October 10, 2017 11:00 am JST
FT Confidential Research

Electric vehicle race is on in Southeast Asia

Thailand and Malaysia most likely to attract investment in domestic production

An electric car is seen during the opening of a PTT Pcl energy firm's commercial EV (Electric Vehicle) charging station, in Bangkok, Thailand August 15, 2016. © Reuters

  • Thailand is leading other Southeast Asian countries in providing incentives for consumers and investors to boost its domestic electric vehicle industry.
  • Malaysia is dealing with Chinese manufacturers to speed up the adoption of battery-only electric cars.
  • Nissan has the best chance of a successful battery-only EV debut in the region.

Not wanting to miss out on the next transport technology revolution, Southeast Asian policymakers are racing to accelerate the adoption of electric vehicles as a step to becoming a regional manufacturing hub.

Indonesia, the largest car market in the region, has announced a plan to ban sales of petrol and diesel cars by 2040. President Joko Widodo's cabinet is drafting a policy that would reduce the luxury tax and import tariffs on EVs, from the current average of 50 per cent to 5 per cent as early as next year. These exemptions will only apply to manufacturers with long-term plans to produce EVs in the country.

In the Philippines, the Senate is considering a bill that would implement an excise-duty exemption on sales of battery-only electric vehicles (BEVs) and plug-in hybrid electric vehicles (PHEVs). The exemption may also apply to hybrid vehicles with a battery that has a range of at least 30 kilometers on one charge.

Meanwhile, Thailand is already implementing plans. An eight-year corporate income tax exemption is on offer for investors in domestic BEV assembly, and three years for investors in PHEVs. Companies can extend the tax exemption up to 10 and six years respectively if they produce key components, such as batteries and power trains, domestically. Machinery required to produce all types of EVs, including hybrid cars, is exempt from import tariffs.

Detroit of the East

On paper, Thailand appears to be in the lead. It has the most advanced car manufacturing capabilities in Southeast Asia, with a production capacity of 3.7m units a year, ahead of Indonesia with 2.2m and Malaysia with 950,000. In 2016, Thailand produced nearly 2m cars. There are more car brands and parts suppliers operating in Thailand than anywhere else in the region, earning it the title of Detroit of the East.

The speed of EV development, however, will be heavily influenced by the global strategies of Thailand's three largest auto investors: Toyota, Isuzu and Honda. None has shown interest in developing BEVs or PHEVs in the region. Toyota plans to invest in hybrid car production in Thailand, while Honda is expected to do the same as the deadline to apply for hybrid-car incentives will end this year.

Such reluctance among Japanese manufacturers owes something to the fact that they have been betting on a hydrogen-fuelled future rather than batteries. This is backed by the Japanese government, which foresees hydrogen being produced by factories as industrial waste and converted into electricity for household consumption as well as transportation, creating a self-sustaining industrial ecosystem.

But policymakers in Southeast Asia are unconvinced by the potential of hydrogen as a primary source of energy. Instead, they are impressed by the hype surrounding the marketing success of Tesla and the role of incentives in creating consumer demand in the U.S.

China gears up to disrupt

Incentives do not guarantee success, however. Malaysia terminated its tax breaks for EVs in 2014 after failing to persuade manufacturers to invest. It has abandoned a commitment to waive import duties on 100 Tesla cars, a plan announced by Prime Minister Najib Razak during his visit to Tesla's headquarters in California last year.

Instead, the Malaysian government now prefers to deal with manufacturers individually, a strategy that appears to be working with Chinese companies. Beijing Auto International Cooperation, the second-largest EV maker in China, unveiled its first model for the Malaysian market, the EV200, last November. The car has a range of 200km and is expected to be on sale in 2018 at the earliest.

Malaysia should also benefit from the acquisition of a 49.9 per cent stake in its domestic manufacturer, Proton Holdings, by Zhejiang Geely, the Chinese group that also owns Volvo. The partnership potentially means access to Geely's wide range of products and technology, including its Emgrand EV300, China's bestselling electric car.

Partnerships with Chinese companies also mean access to batteries. According to the Yano Research Institute, a Japanese market research company, China currently controls about 75 percent of the global market for electrolyte solutions - a key component of lithium-ion batteries.

These developments should lead to EVs catching on in Malaysia more quickly. However, this is contingent on the appeal of Chinese brands, as well as Proton, to Malaysian consumers. Proton's market share has shrunk considerably: it was just 14 per cent last year, down from 32 percent just over a decade ago and 64 percent during its peak in 1996.

The Leaf factor

In terms of customer recognition, there are two global BEV players that should benefit from significant presence in the region: Chevrolet and Nissan. The latter, which is popular among an average of 8 per cent of car buyers across the five Asean countries we surveyed this year, has expressed interest in producing and selling EVs in Southeast Asia - if government incentives are put in place.

Nissan last month unveiled its second-generation all-electric Leaf model in Japan to replace an existing model that is currently the world's bestselling BEV outside China. The new car comes with a 241-km range and will compete with other mass-market EVs such as Chevrolet's Bolt EV and Tesla's Model 3, and is likely to be the first of these models to be produced and sold in Southeast Asia.

Nissan's alliance with Mitsubishi and Renault should benefit its EV venture through purchasing and logistics as well as the pooling of technologies and platforms. Mitsubishi has a strong presence in Southeast Asia, and our survey showed it is one of the top 10 brands among Asean-5 consumers. The company recently opened a $565m manufacturing plant in Indonesia that can produce 160,000 units a year, 27 percent of its regional production capacity.

Above all, the race between Asean countries to attract investment in domestic EV production will be determined by how fast consumers adopt the new technology, which in turn depends on how quickly governments deploy infrastructure such as charging stations. Thailand and Malaysia are whirring into the lead.

This article was first published on October 5 by FT Confidential Research. 

FT Confidential Research is an independent research service from the Financial Times, providing in-depth analysis of and statistical insight into China and Southeast Asia. A team of researchers in these key markets combine findings from proprietary surveys with on-the-ground research to provide predictive analysis for investors.

Nissan Motor Co., Ltd.

Japan

Market(Ticker): TKS(7201)
Sector:
Industry:
Consumer Durables
Motor Vehicles
Market cap(USD): 40,035.14M
Shares: 4,220.71M

Toyota Motor Corp.

Japan

Market(Ticker): TKS(7203)
Sector:
Industry:
Consumer Durables
Motor Vehicles
Market cap(USD): 200,081.14M
Shares: 3,262.99M

Isuzu Motors Ltd.

Japan

Market(Ticker): TKS(7202)
Sector:
Industry:
Consumer Durables
Motor Vehicles
Market cap(USD): 12,936.36M
Shares: 848.42M

Honda Motor Co., Ltd.

Japan

Market(Ticker): TKS(7267)
Sector:
Industry:
Consumer Durables
Motor Vehicles
Market cap(USD): 58,933.05M
Shares: 1,811.42M

Mitsubishi Motors Corp.

Japan

Market(Ticker): TKS(7211)
Sector:
Industry:
Consumer Durables
Motor Vehicles
Market cap(USD): 10,833.13M
Shares: 1,490.28M

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