Think electric vehicles (EVs), and most people think Tesla – along with several other notable players such as China’s BYD, Germany’s BMW and Volkswagen Japan’s Nissan. However, according to analysts, the entire sector is poised for exponential growth in the years ahead – and Southeast Asia is gradually positioning itself to be part of the shift to clean vehicles, with Vietnam, Indonesia and Thailand all in the running for stakes in the game.
The EV market, according to one sector report, could reach more than 26 million units in 2030 compared with an estimated 3.2 million units in 2019, based on a projected compound annual growth rate (CAGR) of 21.1%. Such projections are based on expectations of favorable government policies (such as subsidies for rollouts, grants for R&D and tax incentives) and technological innovations that significantly improve EV range, wider access to charging in urban environments and beyond and an exponential growing market that attracts increasing number of manufacturing players. Another important motor of growth is the expectation that EV prices are likely to reach parity with fossil-fuel cars within four to six years.
A lot of the action is in China – the world’s largest manufacturer of and market for EVs. Chinese technology firms have been stepping up their focus on EVs in the world’s biggest EV market, with Beijing throwing its weight behind greener vehicles as part of an ambitious project to transition to all-electric or hybrid vehicles by 2035, with automakers mandated to ensure that 40% of sales are EVs.
The latter, a sector analyst was quoted as saying in an MIT report, “is one of the strongest mandates for electric cars worldwide, and it’s being imposed on the largest car market in the world … There will be a gigantic increase in the manufacture of EVs and in the production of batteries for them, driving down the cost of both globally.”
The battery challenge
Plug-in electric vehicles (PEVs) are expensive and charging infrastructures will remain limited for the foreseeable future. Both of these hurdles are spurring technology innovations in batteries. Some EVs today can travel 300km or more on single charge, but longer-range batteries are required to allay consumer range anxiety.
Lithium-ion (Li-ion) batteries pack five times the electrical potential of traditional fossil-fuel vehicles and as researchers strive to give them more energy still the push is also on to replace their most expensive material, cobalt – a lot of which is mined in the Democratic Republic of Congo in particularly harsh conditions. One way to do that is to replace some of the cobalt with nickel and manganese to manufacture NMC – also known as NCM – batteries.
Contemporary Amperex Technology (CATL), China’s biggest maker of electric-car batteries, has already begun mass production of 240 watt-hour per kilogram (wh/kg) NMC batteries and last year Tesla boss Elon Musk, called on miners to produce more nickel, citing the current high cost of batteries as a major hurdle to growth of the EV sector. Such moves are indeed bringing down battery prices – to the point that some analysts predict that they will reach less than $100 per kwh, which would start to make EVs competitive with traditional combustion engine vehicles.
Opportunities for Southeast Asia
China has a significant lead on EVs compared to Southeast Asia, where moves to embrace and capitalize on the opportunities offered by green vehicles remain nascent. All the same, signs of catchup are evident throughout the region, with Indonesia the obvious example, due to its ambition to establish itself as Southeast Asia’s EV hub by 2030. Furthermore, as the world faces a shortfall in supplies of the nickel that is essential to the production of batteries eyes are turning to Indonesia due to its abundant nickel resources – it has around a quarter of the global supply.
In early February, the Indonesian deputy head for investment and mining coordination told media sources that the country had received an investment proposal from Tesla for developing batteries and energy storage solutions. Reports cited Indonesia as “publicly wooing” Tesla to help it develop its ambitious EV plans, which involves the development of a “circular economy” for the EV sector and avoid simply becoming a supplier of mined nickel. Indonesia has halted nickel shipments with the aim of developing a nickel supply chain from extraction to battery production for EVs.
Indonesian President Joko Widodo has frequently stated his aim that the country move from a commodity-driven economy to an industrial economy, decreasing the reliance on extractive mining for exports to local value chains with a particular emphasis on the EV sector. Key to this is the formation of Indonesia Battery Corporation (IBC), which consists of four state-owned enterprises (SOEs) to achieve an end-to-end local supply chain for EV batteries.
IBC already has deals with EV battery producers CATL and South Korea’s LG Chem that, according to reports, will result in up to $20 billion in investments into Indonesia’s EV battery supply chain.
Some industry analysts speculate that Indonesia’s plans to lure battery manufacturers by holding them essentially hostage to sorely needed supplies of nickel is by no means going to be guaranteed success. Other nations in the region have their own EV roadmaps, with Thailand also aiming to establish itself as an EV hub, and the Philippines Department of Transportation implementing a Public Utility Vehicle (PUV) Modernization Program that will see jeepneys older than 15 years phased out in favor of environmentally friendly vehicles. Meanwhile the Philippines Department of Trade and Industry has established an EV manufacturing roadmap, providing incentives for EV manufacturing in the form of reduced or removed tariffs, excise duty and VAT exemptions.
All the same, the Philippines EV initiatives at this time are more focused on adoption of clean vehicles than on making itself a regional hub for manufacturing. Thailand is currently the most likely rival for Indonesia in the regional jockeying for EV hub role. Thailand is already the regional hub for vehicle manufacturing and the Board of Investment has provided EV privileges to more than a dozen companies such as BMW, Mercedes Benz, Nissan and Toyota. New initiatives implemented late last year included a three-year tax holiday for PEV hybrid manufacturers and an eight-year corporate tax waiver for pure EV makers, according to media reports.
In March 2021, the chairman of the government National New Generation Vehicle Committee approved Thailand’s new EV policy, which aims that by 2035 all vehicles manufactured in Thailand will be EVs, with production target of 18.4 million.
By comparison, up and coming Vietnam, the region’s top performing economy in terms of GPP during the 2020 year of the pandemic has yet to formulate a national plan to promote EVs, but vehicle manufacturer Vinfast, a subsidiary of the county’s largest conglomerate, Vingroup is making moves in the EV sector.
Vinfast has reportedly signed a memorandum of understanding (MoU) with state-of-the-art solid-state battery manufacturer ProLogium to establish a joint venture to manufacture the batteries for Vinfast EVs, which it plans to start rolling out in 2023-2024. In further Vinfast news, the Vingroup car unit said in March 2021 that it was in talks about a partnership with Taiwan’s Foxconn to develop batteries and EV parts.
In short, it is early days for the Southeast Asia EV market but in a region where car ownership is expected to skyrocket by 40% by 2040 and technology breakthroughs and government initiatives are set to bring EVs within affordable reach of increasing numbers of commuters by 2030-2035 it is safe to say that the market will see exponential growth, regardless of whether Thailand or Indonesia – or possibly even high-performer Vietnam – emerges as the regional hub.