China Makes Bid To Own EV Market in Southeast Asia

As South Korean automakers are making waves in the US electric vehicle (EV) market, Chinese EV players are driving into Southeast Asia. The laggard among the East Asians appears to be Japan for now, which trails South Korea in America and risks ceding the Southeast Asian EV market to China despite being the incumbent auto leader in that market.

Indeed, Japanese cars account for 95% and 87% of new vehicle sales in Indonesia and Thailand, respectively, the two largest auto markets in Southeast Asia. Yet it is China’s BYD, one of the largest EV manufacturers in the world, that recently announced its first overseas passenger car plant in Thailand.

BYD is actually something of a latecomer. China’s SAIC and Great Wall Motor (GWM) already have plants in Thailand that plan to produce EVs. For instance, SAIC-GM’s Wuling has already started rolling out its compact EVs in Indonesia.

Japan’s notable absence in the Southeast Asian EV market has much to do with the country’s tortoise pace in shifting to EVs, the reasons of which will not be explored here. Rather, this short analysis examines how Chinese EVs have been able to succeed in Southeast Asia by adopting a playbook that’s quite similar to consumer electronics.

Good Enough Quality at Much Lower Prices

China’s core advantage today is that it is perhaps the only country that can consistently manufacture two-tier products: premium products for the G7 economies and “good enough” products for the G77 markets. More specifically, it can do both tiers at scale, from smart phones to EVs.

In Southeast Asian markets where affordability reigns supreme, that makes Chinese automakers much more competitive. While one recent survey showed that 90% of consumers in mainly advanced economies would pay a premium for an EV, only 1-2% of Southeast Asian consumers would do the same, according to another survey (see Figure 1).

Figure 1. Price Matters for Southeast Asian Consumers Switching to EVsSource: Deloitte.

For EVs to be competitive in Southeast Asia, they likely will have to enter the market at price parity with existing cars. For example, Toyota has shown considerable awareness of the local market in its pricing strategy. Since nearly 8 in 10 passenger cars sold in Indonesia in 2019 cost less than $20,000, Toyota priced its Avanza SUV between $15,000 and $19,000, making it one of the best-selling vehicles in Indonesia.

Yet that smart pricing strategy does not seem to apply to Toyota’s first EV it just launched in Indonesia, priced at a whopping $75,600. Toyota’s bZ4X EV model is even $28,000 more expensive than Hyundai’s IONIQ 5, which is already losing badly to China’s Wuling Air.

In fact, the Wuling Air has outsold the IONIQ 5 by 450% since August (see Figure 2). The reason is simple: the Chinese four-seat compact EV is the only model that has achieved price parity with other gasoline cars in the market. Even with consumer subsidies from the Indonesian government, that probably won’t be sufficient to narrow the price gap between Chinese and non-Chinese EVs.

Figure 2. Hyundai’s IONIQ 5 Runs a Distant Second To China’s Wuling AirSource: Gaikindo.

These dynamics extend beyond Indonesia. In Thailand, for example, the Toyota bZ4X sells for the slightly cheaper sticker price of $51,200, while a Chinese brand sells for about 50% that price. Even with the Thai government offering financial incentives, it is very difficult to be price competitive with Chinese EVs (see Figure 3).

Figure 3. Japanese EVs Are Costly Compared To Chinese EVs
Source: Automaker websites; press releases.

Yet that premium pricing of Toyota’s bZ4X EV doesn’t translate into premium specs. Take BYD’s Atto 3 model sold in Southeast Asia. Not only is the BYD comparable to the Toyota model in term of specs and meets European safety requirements, their price differential is such that one could get the Chinese EV and still have enough left for a Japanese gasoline pickup truck (see Table 1). So while Toyota has a powerful presence in the region, the choice for consumers when it comes to EVs seems quite obvious.

Table 1. BYD Delivers Similar Specs as Toyota at Just 66% of the Price Source: Automaker websites; Paultan; EV Database.

Chinese Players Poised to Dominate a Limited Market

Chinese automakers appear poised to make significant inroads in the EV market in Southeast Asia, given its first-mover advantage, affordability, and the fact that other major EV manufacturers are prioritizing the North American market.

But market share dominance won’t necessarily translate into longer term success. That’s because Southeast Asia is still a miniscule EV market, accounting for less than 0.3% of global EV sales in 2021. For instance, to become an EV leader in Indonesia, China’s Wuling Air only had to sell 4,300 units, accounting for less than 1.5% of the country’s total car sales during the three-month period since its launch in August.

Even by 2030, Southeast Asia is expected to be just 1% of global passenger EV sales, or about 350,000 units, according to Bloomberg projections. The limited size of the market suggests that as it matures, Chinese EV brands could become sufficiently entrenched that Japanese and Korean players may simply cede the market.

On the other hand, it is precisely because of this market limitation that Chinese EV makers aren’t putting all their eggs in the Southeast Asia basket and are eyeing expansion in advanced markets, particularly in the European Union.