By Danielle Fallin and Karen Lee
As countries around the world strive to reach their climate targets, many are turning to electric vehicles (EVs) as a way of reducing carbon emissions. Global efforts to diversify supply chains combined with the drive to adopt green technology have left an opportunity for EV production ripe for the taking, especially in Southeast Asia. According to
the International Renewable Energy Agency, 20 percent of all vehicles in the region will be electric by 2025, and there is even more potential for growth considering the region’s total population of more than 680 million people and burgeoning middle class. Southeast Asian countries are taking notable steps to establish their domestic industries as an essential part of the EV ecosystem by developing materials that support supply chain resilience and implementing economic policies to facilitate domestic adoption.
The market for EV batteries in the Indo-Pacific is expected
to surpass $90 billion by 2028. As countries like the United States look to strengthen their supply chains for emerging technologies and prevent dependence on China, Southeast Asia offers an attractive alternative. Although nearly 75 percent
of all lithium-ion batteries and 50 percent of battery refining materials currently come from China, Indonesia is well-positioned to become an epicenter for battery production; the world’s largest deposits of nickel, tin, and copper are located in the country.
To achieve this goal, Indonesia’s president Joko “Jokowi” Widodo recently called for the country to build an “industrial ecosystem for lithium batteries.
” In 2020, the government banned
nickel ore exports in preparation for the increased demand in the battery supply chain. In June 2022, Indonesia opened
its first EV battery production facility with upstream and downstream elements of battery production in Central Java. South Korea’s LG Energy Solution and Hyundai Motors also recently began
construction on an EV battery plant in Indonesia with hopes to start mass producing battery cells in 2024.
Vietnam’s vast reserves
of nickel also make it a prime location for battery production. Vinfast
, Vietnam’s largest private conglomerate, began
construction in December 2021 of a facility to produce 100,000 EV batteries annually for sale and use in its own vehicles. The localization of supply chains will expand Vietnam’s capacity as a manufacturing hub, and Vinfast’s reputation will likely make the country an attractive target for investment.
Other international companies have noticed Southeast Asia’s potential as well. China’s CATL
and Taiwan-based Foxconn
are both looking into investing in Indonesia’s efforts to spearhead battery production, while Malaysia’s Hong Seng Consolidated Berhad and EoCell signed
an MOU in June 2022 to develop a regional EV battery manufacturing hub in Malaysia.
Manufacturing for Export
Another sign that Southeast Asian countries are preparing to take the next step in EV manufacturing is scaling up production for export. Indonesia aims
to export 200,000 EVs by 2025, which will comprise almost 20 percent of all its car exports. Investment Minister Bahlil Lahadalia confirmed
in May 2022 that Indonesia signed a deal with Tesla to build a battery and EV plant in Central Java.
Vinfast also hopes to become a major player in the EV market, and its operations are emblematic of Vietnam’s focus on integrating emerging technology with its manufacturing facilities. Vinfast has both its own EV manufacturing facility within the country with the capacity
to build around 950,000 EVs annually, and is also rapidly expanding abroad. It has announced plans to invest $2 billion
to start EV manufacturing in North Carolina, and $200 million to establish a U.S. headquarters
in Los Angeles—part of its plan to sell its first EVs in the United States this year. Operationally, this move makes sense as the United States is the world’s second largest automotive market, and Vietnam’s top
export market and second largest trading partner. Vinfast also recently announced plans to expand
its sales to at least 50 stores in Europe.
Encouraging Foreign Investment and Domestic Adoption
Another tool in the region’s arsenal to become an established EV hub is financial incentives to attract foreign investment. Many countries have also incorporated greater EV adoption and manufacturing into their economic and sustainable development goals. In Thailand, the government has identified “Next Generation Automotive” as one of its 10 S-Curve
Industries to enhance the country’s competitive advantage. In February 2022, the government announced
that it would cut excise taxes on imported EVs to 2 percent from 8, and reduce import duties by 20 to 40 percent for completely built EVs. These policies are accompanied by incentives to attract skilled foreign professionals in targeted industries, including reducing the income tax from 35 percent to 17.
Singapore has implemented similar incentives to encourage domestic adoption. In 2021, the Transport Ministry distributed
about $31 million in rebates to lower the upfront cost of purchasing an EV, resulting in an increase in the proportion of EV registrations from 0.2 percent in 2020 to 4.4 percent in 2021. The Land Transport Authority has set a target of installing 60,000 charging points across the island by 2030 to meet expected demand. Meanwhile, in Cambodia, the country’s Long-Term Strategy for Carbon Neutrality pledges
to have 40 percent of cars and 70 percent of motorbikes on the road be EVs by 2050. Additionally, the government reduced import duties on EVs in 2021 to be about 50 percent lower than those on traditional vehicles. Malaysia and the Philippines have followed suit, with Malaysia exempting
EV owners from road tax and the Philippines implementing
the Electric Vehicle Industry Development Act that exempts EV manufacturers from income taxes for four to seven years.
EVs and Energy Security in Southeast Asia
Environmental considerations notwithstanding, Southeast Asian countries’ push to develop their domestic EV industries also impacts the region’s energy security, especially in the wake of the ongoing conflict between Russia and Ukraine. The costs to build an EV battery and purchase an EV have declined
over the years, giving them a competitive edge amid soaring gas prices. The Sixth ASEAN Energy Outlook (AEO6), released in 2020, reported
that ASEAN’s total final energy consumption is expected to increase by 146 percent by 2040, partially driven by increased demand in transport. However, energy demand in the transport sector under a model scenario where ASEAN member states’ national climate targets were achieved would decrease by 18 percent, resulting from the promotion of EVs.
The greatest challenge
to EV industry growth in Southeast Asia remains the lack of charging infrastructure and a reliable electricity grid that does not rely on fossil fuels. However, many countries are taking steps to increase the number of charging points available. With rising inflation and commodity prices threatening the region’s political and economic stability, Southeast Asian countries should be spurred to take steps towards improving their energy security. EVs can help lead the way.
Danielle Fallin is a program coordinator and research assistant for the Southeast Asia Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Karen Lee is an associate in the Southeast Asia practice at McLarty Associates and is a former research intern with the Southeast Asia Program at CSIS.