Markets, Makers, and the State of Play in Southeast Asia’s Electric Vehicle Industry

In 2023, and to much fanfare, Tesla opened its first showroom in Malaysia and began taking orders for the Model Y, which retails for 199,000 to 288,000 Malaysian ringgit (between $42,800 and $62,000). The government announced it would have a nation-wide network of 10,000 EV charging stations operational by 2025, while Prime Minister Anwar Ibrahim hailed the EV-maker’s entry as an important step in Malaysia’s quest to be a regional high-tech hub.

Several press reports claimed Tesla’s arrival in Malaysia signaled a triumph over regional peers, especially neighboring Indonesia, which has been courting Elon Musk and Tesla for years but has been unable to close a deal.

Global demand for electric vehicles (EVs) is accelerating rapidly and countries around the world, including Southeast Asia, are racing to become part of the EV boom. They are doing this through demand-side incentives like rebates and subsidies designed to expand the market for EVs and increase purchases. But many emerging and middle-income countries, like Malaysia, do not want to simply be a market for EVs. They want to make them, or at least be integrated into global EV supply chains in some fashion. Countries across Southeast Asia are adopting different strategies for achieving this goal.

Making sense of the increasingly competitive EV landscape in the region requires first drawing a line between the markets and the makers.

The Markets 

Singapore is the quintessential market for electric vehicle sales in the region. Due to space constraints as well as higher labor and other production costs, the island-state long ago gave up ambitions of being a major auto producer. With a 2021 per capita GDP of nearly US$73,000, well-heeled Singaporeans can afford pricey EVs like Tesla’s Model T or Model Y. Singapore also has excellent road infrastructure and is already building out a network of EV-charging stations to support faster uptake.

In 2021, the government unveiled a series of rebate schemes, which as of 2024 entitle purchasers of certain EVs to get up to S$40,000 (US$29,900) in discounted registration fees and taxes (keep in mind, owning and operating a vehicle in Singapore is extremely expensive by design, and the fees are often more expensive than the cars themselves). According to the Land Transport Authority, the total number of Battery Electric Vehicle (BEV) cars registered in Singapore rose from 2,942 in December 2021 to 10,983 in November 2023. Other efforts, such as increasing registration fees on higher polluting vehicles, mean that EVs are likely to expand their Singaporean market share significantly in the years ahead.

Malaysia is also, primarily, a market for EVs. While government officials have been quick to tout the value that Tesla will add to the country’s high-tech ecosystem, at the moment it is mainly limited to after-sales parts and services, as well as investment in charging infrastructure. The actual cars that are to be sold in the Malaysian market will be manufactured in Tesla’s Shanghai factory and then exported to Malaysia.

Like Singapore, Malaysia has also rolled out a series of incentives to boost EV sales, including exemption from road taxes and a rebate of 2,500 ringgit ($538). They are also encouraging the development of supporting infrastructure, for instance by offering tax incentives for investment in EV charging stations. According to Investment, Trade, and Industry Minister Tengku Datuk Seri Zafrul Abdul Aziz, through October 2023 Malaysia registered more than 9,000 new BEVs. He also emphasized that Malaysia’s ultimate goal is not just to consume electric vehicles but to become integrated into global EV production and supply chains.

The main impediment is that although Malaysia has the third largest automotive industry in Southeast Asia, trailing only Indonesia and Thailand, the vast majority of automobiles produced and assembled in Malaysia are sold to domestic consumers. This means Malaysian auto companies produce enough to satisfy local demand, but are not internationally competitive exporters. If Malaysian firms want to integrate into global EV supply chains they will most likely do so as suppliers of components and parts, like microchips, rather than as final assemblers, which is where a lot of the value is captured.

This is why framing Tesla’s entry into the Malaysian market as a victory only tells part of the story. Malaysia would like to be an EV maker, but for now it’s mainly a market and a parts supplier.

The Makers

Thailand and Indonesia are the leading automobile makers in Southeast Asia. They produce parts as well as fully assembled vehicles for both domestic consumption and export, and are integrated into the supply chains of major international brands. This makes them the most likely candidates to become regional production hubs for electric vehicles.

In 2023, Thailand also became a hot market for EV sales. According to Thailand’s Department of Land Transport, sales of fully battery-powered EV passenger cars skyrocketed, reaching more than 66,000 as of November. That figure is projected to pass 70,000 for the year, which would be more BEV sales than Malaysia, Singapore, and Indonesia combined. Chinese EV makers like BYD and Hozon are the market-leaders, with Tesla coming in fifth in sales.

This rapid growth has been helped by a generous subsidy of 150,000 Thai baht ($4,300) for newly purchased EVs. The government later lowered the subsidy to 100,000 baht per car and announced the program would run until 2027. The reduced subsidy is still very generous, more than five times what the Malaysian government is offering. It has helped make Thailand a booming market, at least in the near-term, for EV sales.

But Thailand has ambitions to be a regional hub for the production and export of EVs, not just for sales. The government is working to attract EV car-makers to set up shop in the country, which is one reason they are focusing on stimulating domestic demand with attractive subsidies and other sweeteners like import tax exemptions. Foreign EV makers that want access to Thailand’s rapidly growing market are being pushed to set up local production facilities. A wave of Chinese EV makers, including BYD and Hozon, have responded positively to these incentives and are building or signaled they will build production facilities in the country. Initially these factories will probably supply the domestic market, but the long-term goal will be to transition toward exports.

Thailand is currently the largest producer of internal combustion engine automobiles in Southeast Asia, and the largest exporter. According to the Bank of Thailand, from January to November 2023 Thailand exported $6.6 billion worth of passenger cars and $8 billion worth of commercial vehicles. If batteries are going to replace internal combustion engines, Thailand wants to be on the leading edge of the emerging EV export market. Its dual-pronged approach of stimulating domestic demand while offering incentives to EV makers who set up local manufacturing facilities has so far been working, giving it the early lead in the region’s electric vehicle race.

While Thailand has gotten out to an early lead, it faces tough competition from Indonesia, which is the region’s second leading auto manufacturer and exporter. Unlike Thailand, which has historically placed a heavier emphasis on exports, most of Indonesia’s auto production is consumed domestically, and the surplus exported. Indonesia does not produce or export as many vehicles as Thailand does, but it has a larger domestic market and that has helped make its auto industry competitive.

The Indonesian government is now pushing to leverage that large domestic market and stimulate demand for EVs, in the hope that it will accelerate investment in local EV production as it has in Thailand. The Indonesian government is offering subsidies for EV uptake, which currently includes 7 million Indonesian rupiah ($450) for purchasing electric scooters. The wildly optimistic goal was that this would incentivize the purchase of 200,000 electric scooters, but the program received less than 2,500 applications in its initial run.

President Joko “Jokowi” Widodo has pressed the need to accelerate EV purchases through the use of bigger subsidies. Jokowi was quoted by news agency Antara making a direct comparison between Indonesia and Thailand as both countries vie for the edge in the region’s EV race, saying: “If our subsidy value is under Thailand, all investment will go there, not Indonesia.”

So far, uptake has been much slower than expected. Not only have e-scooter sales been sluggish despite the subsidy, but Indonesia’s EV car sales trail far behind Thailand. According to the Association of Indonesia Automotive Industries, sales of battery electric vehicles as well as plug-in hybrids reached only 17,905 units from January to November 2023. That is less than a third of Thailand’s EV sales over the same time period.

There are several reasons for this slow uptake. One is that EVs are expensive. Another is that supporting infrastructure, like charging stations, is not well developed. The country’s major urban centers, especially the Jakarta metropolitan area, are also already choked with traffic and switching out internal combustion engines with batteries will do little to alleviate congestion. This has led to criticism of EV subsidies and the suggestion that funds would be better spent on public transit infrastructure instead. It is also worth noting that Indonesian consumers have access to subsidized fuel, so most vehicle owners fill up their cars and motorbikes with artificially cheap gasoline and have little incentive to switch to EVs based on the price of fuel.

Another reason EV sales have struggled to take off in Indonesia has to do with the political economy of automobile production. The biggest player in Indonesia’s auto industry is Japan, with Toyota historically holding dominant market share. South Korean firms have been building up their production footprint in recent decades, and Chinese firms have only recently started to crack the market. This means the fate of Indonesia’s domestic auto industry is heavily tied to the business decisions of already established Japanese firms like Toyota and Honda, and to a lesser extent South Korean and Chinese car-makers.

But Toyota has been very slow to pivot toward EVs. BEV sales in Indonesia have to date been dominated by South Korea’s Hyundai and China’s Wuling, which had combined total sales of 11,621 through the first 11 months of 2023. This places Indonesia in the position of being a weak market for EV sales, due to constraints on domestic demand. The country is also getting a slow start as an EV maker, as it waits for Japanese auto giants like Toyota, which dominate production and exports, to play catch-up in the global EV race and start ramping up output.

The Nickel Question

Indonesia does have one thing that most countries in the region do not, which makes it part of the EV conversation despite these constraints: nickel. Indonesia has the largest reserves of nickel ore in the world, and nickel is an important component in the manufacture of lithium-ion batteries that power electric vehicles.

Anticipating a global nickel boom, several years ago Indonesia imposed a ban on the export of unprocessed nickel ore. The explicit aim of this policy was to force investors to refine nickel in Indonesian smelters. It was thought that processing the ore domestically would position Indonesia as a global hub for battery production and, eventually, manufacturing of electric vehicles.

Chinese industrial giants were willing to meet these terms, and began investing billions of dollars in the nickel-rich island of Sulawesi, constructing large smelters and industrial parks and locking in access to the raw nickel supply. The rapid development of nickel smelters has been criticized for inadequate environmental oversight, disruptive social impacts, and lax worker safety (a nickel smelter in Sulawesi backed by Chinese metal giant Tsingshan experienced a major explosion recently, killing 13 workers). Nevertheless, the first part of Indonesia’s plan – to force investment into local smelters – is clearly achieving the desired results. It has also coincided with a big increase in global sales of Chinese-made EVs.

The next step – building battery production facilities – will be crucial if Indonesia’s nickel ore is to be its golden ticket into global EV supply chains. Chinese battery giant CATL and South Korea’s LG are both in the process of developing production facilities in Indonesia, but it is unclear when they will start producing batteries at scale and how much technology and skills will be transferred to Indonesia in the process. Major auto companies that are already in the country like Hyundai and Toyota have also pledged to boost EV production. But, as described above, these efforts have not yet resulted in ramped up EV production.

Nickel has indeed opened the door for Indonesia to play a role in global EV production, but it is too soon to say definitively what that role will be.

VinFast: A Maker Without a Market 

The most curious entrant in Southeast Asia’s EV race must surely be Vietnam’s VinFast. VinFast made the extremely unconventional decision to start building a production facility in the United States to supply the North American market despite having a very limited record of sales, both inside and outside of Vietnam. VinFast as a company and a brand has only been around for a few years, meaning the task it set for itself is monumentally challenging, and has been compounded by a series of questionable business decisions.

The parent company of VinFast is Vingroup, the largest private conglomerate in Vietnam with a sprawling web of businesses ranging from real estate to healthcare. In 2017, VinFast was founded to produce electric motorbikes as well as internal combustion engine cars. In 2021, VinFast began making EV cars and a year later switched its focus solely to the production of EVs and e-bikes.

VinFast then made the surprise announcement that it would be building a $4 billion production facility in the U.S. state of North Carolina, taking advantage of a bevy of financial incentives on offer to lure high-tech manufacturing to the United States. VinFast listed on the Nasdaq, and has subsequently announced it will be opening additional production facilities in Indonesia and India. The company’s sales target for 2023 was 50,000 EVs. Clearly, VinFast is making a splash as one of the newest and most aggressive regional EV-makers.

But this strategy is highly questionable, and doesn’t really stand up to scrutiny. Sales outside of Vietnam have been practically non-existent, with the first batch of EVs bound for the U.S. market recalled over safety concerns. Reviews of VinFast EVs have not been kind, which is a problem for a new company trying to build its brand in a competitive industry with bigger and more established incumbents like Tesla and BYD.

And although VinFast dominates EV sales in Vietnam, the country is not yet a big market. In the first nine months of 2023, VinFast had sold only 21,000 units, around half of which were purchased by a taxi company owned by Vingroup Chairman Pham Nhat Vuong. When VinFast listed on the Nasdaq, it did so using a speculative financial mechanism called a SPAC, and the stock gained and lost billions of dollars in value over just a few days. It goes without saying, this is not something that happens with a healthy, normal IPO.

All the while, VinFast has been hemorrhaging cash. In 2022, the company booked a net loss of $1.5 billion. Through the first three quarters of 2023, losses soared to $2.7 billion. Because the parent company is profitable and flush with cash, VinFast can sustain these losses for a little while as it builds its American factory and tries to increase sales. Last year VinFast received $955 million in loans from Vingroup and $291 million in grants from the chairman himself to keep it afloat.

Once the North Carolina plant is operational, between its U.S. and Vietnamese facilities VinFast will have the capacity to produce at least 200,000 EVs per year. Whether the company will be solvent by then depends on how much liquidity its parent company and chairman are willing to keep injecting. But the more important question is whether there is really a market capable of absorbing 200,000 VinFast EVs per year. Right now, it doesn’t seem like there is.

Powering the EV Revolution 

Different countries in Southeast Asia are settling into a variety of different roles in the coming electric vehicle boom. Some, like Singapore, are set to be attractive markets for EV sales as policymakers roll out big fiscal incentives to increase uptake.

Others, like Indonesia and Thailand and to a lesser extent Malaysia, are trying to boost demand for EVs while also carving out a position for themselves in global EV production networks. Thailand currently appears to have the edge, but Indonesia’s huge domestic market and control of global nickel supplies cannot be discounted.

Vietnam’s VinFast, meanwhile, has made a series of bold and often baffling moves as it looks to challenge established incumbents in the global EV industry and make a name for itself. It’s a high risk, high reward strategy that so far has been almost entirely risk.

There is one final aspect to this story that deserves attention, however. While countries in Southeast Asia try to one-up each other with attractive consumer incentives, or jockey for position in EV supply chains, these efforts are often justified on the basis of reducing carbon emissions. As EVs replace internal combustion engines, they will burn less gasoline, and this is good for the environment. But many electric grids in Southeast Asia are still powered mainly by fossil fuels like coal and natural gas. When the majority of the electricity in the grid is generated by burning fossil fuels, does charging an EV even reduce net carbon emissions?

This underscores that switching to EVs is only one part of the clean energy transition. And while the switch to EVs has important implications for industrial and trade policy in Southeast Asia, the fact remains that it needs to be combined with complementary investment in renewable energy and public transit in order to make a meaningful contribution to larger decarbonization efforts.