EV Market in ASEAN: Policies, current status & a framework of possible outlook

ASEAN's automotive industry: strengths and export destinations

Why do countries of the Association of Southeast Asian Nations (ASEAN) need electric vehicles (EVs)? Key motivations include mitigating climate change by reducing carbon dioxide emissions, improving air quality particularly in urban areas by reducing car pollutants, enhancing the energy trade balance by lowering energy imports, boosting the region’s automotive industry and related sectors, and generating wider economic benefits.

ASEAN’s automotive industry has mainly developed in the late 1960s to 1970s, in part due to collaboration with Japan. Over the past decade, total car sales in the region have almost doubled. However, Indonesia and Thailand have recently seen stagnation in vehicle sales. Particularly popular vehicle types in the region consist of pickup trucks, multi-purpose vehicles, subcompact cars, and mini cars. Looking at Thailand as an example, the broad supply chain established in the region includes a number of assemblers at the top, followed by Tier 1, 2, and 3 parts manufacturers.

The strength of ASEAN’s automotive sector lies not only in domestic sales in each member country, but also in exports to over 120 countries. Intra-ASEAN trade accounts for the largest portion of these exports. Two other key export destinations are Australia and Saudi Arabia. Overall, export destinations are diverse and vary depending on the specific automotive products each country is producing.

EVs potential contribution to decarbonization

The need to decarbonize the transport sector is a critical challenge for ASEAN. A study on the total ASEAN final energy demand by sector presented in the Energy Outlook and Energy-Saving Potential in East Asia 2023 by the Economic Research Institute for ASEAN and East Asia (ERIA) shows that as of 2019, the transport sector is the second-largest energy consumer after the industrial sector. Without intervention, its energy consumption is projected to more than triple by 2050 under a Business-As-Usual (BAU) scenario. However, if ASEAN countries aim to achieve carbon neutrality by 2050, energy consumption in this sector must be significantly reduced, targeting a decrease of nearly 28% by mid-century. One of the most effective ways to meet this goal is through increasing energy efficiency with the widespread adoption of electric vehicles (EVs).

Another study by ERIA, carried out in collaboration with the Institute of Energy Economics Japan (IEEJ), from 2022 presents two scenarios of transport volume by vehicle technology: the BAU and a carbon-neutral (CN2050/2060) scenario. The volume of transport demand is assumed to be the same in both scenarios. For passenger light-duty vehicles, the BAU scenario projects that internal combustion engine (ICE) vehicles will still dominate, accounting for about 80% of transport demand by 2060. In contrast, the CN2050/2060 scenario envisions a dramatic shift, with battery electric vehicles (BEVs) delivering around 90% of passenger mobility by 2060. However, for heavier vehicles like buses and trucks, the shift will be less pronounced, with a mix of hybrid and biofuel technologies being expected to dominate. This scenario has been created based on least-cost optimization and reflects the most economical pathway to carbon neutrality and shows that for the time being, electrification is expected to impact passenger light-duty vehicles significantly more than buses and trucks. In this case, the shift is not measured by the number of vehicles but by vehicle kilometers, suggesting that the transition could be optimized by increasing the mileage per vehicle while reducing the total number of vehicles.

EV-related policies and policy targets

ASEAN countries have introduced various policy measures to accelerate the adoption of EVs. Key players like Indonesia, Malaysia, Thailand, and Vietnam are using incentives not just for consumers but also for manufacturers and charging infrastructure providers. For example, Indonesia has implemented policies allowing for an import tax exemption through waivers for automakers’ EV imports until 2026 while reducing value-added tax (VAT) from 11% to just 1%. In return, manufacturers must match the number of imported EVs with domestic production in Indonesia by 2027. This strategy, mirrored by Thailand, aims to localize production and concentrate EV supply chains in the country. For example, Chinese companies have started setting up manufacturing facilities in the region.

As regards the key policy targets behind these policy measures, Thailand aims for 30% of its annual vehicle production to be EVs by 2030, while Indonesia is targeting 20% of all car sales to be EVs by 2025. Malaysia and the Philippines have also set ambitious targets, with the latter planning to phase out ICEs almost entirely by 2040.

However, several factors influence the pace of EV adoption. First of all, the overall existing infrastructure is a significant challenge. The availability of charging infrastructure remains a great concern, as consumers are accustomed to the conventional driving range of ICE vehicles. Additionally, the diversity of EV models, including considerations of vehicle size and performance, plays a crucial role in consumer decision-making as there are ASEAN-specific preferences regarding seat number and car size, among other factors. Finally, the total cost of ownership, including purchase price, fuel costs, and maintenance, is a major determining factor in the uptake of EVs. The competitiveness in terms of price compared to other car types will greatly influence the spread of EVs. Together with the policies affecting ICE production and regulation, all these factors will further shape the EV landscape in ASEAN.

Powertrain mix trends in the global market and sustainability

Despite policy efforts, ASEAN is expected to see a relatively slow transition to EVs. In 2023, only 5% of car sales in the region were BEVs or plug-in hybrid electric vehicles (PHEVs) and only 8% were hybrid electric vehicles (HEVs), while 86% were still ICE vehicles. Projections for 2035 indicate that the region will continue to rely heavily on HEVs at 33%, with just 13% of sales expected to come from BEVs and PHEVs, while ICE vehicles will remain at a rather high level of slightly above 50%. In contrast, for other regions a higher level of BEVs and PHEVs is expected, with more than 60% in the U.S. and China, and 89% in Europe, which will ban sales of ICE vehicles running on fossil fuels by 2035.

One of the major challenges for EV adoption in ASEAN is the power generation mix. In countries like Indonesia and Malaysia, coal and natural gas are expected to remain the primary energy sources, contributing significantly to the carbon footprint of EVs. The adoption of renewable energies is expected to continue rather slowly. Under a BAU scenario, while BEVs do indeed create less emissions than ICE vehicles, they may not be the cleanest option in terms of emissions, with hybrid vehicles outperforming them in reducing CO2 emissions through 2050. When analyzing emissions of electric vehicles, only considering the actual operation of the vehicle in a Tank-to-Wheel concept is insufficient. Instead, the emissions related to provision of electricity or fuel—the Well-to-Tank part—must also be considered.

In an Alternative Policy Scenario (APS) for the ASEAN region that assumes greater implementation of renewable energies and a reduction of coal and gas in the power mix, BEVs could become the cleanest option by 2040 in Indonesia and by 2030 in Malaysia. The key message is that EVs will only significantly reduce greenhouse gas emissions if the region’s energy mix shifts toward renewables.

Economic impacts of EV adoption

The economic implications of EV adoption in ASEAN are complex and depend on several factors. According to a study by ERIA on powertrain sales share of passenger light-duty vehicles, four scenarios were modeled to assess the impact of EV penetration. These include a “Reference” scenario with limited EV adoption, an “HEV Bridge” scenario where HEVs play a transitional role, a “BEV Ambitious” scenario where BEVs dominate by 2040, and an “E-motorcycle Advanced” scenario that focuses on electric motorcycles.

In another study together with IEEJ about ripple effects of EV penetration on the economy from 2020 to 2040 in Indonesia and Malaysia, economic impacts are measured in terms of production value and employment. In a “budget free” scenario, where savings from energy costs are not reinvested, the initial penetration of EVs boosts production value. However, as EVs become more prevalent and energy spending decreases, the production value begins to decline. In contrast, a “budget constraint” scenario, which assumes that savings from EV adoption are reinvested in other sectors, shows more positive long-term impacts, with increased production in other industries like agriculture and services.

In terms of employment, EV penetration is expected to initially lead to job losses, particularly in the automotive sector in the budget free scenario, as EV production requires less manpower than ICE vehicle manufacturing. However, with the right policies, these job losses could be offset by growth in other sectors. Thus, governments must strategically manage the transition to EVs to mitigate negative economic impacts while maximizing opportunities in other industries through policy measures.

Positioning EVs as one component of sustainable transport

Electric vehicles should be viewed as an integral part of sustainable transport. Currently, the car ownership level in the ASEAN region remains low but is steadily rising, with ICEs still dominating the vehicle fleet. However, if motorization growth continues, the situation will become unsustainable, leading to increased congestion and much higher emissions, especially in urban areas. The increased penetration of electric vehicles offers hope for a slowdown of the motorization rate growth, moving toward what is referred to as an “optimal motorization situation,” where an increase of shared, electrified, and autonomous vehicles will further contribute to the sustainability of the transportation sector.

Comment

ITO Masamichi:
The decarbonization and electrification of vehicles is a major challenge for the automotive industry. It represents a once-in-a-century, fundamental technological transition. Since the 1980s and the 1990s, the automotive industry has contributed to ASEAN’s economic growth. In light of the recent trend towards decarbonization and electrification, it is important to consider how to maintain and strengthen the competitiveness of the ASEAN automotive industry. Exporting cars within the ASEAN region and beyond, along with promoting decarbonization in the automotive sector, is essential.

EV-related policies are being implemented in the ASEAN region, but whether EVs will spread quickly will depend on market demand within the region and the energy mix in the power generation sector. In addition to new car sales, attention must be given to the existing stock, as the average life span of cars in the region is quite long, spanning 15 to 25 years. The use of biofuels or e-fuels can contribute to reducing emissions from these existing ICEs.

From an industry perspective, efficient utilization of existing supply chains in ASEAN is also critical. The transition to BEVs could have a significant impact on existing suppliers and providing support for business transformation will be needed. It remains to be seen how recent large-scale investments of some Chinese EV manufacturers, such as BYD, will affect the development of the supply chain within ASEAN.

Regarding emissions, focusing on the concept of Well-to-Wheel rather than Tank-to-Wheel is essential. Even if EVs produce no CO2 emissions, if their electricity is generated at coal-fired power plants, there will be significant emissions as a result. Rapid decarbonization of the energy mix in the ASEAN region is the key issue at hand, and if it is not addressed, emissions reductions will stall even as electrification advances.

Possibilities for collaboration between Japan and ASEAN to overcome these issues exist in terms of supporting the transition of suppliers, reduction of CO2 emissions over vehicle life cycles, development of sustainable biofuels and e-fuels, and establishment of stable supply chains in the region.

Alloysius Joko PURWANTO:
The total existing fleet is indeed an important variable. In most countries of ASEAN, the average lifespan of cars is fairly high, with Singapore being an exception. As of now, there are no regular vehicle inspection schemes in ASEAN that could stimulate the retirement or renewal of cars as quickly as in other economies such as Japan, Europe, or the U.S. The implementation of such mechanisms should be discussed to make the penetration of EVs more impactful in terms of emissions reduction and energy use reduction. Biofuels and e-fuels are indeed being discussed by ASEAN countries—especially by Indonesia—as important shortcuts to reduce emissions. Increased cooperation with more advanced economies to develop affordable and sustainable biofuel transport is needed.

The supply chain is indeed a challenge. How can OEM car manufacturers make a smooth transition towards EVs in terms of technology, industrial capacity, and human resources? Education and training will be needed, requiring intervention from the government as well as advanced economies. There will be a surplus of manpower, as not all current employees in the automotive industry can be absorbed by the electric vehicle industry. Thus, governments will need to create more employment opportunities in other sectors.
Finally, emissions and the power generation mix transition are critical points. The power generation mix in ASEAN needs to be able to accelerate its transition itself. The utilization of intermediary transition technologies will be needed to reduce the average emission factors in power generation. To achieve this, international cooperation is crucial to address questions of how to support the transition in terms of supply chains and human resources, as well as how to reduce emissions over the life cycle of vehicles. Just like with other industries and supply chains—such as critical minerals—a circular economy must be implemented in the automotive sector.

Q&A

Q:
In another seminar held last March, it was reported that local governments—for instance, the Thai government—are actively supporting the entry of Chinese EV companies into the ASEAN market. Are Japanese cars being displaced by Chinese EVs in ASEAN?

Alloysius Joko PURWANTO:
Based on my knowledge from the media, the policy measures of the Thai government give favorable conditions to Chinese automakers for entering the Thai market. Several Japanese automakers in Thailand have restructured their production network by closing production centers and expanding others, which is a normal reaction in light of this rather fierce competition in the Thai market.

Q:
What impact will EV exports from China to ASEAN as a result of excess capacity in China have on the development of the ASEAN automotive industry? Wouldn’t this deter ASEAN’s industrial development?

Alloysius Joko PURWANTO:
This is indeed one of the risks. The U.S. and the European Union are increasing tariffs on EVs from China. Of course, China will look for other markets to sell their overcapacity of EV production. ASEAN countries, with their current favorable policy measures for such EV imports, will be the main destination, which could deter the development of the ASEAN automotive manufacturing sector. ASEAN governments need to assess this situation very carefully. For example, Indonesia requires EV importers from other countries to maintain supply chain production centers in Indonesia. Through such measures, ASEAN countries need to be able to develop the basis of their EV industry to become competitive players. Hopefully, as a result of the policy measures that are currently being implemented in countries such as Thailand and Indonesia will be ready to face the market competition of China’s excess capacity. On the other hand, as the U.S. and Europe are imposing bans on EVs from China, they may become potential markets for ASEAN manufacturers. To achieve this, the ASEAN automotive sector could consider developing a common standard in the region—in cooperation with the U.S., Japan or the EU.

ITO Masamichi:
Regarding the exports from ASEAN to the U.S. or Europe, the connected vehicle rules that have been newly introduced by the U.S. government may affect those export flows. What are your views on this situation?

Alloysius Joko PURWANTO:
The situation of tariff increases by the U.S. on EVs from China is an opportunity for ASEAN. Of course, domestic EV targets and standards in the U.S. need to be assessed and considered for the production of vehicles for export markets. If demand for EVs in the U.S. increases significantly, this needs to be observed and the production of EVs for export markets should be adapted accordingly. Perhaps there will be two types of production: one which is more progressive in terms of electric vehicle production to serve export markets, and one which is more focused on affordable, less progressive EVs for the local market.

Q:
The U.S. imposes restrictions on all imports that involve Chinese parts and components—or Chinese capital investment. How are Chinese companies involved in the production of EVs in ASEAN countries?

Alloysius Joko PURWANTO:
We have witnessed a similar development in the solar panel industry. China was the biggest exporter of solar panels until the U.S. enforced a ban on imports from China. Subsequently, some of the business was offshored by China to Malaysia and Malaysia was able to export to the U.S. up until a certain point. A similar situation might happen in the EV industry. The Indonesian government has implemented local content requirements for vehicles to be built domestically which importers must comply with. If these requirements are enforced thoroughly, this will contribute to securing the country’s position to be a potential exporter to the U.S. or the EU.