Electric Vehicles (EV) are gradually gaining prominence in the Association of Southeast Asian Nations (ASEAN) region as an alternative to fuel-operated vehicles. The total number of EVs sold in ASEAN Member States reached 3.4 million in 2019. Due to the region’s expanding population and economic development, the number is likely to rise in the future. As the need for personal vehicles grows, it will be vital to address how to deal with the rising demand for fuel consumption and pollution. Emerging electric vehicle technology has the potential to improve energy efficiency while also reducing the environmental effect of traditional automobiles.
A 2018 study titled ‘Future of Electric Vehicles in Southeast Asia’ found that while EV sales in most ASEAN member states are yet to gain traction, the Philippines, Thailand and Indonesia were the promising markets. A fully integrated regional policy action is however missing. Domestic EV production and supply is quite slow in SEA with only a handful models available to consumers, all of which are significantly more expensive than the alternatives. Many of the governments in the region have provided modest incentives in the form of tax credits or special licences. Dedicated policies and incentives for both producers and consumers will go a long way in accelerating the adoption of EVs in the region.
The report by Economic Research Institute for ASEAN and East Asia (ERIA) named “Promotion of Electromobility in ASEAN” focuses on analysing ASEAN Member States’ automotive policy with special attention to EV support.
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Developing countries as electric vehicle markets
Globally, EVs are still a niche market because these vehicles only occupied a global market share of 0.2 per cent in 2016. Whilst some forecasts expected that 11 million EVs would be sold by 2020, progress has been significantly slower, with an accumulated 3 million sales in 2017. Several factors may explain this slow progress. Studying EV adoption in 30 countries, Sierzchula et al. (2014) found that financial incentives and charging infrastructure played a main role in explaining EV adoption. Interestingly, they also found that sociodemographic variables, such as income, education, and concern for the environment had no explanatory power. Thus, countries with no or minimal consumer incentives and/or weakly developed charging infrastructure cannot be expected to have significant EV adoption. In general, this finding suggests that governments must play a proactive role in promoting the transition towards electromobility. Further, it has been found that current battery technology is not serving three distinct transportation markets, i.e. long-range, low-cost, and high utilisation transport (Cano et al., 2018). For all developing countries, the absence of low-cost EVs must be assumed to be a major explanatory factor in the scarce adoption of these vehicles. EVs still command a price premium of about USD5,000 in comparison with conventional vehicles of similar size in both developed and emerging markets. Thus, even in developed markets, EV market shares so far remain limited.
Given lower per capita income in most ASEAN markets, the persisting absence of low-cost EVs may explain why these vehicles are not – and in the absence of extensive subsidies arguably will not be – widely adopted by ASEAN consumers. Nevertheless, a recent simulation of policy support for EV carsharing in Brazil found that even limited government intervention could induce the adoption of EVs and result in lowered CO2 emissions (Luna et al., 2020). This suggests that ASEAN countries could also utilise EV support policy to reduce harmful GHG emissions.
Developing countries as electric vehicle producers
Whilst developing countries have been extensively studied as EV markets, studies on their role as EV producers are relatively scarce. There may be one main hypothetical explanation for this lack of research: EV production tends to be located within carmakers’ countries of origin. As EV technology is still novel, there may be benefits from feedback from production to development in conducting EV production close to original equipment manufacturer (OEM) headquarters. This tendency makes it less likely that EV production is conducted in developing countries.
Developing countries aside from China so far have not received much attention as EV production sites. This may be due to the relatively low scale of production and the relative novelty of shifting production towards developing countries. Thus, the subsequent section on EVs in ASEAN sheds some light on the role of smaller developing countries as EV producers. Further, it cannot be surprising that EV production in ASEAN is dominated by foreign carmakers. In comparison to China, ASEAN countries started to support EVs relatively late, so there are few cases of local firms engaging in EV or EV component production.
Country Case
In this section, we would like to illustrate the current situation and the foreseeable policy directions of individual ASEAN Member States. This is due to the fact that there is no coordinated policy towards EVs amongst member states. As will be shown in the following discussion, some member states seek to establish themselves as (regional) hubs for EV production. Consequently, individual member states seek to attract and build supply chains inside their national borders. This is remarkable because the ASEAN automotive industry is currently characterised by regionally integrated supply chains, where the production of vehicle components is fragmented across national borders. Whilst Thailand is the current central ASEAN production hub for most OEMs, it appears that certain countries intend to challenge this leadership in production by promoting EV production. From the following discussion, we excluded Cambodia, the Lao PDR, and Myanmar because these countries do not have dedicated EV policies.
Indonesia
It took Indonesia considerable time to decide upon a concrete policy towards EVs. However, EV development captured the imagination of Indonesia’s leadership. In 2012, then-president Yudhoyono supported the idea to develop a national EV to be developed by the nation’s leading universities. His successor, President Widodo, is regularly portrayed as a supporter of EVs and invested in the idea of producing EVs in Indonesia. For this reason, the current status of Indonesia’s EV policy deserves attention.
In 2017, President Widodo asked its cabinet to develop measures, so various proposals have been put forward. In line with the president’s vision for a home-grown EV industry, Minister of Research, Technology and Higher Education Nasir supports four Indonesian universities, which seek to develop a national EV (Xinhua, 2017). The minister aimed to start the mass production of developed EV prototypes by 2020. Moreover, Vice President Kalla stated that EV owners could be granted reduced value-added tax and import duties and Minister of Industry Hartarto plans a quota of 20 per cent EVs sales by 2025, including HEVs, PHEVs, BEVs, and reportedly also FCEVs (Tempo, 2017; Jakarta Post, 2017a). Also, officials indicated that EVs could be supported via the existing Low Carbon Emission Program (LCEP), which provides incentives in the form of a lower luxury tax on vehicles. It is important to point out that this programme is not just directed at EVs but supports all fuel-efficient vehicles – qualifying vehicles must have a fuel efficiency of between 20 km/L and 28km/L of gasoline (equivalent) to receive a 25 per cent reduction; vehicles whose mileage exceeds 28km/L are entitled to a 50 per cent luxury tax cut; and BEVs are completely exempted from the luxury tax under this scheme.
Whilst BEVs clearly receive the highest incentives, it is nevertheless obvious that the LCEP is designed to promote fuel efficiency in general rather than EVs in particular. Finally, Minister of Energy and Mineral Resources Jonan has proposed that Indonesia should prepare a system to allow BEV drivers to exchange empty batteries against fully charged ones at existing filling stations (Jakarta Post, 2017b).
One emerging characteristic of Indonesia’s EV policy is the linked promotion of EV and battery production. Indonesia possesses significant reserves of nickel (nickel laterite), which is utilised in the production of lithium EV battery cathodes. Recently, two projects have been launched to extract nickel on Sulawesi, one by the Japanese firm Sumitomo Metal9 and another joint venture between three Chinese firms, namely battery maker CATL, battery recycler GEM, steel-maker Tsingshan, the Japanese Hanwa trading company, and the Indonesian Morowali Industrial Park.10 In order to take advantage of the national resources, two state-owned enterprises, namely oil and gas extractor Pertamina and mining company Aneka Tambang, are planning to produce batteries (Asmarini, 2018).
Indonesia’s strategy is explicitly about exporting EVs, especially to Australia and within ASEAN to leverage free trade agreements (Davies and Kapoor, 2019). Regarding the status of EV production, there are currently only plans or negotiations between carmakers and the Indonesian government. Whilst government sources suggest that Hyundai will produce EVs in a newly planned plant, it is unclear how much production capacity will be assigned to EVs (Soeriaatmadja, 2019). Hence, despite having formulated a straightforward strategy towards linking battery and EV production, there are currently no results. However, Indonesia finally enacted an EV support policy in December 2019. The overall goal of the regulation is that EVs should constitute 20 per cent of domestic vehicle sales by 2025. Incentives are granted only if investors meet local content requirements.
Incentives require significant levels of local content, even in the early stages. Whilst investors will be allowed to import certain components during the initial stages of EV plant construction, the policy does not specify the time window. Aggressive targets indicate that policymakers indeed intend to utilise local nickel deposits for the domestic EV industry.
Incentives include
- exemption from customs duty on semi-knock down (SKD) and complete knock down (CKD) kits during the initial stage of the project
- exemption from luxury sales tax
- reduction or exemption from regional or central government taxes (e.g. motor vehicle tax)
- exemption of customs duty on production-related capital goods
Overall, after extended periods of planning, Indonesia has formulated a concrete policy. However, the policy must still become more concrete, e.g. through the specification of which taxes are to be reduced or exempted. Regarding carmakers’ responses to policy, BYD, Hyundai, JAC, and Toyota have expressed interest in producing EVs in Indonesia (Indonesia Economic Forum, 2019). Moreover, as the supply chain for EV batteries requires significant expertise and is dominated by a small number of firms from China, Japan, and the Republic of Korea, it remains to be seen if incentives are going to result in the creation of a local supply chain.
Philippines
In the Philippines, EVs have been supported through public policy since 2006. That year, the government allowed the import of EV components free of tariffs to encourage local manufacturing. Whilst this marks a head start in comparison with other ASEAN countries, the Philippines did not follow up by adding additional measures. In other words, the Philippines only granted benefits to the supply side, without addressing demand issues or infrastructure. The latter issue was only addressed in the Investment Priorities Plan of 2014, which included charging stations (DTI-BOI, 2014). Under this plan, investors are eligible to a six-year income-tax holiday. However, this means that the country rather seeks foreign investment or public-private partnership projects instead of public infrastructure investment. Whilst the country’s investment capability and geography indeed make public investment difficult, this nevertheless means that the key condition for EV utilisation and thus by extension adoption largely lies outside government control and depends on foreign investment.
As charging infrastructure is largely absent, the market must also be described as undeveloped. This is at least true for EVs that resemble conventional cars. The Chinese BYD is the only carmaker that currently sells BEV and PHEV models in the Philippines. On the other hand, leading EV producers, such as Mitsubishi and Nissan, do not offer EVs in the local market at the time of writing. This indicates that the consumer market for conventional EVs is limited. Despite this situation, there are signs that change may start. Recently, Mitsubishi has agreed to work with Philippine academia to develop policy proposals for supporting EV adoption. However, there appears to be a limited market for unconventional EVs, which are often produced locally. So far, locally produced EVs are not actual cars but can be described as various types of NEVs, including low-speed scooters, rickshaws, quads, and jeepneys, which are all predominantly used for local transport. Regarding policy, the so-called E-Trike Program appears to be a good example to illustrate the current state of EVs in the Philippines.
Initiated by the Department of Energy (DOE) and largely financed by the Asian Development Bank (ADB) and the World Bank’s Clean Technology Fund, the programme aimed to replace 100,000 internal combustion engine (ICE) tricycles through BEV versions until the end of 2017. The programme aimed to reduce emissions, create more sustainable transport, and support (local) EV parts manufacturers and assemblers. The Japanese Uzushio Electric (BEMAC) won the assembly contract for USD10,000 per unit. In 2016 however, the DOE stopped the programme after 3,000 EV tricycles had been manufactured without finding driver-operators willing to utilise the vehicles as the initial costs and maintenance proved to be too expensive for operators.
Further, the DOE argued that the number of charging stations in planned deployment areas in Manila was insufficient to enable utilisation (Rivera, 2016). Subsequently, the DOE worked on a solution to get the already produced units on the road. The programme was redesigned as a part of the already existing tricycle modernisation programme under the aegis of the Department of Transport (DOT). The redesign mainly resulted in lower cost for operators. Now, units are sold to municipalities which in turn sell them to operators. In the case of Manila, the city gives them to operators for a daily fee of PHP150 for five years under the so-called E-Vehicle and Assistance Program (Barahan, 2017). Moreover, vehicles given out under this programme can be charged freely, indicating that the programme is now part of municipal social policy. Obviously, the price for operators is highly subsidised as the total amount of fees is USD5,329 for five years, roughly half of the original cost. Last, it appears questionable whether EVs could contribute to lower or at least slower-growing emissions.
The country’s Power Development Plan suggests that the bulk of newly installed electricity generation capacity will be constituted by thermal power plants. Hence, EVs only contribute to lower local emissions but increase the total emissions of the Philippines. As mentioned previously, however, the country only has to achieve relative reductions, so environmental concerns play a lesser role. Overall, the Philippine government has rather shown than practised public support for EVs. It appears that the key issue of infrastructure has only recently been addressed through tax incentives for investors. Besides this issue, it is questionable if still-expensive EVs can be adopted without any kind of consumer incentive. However, there appears to be a potential niche market for unconventional, low-speed EVs utilised for short-range commuting and public transport.
Thailand
According to the International Organization of Motor Vehicle Manufacturers (OICA), Thailand was the world’s eleventh-biggest vehicle producer in 2018, documenting its position as the leading vehicle manufacturing country of the ASEAN region. Thailand’s EV support is mainly motivated by securing the country’s current position in regional and global production networks. Following the assumption that EVs are indeed the future of the automobile industry, Thai policy is seeking to manage the technological transition. Thus, as will be shown below, policy not only addresses consumers and producers but also the local production of specific EV components. On the demand side, Thailand revised taxation in a way that makes EVs more attractive to consumers. In 2016, Thailand introduced a new excise tax scheme that shifted taxation away from being based on engine capacity alone towards one based on CO2 emissions (Table 5).
Whilst the table indicates that CO2 emissions and engine capacity are actually combined to determine the payable taxes, emissions play a more crucial role under the new scheme. Besides this new tax regime, Thailand also reduced import tariffs on BEVs to zero to lower costs for consumers. Measures suggest that Thai policymakers prefer supporting BEVs over hybrids. On the supply side, Thailand has promoted the local production of eco-cars since 2007. According to the definition of the Thai administration, eco-cars are vehicles that have a mileage above 20 km/L gasoline (or diesel equivalent) and emit less than 120g CO2/km and meet criteria for other pollutants as required by the Euro 4 standard.
To further the domestic production of such eco-cars, the Thai Board of Investment (BOI) granted several incentives to both producers and consumers under the condition that investors agree to production target figures of 100,000 units, which had to be reached after a certain period of operation. Clearly, this policy is designed to promote the evolution of the Thai automotive industry. As past targeting policies led to the specialisation of one-tonne pickup trucks, this new policy consciously seeks to emulate its success. As Thai policymakers, and especially the BOI, understand that pickup trucks are both relatively polluting and technologically simple in comparison to eco-cars, this also indicates that the intention is to stimulate industry development towards more complex, higher value-added products. Whilst the eco-car programme has provided incentives for fuel-efficient ICEVs, Thailand has also introduced support measures for EV parts manufacturing in the country.
From 2012, it offered exemptions from corporate income tax (with a maximum cap) for eight years for investments directed at the production of advanced vehicle technologies. These included ICEV components as well HEV, PHEV, and BEV batteries, and traction motors for HEVs, PHEVs, BEVs, and FCEVs. In March 2017, the Thai government issued its EV policy. In comparison with other ASEAN Member States, the formulated aims are more long-term oriented. The target number for EVs on Thai roads is 1.2 million vehicles by 2036 and 690 charging stations. The available information suggests that the Thai government only includes all types except FCEVs in its definition of EVs. However, the incentives are most generous for BEVs, reflecting a clear preference of government planners for this type. BEV investment projects are entitled to a corporate tax exemption of between five to eight years. The duration of this tax exemption can be extended under the following condition: investment in manufacturing in more than one EV core component in Thailand is rewarded by an additional year per component up to a maximum duration of 10 years. PHEV and BEV bus investment projects are eligible for corporate income tax exemption for three years and import tariff exemptions on production machinery.
As in the case of BEVs, production beyond the first EV core component entitles additional years of tax exemption to a maximum of six years. Investment into HEV manufacturing is entitled to fewer incentives than PHEVs and BEVs. Investing firms will only be granted import tariff exemption on production machinery. Some striking aspects should be highlighted. First, whilst there is still a minimum investment required, the amount is only B1 million (roughly USD26,000). In comparison to the preceding eco-car programmes, this sum is very low, one may say symbolic. Secondly, differing from eco-car policy, production targets are not included under this scheme. This suggests that policymakers are unable to define a target production figure. Taken these less strict requirements into consideration, it may be concluded that whilst EVs are regarded as important for the future of Thai car manufacturing, the technology is too novel and the demand too uncertain to apply standard policy instruments.
Further, incentives will be granted for producing important EV components. Firms investing in manufacturing the following components are entitled to eight years of corporate income tax exemption: batteries, traction motors, battery management systems, DC/DC converters, inverters, electric circuit breakers, portable EV chargers, and EV smart charging systems. Most remarkable is that battery technology has not been specified clearly. The way the policy is phrased, it appears possible that both major EV battery types, i.e. nickel metal hydride (NiMH) and Li-ion batteries are entitled to government support. Whilst the overall direction of policy measures shows a strong tendency to favour BEVs, it would make sense to give priority to Li-ion batteries, which are commonly used in BEVs and PHEVs, and no or at least lower incentives to NiMH batteries, which are mainly utilised in HEVs.
Overall, Thailand’s policy on EVs can be regarded from two standpoints. From perspectives that consider market demand and infrastructure, the aims appear highly ambitious and difficult to implement. However, as the aims are rather long-term than short-term and linked to various other plans in the energy and environmental policy fields, many open questions are to be expected. Due to the transformational character of EVs however, policy plans that are aware of various challenges and seek integration and coordination may be appropriate for managing EV-related issues. From an industrial policy standpoint, the measures are straightforward and clearly structured. This may be interpreted as a symbol of Thailand’s ambition to defend its position as the leading automotive production hub in the ASEAN region. Policy is obviously concerned with attracting investment in what is regarded as a future core technology.
Following by and large existing product champion strategy in industrial policy, Thailand mainly targets a specific type of EV, namely BEVs. At the same time, the absence of production targets indicates that this technology is indeed too novel to be subject to standard policy tool deployment. Whilst carmakers’ reluctance toward establishing BEV production in Thailand should be noted, there is less reservation against HEV manufacturing. Despite some open questions, Thailand has drafted the most encompassing and ambitious aims and simultaneously put forward the clearest policy towards the industrial manufacturing of EVs. Therefore, this mixture of tried and tested industrial policy and an agenda that aims at transforming not just the automotive industry but the Thai national industry as a whole appears appropriate to achieve the minimum goal of defending the country’s leading position in the regional automotive industry.
Conclusion
The policy approach of ASEAN Member States towards electromobility have been summarised in the table below.
First, Indonesia, Malaysia, and Thailand all seek to promote EV adoption and domestic EV production (Tab. 7). All three countries are mainly interested in promoting their automotive industries. Second, a shared characteristic of the Philippines and Viet Nam is that they include low-speed vehicles resembling rickshaws, which cannot be used on highways in their target numbers. This in turn explains why target EV adoption numbers are relatively ambitious in comparison to both countries’ levels of economic development. Whilst there is no common name for those vehicles, they may be called neighbourhood electric vehicles (NEVs), a term originally coined in California when debating the zero emission vehicle mandate.
A second shared characteristic is that both countries mainly rely on foreign investment or assistance for EV infrastructure development. This is due to the fact that both countries are still developing economies with low infrastructure investment budgets. Third, Brunei and Singapore have not formulated any dedicated policy towards EVs. Nevertheless, both nations address EVs in their overall transport policies. In the case of Brunei, there are no signs that EVs should be promoted. Whilst government policy aims at improving energy efficiency, policy documents are rather vague and mention a large variety of vehicle and fuel types that should be utilised to achieve this aim.23 It appears that Brunei’s economic dependency on the export of fossil fuels is the main reason for it taking a rather lukewarm approach towards EVs.
The final group consists of Cambodia, the Lao PDR, and Myanmar, which all have no EV policy or aims put in place. All countries lack consumer purchasing power for costly EVs and the public budget to develop EV-related infrastructure. Hence, it cannot be surprising that these countries do not address EVs through public policy. This, however, does not mean that there are no EV projects. In the case of the Lao PDR, for instance, EV buses, mini buses, rickshaws, and motorcycles are promoted via Official Development Assistance (ODA) projects to take advantage of the country’s abundant hydropower for sustainable mobility. In these countries, EVs in the conventional sense do not seem to have a bright future. The price gap between a conventional ICEV and an EV of comparable size is still around USD5,000, i.e. the price difference is greater than the per capita gross domestic product in these least developed countries. Therefore, assuming widespread EV adoption appears highly unlikely. Simultaneously, electric scooters and motorcycles may be an option to foster personal mobility without creating negative externalities in the form of air pollution.
The original report can be accessed here.
