Southeast Asia with its many developing markets often turns towards more developed markets such as the US and China as a guide to identify future growth prospects. Globally, Electric Vehicle (EV) sales have seen significant growth despite the Covid-19 pandemic.
EV Volumes estimates that by the end of 2021, EV sales would have seen a 98% growth rate over 2020. The regions leading the growth are China, Europe, and the USA which have a higher adoption rate as seen by the increase in EV sales month on month in 2021. The significant increase in recent adoption globally is contributed by such factors as regulatory support, growing environmental concerns, development in technology, and a reduction in overall cost of acquisition and cost of use.
As governments and automakers move toward phasing out traditional vehicles for a greener environment, it is a vision to have an EV tailored to affordability of consumers across different income groups. This include sale of 2-wheeler EVs and scooters to cater to the lower income groups in Southeast Asian countries.
What is driving the growth of EV in SoutheastAsia?
Government policies and initiatives
Globally, ESG policies and initiatives have driven businesses to consider their impact on the environment. The tightening of fuel economy and CO2 standards have driven countries to ensure that proper EV roadmaps are set in place. Across various Southeast Asian countries, governments have already set out various EV roadmaps to ensure that the country prepares for this transition. Some of the plans include public and private sector collaborations to develop charging infrastructures and implementation of tax incentives for the purchase of EVs.
In Indonesia, the goal is to have as many as 2.1 million electric motorbikes and 400,000 electric vehicles on the road by 2025. To accomplish that, the state-owned electricity generator, PLN, has committed to develop 31,000 EV charging stations by 2030 to support this goal[3].Whereas, Thailand, which is known for having the largest automotive industry in Southeast Asia, has also planned to be a country with zero-emission vehicles and implementing next generation automotive technology by 2035. Other Southeast Asian countries have also taken similar initiatives to plan out the country’s EV roadmap to drive growth in this sector.
Reduction in the cost of owning an EV
The cost of purchasing an EV is a significant driver for consumers in Southeast Asia in considering transitioning from internal combustion engine (ICE) vehicles. Despite the growing middleclass, which is expected to contribute to the increasing disposable income, Southeast Asian consumers remain price-conscious when it comes to making purchasing decisions.
The long-term outlook of the price of EVs is expected to decrease and become more price competitive to ICE vehicles. Since2015 to 2021, the price of a battery has seen significant decrease and is expected to continue to decrease as it is expected to be driven by advancements in battery technology, as well as economies of scale. The overall reduction in cost of production will ultimately lower overall cost of producing an EV, hence lower EV prices for consumers. As research and development continues in the battery segment, the efficiency of a battery is expected to increase, so not only is the cost of producing a battery expected to decrease but also the batteries’ capacity to travel a longer distance per full charge is expected to increase. More affordable batteries over time coupled with lower maintenance and operating cost compared to ICE vehicles will likely lead to disruption of the ICE market sooner than we may expect.
The table above was extracted from a report by Jato, as of 2019, most Battery Electric Vehicles (BEV) across the globe are more expensive than the average retail price of the total automotive market. However, for China, with government incentives and fewer safety regulations, Chinese OEM makers were able to reduce the cost of production. BYDYuan (Hong Kong Automaker), offers a fully electric B-segment SUV which is 43%lower than the market’s average retail price.
In the short-term, the adoption of EVs is encouraged through government incentives. In Malaysia, the government had announced in the country’s national budget for the year 2022 that road tax will be fully exempted for EVs. Furthermore, an individual will benefit from income tax relief for cost of purchase of an EV, installations, as well as subscription fees for EV charging facilities. This will reduce the overall cost of owning an EV, making it more affordable. In Indonesia, the government has made it clear that the focus will be on battery powered EVs instead of hybrid vehicles. Battery EVs will enjoy 0% luxury tax, whereas plug-in hybrid vehicles will face an increase in tax rate from 0% to 5%[1].The Indonesian government plans to further reduce the overall upfront cost of EVs through mass production of EV and EV batteries
Global automotive brand manufacturers are shifting their production
International automotive brands have already started the shift from ICE vehicle production towards EV production. Around 27% of automakers globally have made formal commitments to phase out the sale of ICE vehicles by a specific timeline which would result in lower supply of ICE vehicles. Governments across Southeast Asia have also come together during the 2021 UN Climate Change Conference (COP26) and have committed to move towards becoming greener nations. Thailand and Vietnam have committed to reach carbon neutrality and net-zero emissions. These goals will further encourage the development and incentives to adopt greener technologies such as the transition from ICE vehicles to EV. The Thai government has been a stellar example by taking the lead in this space, targeting to become an EV production hub by 2035.Over the coming years, the gradual shift in production will mean that consumers will have more EV than ICE options, and better infrastructure to support this transition.
What are the key challenges that consumers are facing?
Performance Limitations of EVs
The two biggest concerns when it comes to performance limitations are around the time it takes to charge a battery and the actual driving range per charge until having access to a charging point (range anxiety). According to CBInsights, traditional ICE vehicles are able to travel 400 to 600 miles before requiring a short 5 to 10minutes refill at a gas station, while an EV has a median range of over 250miles, which is much less compared to ICE vehicles. The charging time for EV currently ranges from less than 30 minutes to 20 hours or more, depending on the type of charger used as well as the battery. Moreover, the typical time to charge an EV is between 7 to 12 hours. As of 2021, there are numerous EV models that can drive more than 200 miles before needing to recharge with some that can drive even 400 miles. Finally, the time taken to reach an 80% charge is expected to be reduced significantly to 30 minutes which is threshold that many customers are considering acceptable according to market study. In Southeast Asian countries like Malaysia and Indonesia where commuting distance is relatively far, performance becomes a concern when making a purchasing decision. Whereas countries such as Singapore, where the size of the country is smaller and so is the commuting distance, makes range anxiety less concerning. Hence, the performance of EVs would have to be as competitive as traditional ICE vehicles to convince consumers in most Southeast Asian countries to make it their mode of vehicle.
Lack of EV infrastructure
Southeast Asia’s progress in the development of EV is still in its early stages and the lack of proper EV infrastructure is a concern for consumers to own an EV. It is crucial for charging stations to be located across the country with ease of access to provide confidence to consumers. This remains a key consideration for consumers as the concern for range anxiety outweighs the benefits of owning an EV. Consumers will be reluctant to make this shift if they are not able to have a peace of mind that a charging station would be within expected proximity. These infrastructure developments require large sum of capital which can be accomplished through, government, foreign and local investments.
Changing Consumer Behaviour
Another challenge that is foreseen is changing consumer behaviour to adopt this new lifestyle of using EVs as their main vehicle of transport. When consumers decide to make a purchase for an EV, the consumer will have to consider where the main charging point will be for their vehicle[1]. Ideally, consumers would have a home charging station as this would enable them to charge overnight. Hence, consumers will have to start ensuring their vehicle is charged overnight in order to use it the following day. However, not all consumers would have a home charging station (most apartments and condominiums are yet to be equipped with charging facilities), hence it would be important for the consumer to consider which publicly available charging station would be the main source of charging for them and how long it would take to fully charge its vehicle. Compared to a traditional ICE vehicle, the time it takes to fully charge an EV can take much longer where the consumer has to consider what he will do during the waiting time. Secondly, it is important to know the EV’s actual distance that it can travel on a single charge in order to estimate accurately when the vehicle will require next charging. This will need to be taken in account in most driving route planning. Hence, more certainties are required to address these daily lifestyle concerns before consumers are willing to make a confident shift towards EV.
The EV sector in developed markets has seen significant growth and attention from consumers and investors such as the likes of Tesla, and other EV brands. Southeast Asia on the other hand remains laggard as a developing region with a lot more progress needed to see significant increase in EV adoption.
In our next EV research article, we will cover the various business models within the EV space and where investors are flowing capital to. If you would like to see more of these articles or would even like to suggest some topics we could talk about, please share them with us at https://www.kiplex.com/.
This article was prepared and authored by kipleX Investment Team.
References:
1. https://www.ev-volumes.com/country/total-world-plug-in-vehicle-volumes/
2. https://www.entrepreneur.com/article/384845
7. https://kr-asia.com/indonesia-draws-up-new-ev-tax-scheme-guided-by-ambition-to-boost-industry
9. https://www.marklines.com/en/report/rep2224_202111
