Despite the impact of the Covid-19 pandemic on global automotive sales, the journey to electrification remains on track. In Southeast Asia, the benefits of electrification are tangible and wide-ranging. Electric vehicles (EVs) enable developing economies in the region to meet their climate change commitments, reduce air pollution and increase energy security. Electrification also offers many opportunities along the value chain for economies with established automotive manufacturing hubs – such as Indonesia and Thailand – to extend their footprint in EV and battery production. For economies with less developed automotive manufacturing capabilities, it offers an opportunity to catch up with, or even leapfrog, industry players in more established automotive manufacturing hubs.
Economic objectives are often in conflict with environmental and climate change goals. However, the transition to electrification in Southeast Asia offers regional economies a rare opportunity to achieve their goals along both dimensions at once. Specifically, the shift to EVs will not only contribute to an overall reduction in carbon emissions, but will also create substantial macroeconomic opportunities as it will compel automotive players to rethink their conventional internal combustion engine vehicle value chains.
Recent trends and developments
Over the past few years, Southeast Asia has been showing promising signs of future EV market growth and development – specifically in countries within the Association of Southeast Asian Nations (ASEAN), which are increasing model availability, providing purchase incentives and investing in charging infrastructure. The region has been criticised in the past for failing to tackle important climate change issues such as reducing dependence on oil for the power and transportation sectors. However, recent commitments by key member states may point to a slow transition towards a more climate-conscious region.
Existing markets that have relatively strong EV adoption growth rates such as Norway, China and the US have had supportive EV purchase incentives for years. In a bid to entice buyers to opt for EVs, countries in the ASEAN region are also beginning to implement such incentives.
Thailand is updating an existing tax policy that exempts clean vehicles from excise duty to encourage more EV adoption. Under the current structure, battery EVs are exempt from excise duty through 2022, and the country is in the process of extending that policy. The excise duty adds around 10 per cent to the purchase price of a vehicle in Thailand. Hence, reducing the tax will act as a key market incentive. In February 2021, Nissan announced that it would make Thailand its hub for EVs in the ASEAN region. The automaker expects the ASEAN market for EVs to expand and plans to increase manufacturing and production facilities in Thailand to meet this demand.
There has also been an increase in model availability and original equipment manufacturer (OEM) investment in vehicle electrification in countries in the ASEAN region. VinFast, a private automotive start-up manufacturer, was founded in 2017 with the aim of being Vietnam’s first domestic automaker. In January 2021, the company released designs for three electric SUV models to add to its future model line-up. These models are currently slated for export but have the potential to be distributed within Vietnam and other ASEAN countries as the market in the region expands.
Before the Covid-19 pandemic, the Indonesian government had also set an ambitious target of ensuring that 20 per cent of vehicle production comprised electric and hybrid vehicles by 2025. This included 20 per cent of the targeted 1 million vehicles exports, rising to over 25 per cent by 2030. However, the country is reported to be struggling to keep its ambition of becoming a regional EV manufacturing hub on track as the pandemic sharply dented local demand for vehicles.
Brunei, ASEAN’s smallest country, has also embarked on a shift towards EVs. Recently, the Brunei Darussalam National Council on Climate Change launched the country’s first climate change policy called the Brunei Darussalam National Climate Change Policy to pave the way towards a low-carbon and climate-resilient nation. The policy focuses on 10 core strategic areas with objectives that are to be implemented in the next 15 years, which include adoption of EVs. It was reported that Brunei is looking to increase the total share of EVs to 60 per cent of total annual vehicle sales.
Further, there has also been a significant step up in investments towards developing charging infrastructure in the region in the past few years. Various investment plans to develop charging infrastructure in the region have been announced. Thailand PTT, the national oil and gas conglomerate, has recently announced a new subsidiary to operate and develop an EV charging infrastructure network. The Singapore government announced plans to install 60,000 charging points by 2030. The Asian Development Bank and Energy Absolute signed a THB 1.5 billion ($48 million) green loan to finance a countrywide EV charging network in Thailand. The Philippines-based CHRG Electric Vehicle Technologies received approval to produce EV fast chargers in the country.
Key issues and challenges
Despite the positive momentum in the EV market in the ASEAN region, significant challenges remain. The onset of the Covid-19 pandemic led to a global economic slowdown and Southeast Asia was no exception. There was a sharp fall in the overall demand for motor vehicles, which has hampered the region’s plans to develop an ecosystem for EVs.
There have also been various specific issues pertaining to the promotion of EVs in the region. The ASEAN vehicle market is growing at a faster rate than more established markets such as North America, and will need to expand its charging infrastructure commensurately. Moreover, despite the growth in EV availability and government incentives in the region, both are still at an incipient stage, and the market will still require significant OEM investment and government subsidies. Further, consumer economics is not currently favourable for EVs since they are more expensive and are often subject to high import taxes.
The road ahead
Southeast Asian markets are in a unique position to draw on learnings from more advanced first-mover EV markets, such as China and the Nordics, as they build their own unique approaches to electrification such as taking into account their specific local customer requirements, natural resource availability, industrialisation and value chain potential.
With Southeast Asian governments pushing for increased vehicle electrification, data standardisation will play a vital role. Currently, many charging network providers are working in isolation as they propel themselves towards capturing the largest share of the market. This has resulted in a saturation of EV chargers in high-traffic, downtown and central areas, and a lack of EV chargers in residential areas where it may be more convenient for EV users to charge their vehicles overnight.
Going forward, governments in the region will need to encourage greater data standardisation to overcome this crowding effect, and increase charging network coverage for underserved consumers across Southeast Asia.
