Southeast Asia’s Electric Vehicle Hub Ambitions

At the 42nd Association of Southeast Asian Nations (ASEAN) Summit on May 10-11 in Labuan Bajo, with host Indonesia as chair, member states adopted a declaration on developing a regional electric vehicle (EV) ecosystem. This was the first time that ASEAN has taken up the idea of joint development of EVs. The intention: to establish Southeast Asia as a global production hub for the EV industry.

To achieve this, ASEAN leaders pledged to work toward the harmonization of EV-related standards, including but not limited to technology and safety. They also agreed to cooperate and collaborate on a broad range of issues, including the development and improvement of infrastructure and charging stations, the creation of an enabling business and investment climate, research and development, and the strengthening of the relevant regional value chain. Member states also undertook to foster cooperation and partnerships with their “external partners”. ASEAN’s dialogue partners include Australia, Canada, China, the European Union (EU), India, Japan, Korea, New Zealand, Russia, the United Kingdom and the United States.

Why is Indonesia so actively mobilizing its fellow Southeast Asian countries to incorporate EV development into their regional agenda? Given that the global proliferation EVs could eclipse petrol-powered vehicles, what are the geopolitical implications of ASEAN’s efforts to make the region a key player in the sector?

Southeast Asia is also becoming an important EV manufacturing platform. Several ASEAN economies already have robust manufacturing bases for automobile production and are therefore ready to transform themselves into key production hubs for EVs. Thailand, known as the “Detroit of the East”, has the largest automobile production base in the region and the 11th largest worldwide. The Thai government has established a strong and resilient local supply chain in the automobile industry by creating a cluster of parts suppliers and luring all the major Japanese, European and American automakers to set up production and export bases in Thailand. Due in part to Thailand’s mature infrastructure, many Chinese EV manufacturers, such as BYD, Great Wall Motor (GWM) and Hozon, have already launched their production lines in the country. Vietnam's VinFast has announced ambitious expansion plans to target markets in the region. 

Many Southeast Asian countries possess rich mineral reserves, which are essential for the production of EVs. Nickel, for example, is a key component of long-range EV batteries. As the world’s largest nickel producer with about 22 percent of the world’s known reserves, Indonesia – with its large domestic market – is well positioned to become a hub for EV manufacturing. To capitalize on the country’s abundant nickel reserves, China’s BYD and Tesla from the US are setting up production facilities in Indonesia.

ASEAN member states have taken numerous steps to facilitate investment and trade in EVs, thereby enhancing the region’s potential. For instance, Thailand has decided to exempt local production of battery-powered passenger cars, minibuses, and pickup trucks from all import tariffs until the end of May 2025. Malaysia has also offered similar tax incentives.

Why is Indonesia pushing for region-wide cooperation?

As chair of ASEAN in 2023, Indonesia has adopted the theme “ASEAN Matters: Epicentrum of Growth”, with three pillars: ASEAN Matters, Epicentrum of Growth, and the implementation of the ASEAN Outlook on the Indo-Pacific (AOIP). The Indonesian government has designated the development of a regional ecosystem for EVs as one of its top priorities for achieving the second pillar.

Why marshal regional cooperation on EVs?

First, Indonesia’s activism should be viewed in the context of the country’s ongoing efforts to combat climate change and accelerate energy transition at both the regional and global levels. In 2022, Indonesia not only upgraded its nationally determined contribution (NDC) target but also pushed the G20 to adopt the Bali Compact and subsequently the Bali Energy Transition Road Map. With these accomplishments, Indonesia has taken a leadership role in mitigating the impacts of climate change and promoting the global energy transition. Working on a regional agenda for EVs is part of Indonesia’s plan to carry over its G20 presidency priorities to its agenda as ASEAN chair. What is more, as the ASEAN member state with the biggest and most populous economy, with the highest energy consumption, Indonesia aspires to become a regional leader in this regard.

Indonesia is hoping to take advantage of the regional consensus on the need to develop EVs to promote greater coordination among ASEAN economies in this effort. In recent years, countries in Southeast Asia have been competing with each other to attract foreign investment in EV production. Given their similar capacities and standing in the EV value chain, Indonesia is facing especially fierce competition from Thailand. As more and more countries develop their EV sectors, shifting from competition to inclusive collaboration and pooling their comparative advantages and respective resources is crucial for Indonesia and the whole region to promote sustainable economic growth.

Regional cooperation and the geopolitics of EVs

Cooperation among ASEAN member states on EVs may have several geopolitical implications. First, the ongoing Russia-Ukraine war and the resulting crisis in conventional energy resources have prompted Southeast Asian countries to accelerate their energy transition. As a result, ASEAN leaders have called for regional cooperation on energy security on numerous occasions. The joint declaration on the development of a regional EV ecosystem is hence a response to the current geopolitical crisis.

Strengthening regional cooperation by constructing a regional EV ecosystem also makes policy sense as a precaution in anticipation of future geopolitical tensions. Oil has played a leading role in shaping geopolitics in the past century. With the decline in the use of fossil fuels and the rise of green energy, many business strategists and political economists have suggested that EVs could be the next geo-economic and geopolitical battlefield.

Southeast Asia has become a competitive arena for EVs, with the entry of an increasing number of players from other parts of the world. A number of Chinese EV brands have dipped into Southeast Asian markets. In addition to the previously mentioned Chinese EV brands that have already set up or are about to set up production lines in the region, several others such as SAIC Motor, Chery, Dongfeng, Geely and Changan have launched their models in a number of Southeast Asian countries. Carmakers from Japan, the US and South Korea that have long been active in Southeast Asia have begun to compete in the EV segment. Toyota and Nissan from Japan, for example, have delivered EVs in Southeast Asia. South Korea’s Hyundai and Kia are also taking aim at Southeast Asia’s EV market. Germany’s Mercedes-Benz has announced plans to produce EVs in the region.

Given the realities of many technologies, notably semiconductors and 5G, there is a chance that the current competition on EVs will become a source of geo-economic and geopolitical tension in the near future. It is crucial, therefore, for ASEAN member states to determine how and where to position themselves in this intensifying climate. As implied by the ASEAN joint declaration, empowering themselves as a group and thus enhancing their collective bargaining power could be a solution.

As there are no international standards for many aspects of EVs, harmonizing standards and strategies among themselves first and eventually achieving a coordinated regional approach may increase the collective normative and regulatory power of ASEAN within the changing global context. Tapping the respective advantages of individual member states such as Indonesia’s rich mineral resources, Thailand’s production capacity, and Singapore’s strong R&D capabilities could not only secure and strengthen Southeast Asia’s regional value chain for EVs but also make it more resilient.

Promoting cooperation and partnerships among ASEAN member states and external partners may also mitigate future geopolitical risk. Getting relevant players from outside the region involved as early as possible may significantly increase their future withdrawal cost and force them to lobby their respective governments to take a cooperative rather than focus solely on competition and grabbing market share.

In light of the intensifying rivalry between China and the West, in particular the US and the European Union (EU), in many areas especially technology, ASEAN member states must recognize the imperative of strengthening their internal cohesion and unity in the development of EVs. The joint declaration on the development of a regional EV ecosystem is a good starting point. But can ASEAN turn their intention into real action?