The Evolution of Automotive Production in ASEAN
The automotive industry has seen a major shift in terms of the most dominant players. In the mid 20th century, the largest player included the USA with their production levels far greater than all the countries combined. It was only until the 1960s when vehicles sold in most of the ASEAN countries were exported exclusively from western manufacturers. After that, Japanese manufacturers such as Toyota entered the automotive market, opening assembly plants for Completely Knocked Down (CKD) vehicles. During the 1970s, as the ASEAN countries began to adopt policies that favoured localisation, attracting manufacturers to set up assembly plants in ASEAN.
By 2019, ASEAN as a bloc ranks 7th and accounts for 4.5% of global automotive production. With a strong presence of automotive clusters in these countries, electric vehicle (EV) production is the evolutionary step in the region’s automotive landscape. The production and utilisation of EVs serves multiple purposes such as achieving environmental sustainability, scaling up of the industry towards industry 4.0 standards and driving economic growth.
How Industry 4.0 is Bringing Automotive Manufacturing back to Singapore
Singapore currently does not have any automotive production facilities, however it has an interesting history of car production dating all the way back to as early as the mid 1900s.
“Singapore, having housed assembly plants run by Ford and Mercedes Benz from the 1940s to the 1980s, it is no stranger to car manufacturing” -- Mr. Lee Hsien Loong, Prime Minister, Singapore
With the changes in production technology, such small-scale manufacturing was becoming economically unviable, causing the country to shift away from automotive manufacturing. However, with the EV supply chain consisting of fewer mechanical parts and more electronics than traditional cars, Singapore is taking advantage of its strong knowledge base and making a comeback to this sector with the shift to EVs. Early signs include a significant investment from the South Korean Automotive Manufacturer, Hyundai, who will be developing an EV factory with Research and Development (R&D) capabilities that can produce up to 30, 000 EVs a year and other innovative capabilities to support the EV drive.
National Strategies Supporting EV Manufacturing
Industry 4.0 strategies have been prominent in almost all the ASEAN countries with an effort to spur the manufacturing sector with the region having the potential to capture productivity gains worth US$216 billion to US$627 billion. The national scale drive in ASEAN towards EVs also coincides with the larger industry 4.0 initiatives in the various countries.
A national strategy is needed to ensure coordination across the value chain, which makes the push for EVs stronger as the sector is utilised in achieving the national objective of creating innovative and value-based industries.
The table below shows the broad industry 4.0 initiatives that coincides with the shift towards EV and the specific strategies taken to encourage investments.
Support Given to EV Manufacturing
“Making Indonesia 4.0” initiative - created in an effort to revitalize Indonesian manufacturing and transform the industry into a powerhouse for the Fourth Industrial Revolution. Indonesia is also the leading country in the region for EV and mobility services. Indonesia has been able to attract and leverage FDI to develop a strong automotive ecosystem.
Incentives to attract EV investment
Corporate income tax holidays for the manufacturing of EVs, batteries, electric motors, and electric power control units, ranging from five to 20 years depending on the value of investments. For investment values of between IDR500 billion (RM144.3 million) and IDR1 trillion, corporate income tax exemptions will be given for five years, while investments of more than IDR30 trillion will enjoy a tax holiday of 20 years.
Deductible tax for companies that conduct R&D activities. The companies will be given a gross income tax deduction of 300% of the value of the R&D investments if they undertake it in Indonesia
Thailand 4.0 is an economic model aimed at creating an innovative, value-based industry. The EV Action Plan, with goals to produce 1.051 million EVs by 2025, before jumping up to 6.22 million by 2030, is intended to integrate with other policies, most notably Thailand’s Industry 4.0 plans which also aims to boost the Next-generation automotive sector.
Incentives to attract EV Investment
The Board of Investment (BOI) approved a new financial incentive covering all the significant aspects of production. Thailand's Board of Investment has granted EV privileges to more than a dozen companies, including Nissan,
Toyota Motor Corp, Mercedes-Benz AG, BMW AG, and Energy Absolute Pcl's Mine Mobility.
The government approved new incentives to boost production of EVs and its supply chain, including a three-year tax holiday for manufacturers of plug-in hybrid vehicles, and an eight-year corporate income tax waiver for battery electric vehicle makers.
The National Automotive Policy 2020 (NAP 2020), aims to develop the country towards becoming a regional leader in automotive manufacturing, engineering and technology. . The directions include a focus on Next Generation Vehicles ( NxGVs), Mobility as a Service (MaaS) and Industry 4.0, and the plan will incorporate the development of Automated, Autonomous, Connected Vehicles (AACV), lightweight material technology as well as hybrid, electric and fuel cell vehicles.
Incentives to attract EV Investment
From 2023 to 2025, Completely-Built-Up (CBU) EV units will be given a 50% import and excise duty exemption, in what is a bridging measure until locally-assembled BEVs become available on the market. Furthermore, there will be tax exemption for qualified Completely-Knocked-Down (CKD) models, with 100% exemption being given until 2022, 75% exemption from 2023 to 2025, and 50% exemption from 2026 to 2030.
Industry Transformation Maps (ITMs) were enabled to adopt the Industry 4.0 model via a project to roadmap the advancement of 20+ industries in Singapore. ITMs is comparable to integrative maps to drive industries towards optimal digital transformation using Automation and other modern technologies, allowing for high-level integration of information, communication and systems by connecting multiple devices and machines at every step of the manufacturing process. Such strategies advance Singapore's EV ecosystem and Smart Nation vision of providing connected and sustainable mobility solutions.
Resolution No 23/NQ/TW aims to have a growth rate of added value of manufacturing of 10 percent. Industry 4.0 introduces technologies such as big data, cloud, Internet of Things (IoT), and many more technologies that promise to optimise production processes to increase productivity and profits. Industries such as automobiles have the highest competitive advantage, and can immensely benefit from greater research and development (R&D), technical innovation, SME, and start-up support.
With the national strategy in place, we have put together some examples of EV investments into the region.
Investment Attracted to the Region for EV Manufacturing
Reason for FDI
Developing its EV capabilities in Indonesia helps the company to sell 5.5 million EVs globally every year by 2025 as it builds upon its position as a market leader in Indonesia both in terms of production and sales, indicating strong manufacturing capabilities and existing supplier network.
Hyundai Motor Co.
Signed a Memorandum of Understanding (MOU) with Indonesia Investment Coordinating Board to support EV manufacturing in Indonesia with a vehicle manufacturing plant in Kota Deltamas, east of Jakarta with a significant focus on developing the local EV ecosystem.
PTT, a Thai state-owned SET-listed oil and gas company, and Foxconn, a Taiwanese multinational electronics
Signed a MOU to set up an open platform for producing EVs and key components. The platform, comprising hardware and software services, will be available to all automobile players in Thailand looking to accelerate their production and sales of EVs in the ASEAN region. The effort uniquely combines PTT’s strengths in Thailand’s market knowledge, distribution network, extensive customer reach and a commitment to future-oriented, innovative and sustainable solutions with Foxconn’s proven capabilities as a global leader in smart manufacturing and its visionary push in leading electric car technological solutions.
Vingroup will invest between USD 1-1.5bn in a manufacturing complex named ‘Vinfast’ with the aim to produce 100,000-200,000 vehicles per year, including 5-seat sedans, 7-seat SUVs and electric motorbikes. Total investment capital amounts to USD 1.5bn and local content up to 60% for cars and up to 100% for e-bikes.
Hyundai Motor Group
Hyundai Motor Group Innovation Centre (HMGICS) which will house an electric vehicle factory along with facilities for the research and development of automotive technologies with plans to develop 30, 000 EVs a year.
Hyundai Motor will also combine its expertise in developing innovative automotive and manufacturing solutions with Singtel's capabilities in 5G, Internet of Things (IoT), and next generation info-communications technologies and solutions to develop Industry 4.0 advanced digital solutions to transform the way vehicles are currently manufactured.
The large-scale shift towards EVs paves the route to more business opportunities within the supply chain of EV production. For example, the semiconductor industry is at the forefront leading this growth in vehicle electrification. The chip requirements of EVs are much higher than for ICEs and With more automotive manufacturers adding EVs to their fleet, translating into higher demand for semiconductors.
Another key component in the production of the EV would be the battery which represents 40% of the manufacturing cost of the EV. With batteries playing a significant role in the production of EVs, a steady supply will be needed to support the electrification of the automobile industry. Evidently, the global EV battery market is projected to grow at a Compound Annual Growth Rate (CAGR) of 25.3% from USD 27.3 billion in 2021 to USD 67.2 billion by 2025, exhibiting the potential for an economic boon for countries holding a rich supply of raw materials needed for battery production.
The next post will touch on the interesting developments in the EV battery sector in ASEAN.