The Economist published an article,Governments across Southeast Asia want to jump on the electric vehicle wave, especially Thailand, Indonesia and Vietnam.The idea is that by promoting investment relatively early, these countries can become vital production hubs with spillover benefits such as reductions in deadly air pollution. But their success is far from certain and they are risking huge sums of money. At the same time, China's attitude plays a key role.
Of the three countries, Thailand is the most proactive, hoping that a booming consumer market will attract production. According to Thailand's "Electric Vehicle 3.0" plan launched in 2022, car buyers can receive funding through tax cuts and direct subsidies of up to 150,000 baht (approximately 33,000 yuan) per vehicle, which means that the price of electric vehicles is no higher than that of ordinary cars.From almost zero market share a few years ago, EVs' share of Thai car sales has soared to about 15%.
In Indonesia it is 5%; this lower figure is partly due toThe government's goal is to be a producer rather than a consumer.Indonesia has introduced a range of incentives ranging from tax exemptions to investment benefits. But the country is also trying to leverage its dominance in minerals needed to make electric cars, forcing companies to produce locally through export bans. In Indonesia's near-monopoly of nickel mines, the raw ore export ban that took effect in 2020 has prompted companies to invest in smelters.
at the same time,Vietnam is betting on VinFast, the country’s leading electric vehicle company.The company is a subsidiary of a leading Vietnamese conglomerate with ties to the government. VinFast has dominated the domestic market since it started selling only electric vehicles in 2022.
The company is embarking on new expansion into the Indian and Indonesian markets. VinFast has received some financial support from the government, including a recent scheme to subsidize electricity bills at 150,000 charging stations. More important is political support. As Marco Foster of Deloitte Consulting pointed out, the company is a "glorious project" that Vietnamese leaders attach great importance to.
All the above-mentioned countries have encountered difficulties.Thailand is Southeast Asia's largest car producer, and Japanese car companies rely on Thai auto parts suppliers. However,Electric cars use fewer parts than regular cars. also,Chinese EV makers in Thailand rely on parts shipped from China. Therefore, Thailand's policies are likely to result in a net loss of jobs. Ominously, the country's parts manufacturers are already complaining of a sharp drop in orders. In response, the new "Electric Vehicle 3.5" plan tightened local production requirements and cut subsidies. Ministers in Thailand have also begun to increase support for hybrid vehicles, and the country's Japanese automakers are better suited to produce such vehicles.
Although Indonesia's industrial strategy seems to attract electric vehicle manufacturers, the actual situation is not so optimistic. Indonesia received $29 billion in greenfield foreign direct investment related to electric vehicles between 2016 and 2024, according to the Roy Institute, a think tank. However,Much of the investment comes from Chinese companies, which also assemble cars from imported parts.In principle, the companies are subject to local content requirements that will increase over time, but it is unclear how strictly Indonesia will enforce them. Critics accuse the government of giving tax incentives that are worth far more than the benefits accrued to Indonesian people.
And VinFast is struggling. Despite increasing deliveries and revenue,But it never turned a profit. The company sells cars at a significant loss; its gross margin is -45%, and prices are falling, with the latest price cuts announced on March 2. VinFast survives only because of the generosity of its owners. Billionaire Pan Riwang, who is also the head of the conglomerate, has pledged to invest $2 billion of his personal wealth into VinFast. He also used the resources of the conglomerate to support the subsidiary. According to hedge fund Hunterbrook, about 90% of VinFast's revenue in 2023 will come from sales to other companies controlled by Pan Riwang.
All three countries now face similar conundrums.They find themselves trapped in the role of assembly centres, a lower value-added link in the production process. Paveda Pananund of Thammasat University Business School points out that the advantages that once underpinned traditional car manufacturing, such as a good production network, may be less important for electric vehicles because most of the value of electric vehicles is realized in software and electrical engineering.
The fundamental problem is that Southeast Asia is all technology adopters, that is,The region relies on foreign technology, mostly Chinese expertise.Officials want to combine subsidies with technology transfer requirements. But consulting firms say it will be difficult to get foreign companies to agree to such demands because of the small size of Southeast Asia's markets and the ability of business bosses to pit countries against each other. The largest market among these three countries -Indonesia, relies heavily on Chinese investment, which reduces its ability to "get tough" on Chinese companies.
Optimists expect China's electric carmakers to eventually base themselves in a few regional hubs, much like Thailand did when it partnered with Japanese automakers in the 1970s, giving host governments greater leverage in localizing production. But the result is thatOptimistically, only one of the three Southeast Asian countries' bets on electric vehicle industry policy may bring huge returns. The other two countries could suffer costly defeats.