Joining the EV revolution in Asean
Newcomers can consider three approaches to tap into a highly promising industry
Governments in Southeast Asia are floating very ambitious plans to capture a share of the electric vehicle market. And rightfully so.
As the world prepares for carbon neutrality, the automotive industry is embarking on a fundamental transformation. At the COP26 summit in November, various nations and leading car manufacturers pledged to phase out fossil fuel-powered vehicles by or before 2040.
In Southeast Asia, the aim is clearly to create opportunities for the EV industry to serve both the export and domestic markets.
Thailand has traditionally had the strongest automotive footprint in the region, assembling 2.5 million units at its peak in 2013 and -- after the pandemic hit -- 1.7 million in 2021. The country expects 30% of its output to be electric by the end of this decade, according to a roadmap published last year.
Indonesia, the world's largest producer of nickel -- a key component in lithium batteries -- aims to become an EV production and export hub. In Vietnam, the national EV champion VinFast is eager to conquer the US and Europe.
The shift to electric mobility will be essential to safeguard vehicle manufacturing in the region. However Southeast Asian buyers and most existing car manufacturers are not yet ready to adapt, which opens an opportunity for homegrown players to step in. Here are three key approaches to entry:
Regional champions: Japanese original equipment manufacturers (OEMs) have a comfortable lead in the region. But local giants such as VinFast are gaining ground, often with Chinese or European help. The major global manufacturers have set ambitious emissions targets and plan to launch around 400 new battery electric vehicle models by 2025. Therefore, they have a huge incentive to support Southeast Asian countries in the transition away from the combustion engine.
For at least the next five years, these large international firms will continue to dominate manufacturing in the region, before any domestic champions can take control. The focus for now has to be on the value chain, including after-sales and mobility-as-a-service. That area is now handled by many local small and medium enterprises, which rely on networks which national players can tap more easily to gain an edge over foreign competitors.
In a hugely promising region where the vehicle ownership ratio is still below 20%, the entry-level segment needs affordable, digitally sophisticated products with an attractive design. This is a main strength of Chinese players such as SAIC, Geely and Great Wall Motor, which provide a benchmark for how a brand like VinFast can enter the market.
Founded in 2017 with a US$5-billion investment by the local conglomerate Vingroup, VinFast started producing conventional cars with BMW technology in 2019. It introduced its first two EV models in November and plans to offer them in the US market for a competitive price, thanks to its innovative battery-leasing model.
VinFast plans to open production facilities in the US by 2024 and Germany by 2025. In Vietnam, it is building a $174-million battery cell plant that will initially produce 100,000 battery packs and ultimately achieve a capacity of one million.
Build a new EV component hub from scratch: Indonesia has made battery manufacturing the core of its EV strategy given its vast resources of nickel ore. It banned exports of the metal in 2020 to protect the local industry and encourage value addition.
The Chinese battery giant CATL has committed to a $5-billion investment, while LG Chem of South Korea will enter into an alliance with Indonesia Battery Corporation (IBC), a holding company that includes state-owned energy, electricity and mining firms. Taiwan-based Foxconn, meanwhile, aims to start making electric vehicles and batteries in Central Java later this year.
The government is granting both fiscal and non-fiscal incentives, targeting 400,000 electric cars and 1.76 million electric motorcycles by 2025. But a major effort is needed to build out the infrastructure. Hyundai Motors, which is setting up a battery plant in West Java with LG Energy Solution, has promised support for developing charging stations as well as recycling used batteries.
Battery recycling could become a viable option for countries without rare metal resources. Singapore last year opened Asean's first dedicated facility with a capacity to recycle 14 tonnes of lithium-ion batteries. In the European Union, legislators have proposed that from 2030, EV batteries must contain minimal levels of recycled cobalt, lead, lithium and nickel.
Build on a new EV platform: Foreign investors are also driving innovation on the ground. In September, the Thai energy conglomerate PTT Plc launched an EV joint venture with Foxconn, to operate a plant in the Eastern Economic Corridor. While the local partner will provide auto parts, EV infrastructure and the customer network, the alliance will greatly benefit from Foxconn's MIH (Mobility in Harmony) platform.
MIH is to electric vehicles what Android is to mobile phones -- an open platform allowing manufacturers and developers to share technological expertise and the possibility to build and add major components such as batteries, driver assistance systems, cybersecurity or cloud connectivity on top of a base structure. This can help new EV entrants as it reduces complexity and costs. At the same time, it accelerates the commoditisation of the vehicles.
The Thai government hopes that projects like this can help local suppliers make an easier transition to EV component production. PTT further supports the growth of the industry with an EV car rental service and by installing chargers at its petrol stations.
All in all, Southeast Asia still has certain advantages as a low-cost manufacturing hub, and as a very promising domestic market. Business opportunities like the above abound. The entry of more existing and new players to this highly attractive business will result in a transformation of the region into a production hub for affordable EVs worldwide.
Hirotaka Uchida is Principal and Head of Automotive Practice in Southeast Asia for Arthur D Little, the US-based management consulting firm.