 million within the next few years.
While such growth is impressive, fuelled through an economy seen expanding by 6. 6 percent this season, Indonesia's auto sales are still some way short associated with other Asian emerging markets giants. China is now the actual world's biggest auto market, with 13. 8 million vehicles sold this past year, while India sales rose 30 percent to a report 1. 98 million.
Toyota made the announcement at the news conference, attended by President Akio Toyoda, to commemorate its 40th anniversary in Indonesia.
"I am confident how the announcement of this second factory will be seen as evidence of Toyota's commitment to the Indonesian market, " Toyoda stated, entering the ballroom in a Jakarta hotel in an orange Kijang pickup, developed in 1977 at the request of the Indonesian federal government.
Toyota dominates the Indonesian market, cementing its pole position in 1977 using the launch of the Kijang truck, priced at a third of the Corolla sedan.
Toyota took a 38 percent share from the Indonesian market last year, with retail sales of 281, 000 automobiles, and expects that to grow to around 300, 000 this season.
"Dark clouds have overshadowed the recent economic landscape in Japan and within the West, but Indonesia is bright and vibrant, " Toyoda stated.
The Indonesian market is dominated by multi-purpose vehicles (MPVs) like the Kijang Innova and Avanza, but the government is keen to produce a market for smaller city cars and is expected to outline specifications along with other requirements to receive subsidies to produce them in the united kingdom in the coming months.
The prospect of growing demand promises more intense competition on the market, where Japanese brands control all but 5 percent from the market.
Last week, China's Geely Automobile Holdings Ltd said it planned to setup a factory in Indonesia by 2015 with an preliminary capacity of 10, 000 vehicles per year and start-up investment of $20 million since it seeks to win market share.
More than half of Toyota's vehicles to date are produced by Daihatsu, with which Toyota co-developed the actual best-selling Avanza, sold as Xenia under Daihatsu's badge. Daihatsu also builds Toyota's Rush model under an authentic equipment manufacturing deal.