Electric Vehicles are Southeast Asia's Path to Wealth
The green economy offers developing countries a chance to get in on the ground floor of a new market
With the demand for electric vehicles taking off worldwide, much of the attention has been paid to the US, EU, and Chinese markets. The competition to see who can gain a dominant position in these three giant automotive markets is predictably intense. However, while the focus has been on their adoption of electric vehicles (EVs) and the gains made by a relatively small number of firms in these markets, things are also changing in the developing world. As wealth grows in Southeast Asia, many countries are beginning to transition towards mass automotive ownership and are seeking a piece of the pie while they’re at it.
Southeast Asia’s demand for new cars is driven by the widespread wealth generated by the region’s industrialization. Indonesia, Malaysia, Thailand, and Vietnam are all moving up the value chain of manufacturing exports. As these countries gain a toehold in advanced manufacturing, we’re beginning to see native brands emerge, including in the automotive sector.
These countries aren’t content with simply being a market for other countries' cars. Instead, they’re getting into the game with a mix of partnerships and homegrown brands to produce their own for domestic markets and exports alike. Homegrown brands include Vinfast in Vietnam, Thai Rung in Thailand, and dozens of partnerships with virtually every global car brand.
Exports are the key to wealth
Export-oriented manufacturing has been the tried and true path to development for the previous 60 years, and it is a major component of economic success stories in Japan, Korea, China, Taiwan, and Türkiye. In his excellent book How Asia Works, Joe Studwell outlines how countries climb the development ladder on the back of an increasingly sophisticated manufacturing sector. Typically, countries following this path will gradually move from lower-value manufacturing, such as textiles, into heavy industries like steel and basic electronics before developing their own high-end global brand names in sectors such as automobiles, planes, and computing.
Internal combustion (IC) engines are incredibly complex and intricate machines, requiring deep manufacturing expertise and a massive base of sub-manufacturers to support the supply chain. Because of this complexity, both in the manufacturing process and supply chain, automobiles are considered one of the ultimate symbols of manufacturing sophistication. Export-competitive automobiles topped the pyramid, symbolizing that a country had reached the highest ranks of wealthy and sophisticated economies.
The speed of the electric vehicle revolution in recent years is causing a shift in where electric vehicles fit into the growth of a country’s industrial base. Unlike IC cars, electric vehicles are relatively uncomplicated to manufacture. This is leading to an explosion of startups in the space, all seeking to win out in a highly competitive landscape. This is most apparent in China, where around 30 brands are operating, many of which were founded domestically.
In addition to many more companies trying to enter the industry, the simplicity of manufacturing means that countries are scaling up their participation in the automotive sector and looking to launch native brands earlier than they may have previously attempted to. This has been firmly the case in Southeast Asia, with Indonesia, Thailand, Malaysia, and Vietnam all pushing to enter the automotive space in an export capacity, as outlined in this CSIS analysis:
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. Â
This is happening through a combination of supply chain development (building the parts for other automotive manufacturers), vehicle assembly, partnerships between foreign and domestic brands, and homegrown brands.
Not just cars, but a whole ecosystem
It’s difficult to understate how important this is. When China began liberalizing in the 1980s and 90s, a big part of its push was the creation of components for other country’s finished products. Gradually, as this network of producers thickened, it allowed for greater efficiencies, ultimately giving China a competitive advantage in creating finished products.
This same process is now at play in Southeast Asia. Indonesia is gradually moving from being one of the world’s largest suppliers of unprocessed nickel for batteries to now processing that nickel domestically. This is seen as the first step to Indonesia becoming a battery powerhouse. Malaysia and Vietnam are similarly developing battery manufacturing capabilities. These moves towards capturing high-value aspects of EV production come on top of regional investments in building a parts supply chain for traditional IC vehicles that includes Vinfast in Vietnam, a Hyundai plant in Indonesia, and significant investment in parts and assembly in Thailand.
Combined, these investments position Southeast Asia to capitalize on the EV boom, much like China. Leaning into its dense network of suppliers and local expertise and potentially capitalizing on ASEAN’s regional free trade policies to create a sophisticated local supply chain.
A stake in the green economy
The efforts to avert the worse scenarios of global warming have unfortunately involved a lot of finger-wagging at countries in the global south. Do as I say, not as I do, is the message from those countries who powered their rise to wealth and power on fossil fuels. However, despite these less-than-stellar optics, the green economy isn’t a handicap. We all need developing countries to have a stake in the green energy transformation if it’s ever going to be widespread enough and arrive fast enough to avert bad outcomes.
Thankfully, the EV gold rush just getting off the ground in Southeast Asia indicates the viability of green economics powering the growth of developing countries. Those countries that can make investments in industries like EVs and batteries now have the chance to get on the ground floor of the world’s greatest energy revolution.
Even more significantly, investments in EVs also open the door to creating comparative advantages in other aspects of the green revolution. To successfully deploy EVs domestically, countries must develop the capability to make batteries and charging infrastructure that is not only exportable in their own right but open the doors to greater efficiencies in other local industries. Furthermore, as their domestic markets come to rely on EVs, they’ll need to generate further electrical capacity, much of which will likely come from green sources, further stimulating demand across the green sector in a virtuous fly-wheel effect.
We’ve seen this kind of industrial crossover and network effect in Chinese manufacturing. China is now the world’s top producer of EVs, solar, wind, batteries, and many supporting components for each. This sector-wide dominance is possible because of the crossover in expertise and infrastructure between many of these industries.
Despite China’s dominance, the world needs more capacity in EVs, batteries, and green energy, not only because of surging demand but also because of the uncertainty that increasing geopolitical tensions bring. The challenge to new entrants to the market will be weathering China’s overcapacity, which it has sought to dump in international markets. However, an overcapacity crunch won’t last forever. Southeast Asia’s first steps in developing homegrown EVs offer a chance to position themselves as meaningful players in one of history's most significant technological and industrial shifts. Seizing the opportunity offers the countries of Southeast Asia a path to wealth and a strong voice in the technologies that determine the world’s future.