Accelerating vehicle electrification to shake up competitive landscape in ASEAN auto market

The recent Global EV Outlook 2024 report brought out by the intergovernmental International Energy Agency (IEA) projects electric vehicles (EVs) to account for around 20% of total vehicle sales globally this year. It forecasts continued growth for EV markets in China, the US, and Europe, and highlights the increasing momentum of EV adoption in emerging markets across ASEAN.

Aligning with this, Frost & Sullivan’s ASEAN Automotive Market Outlook, 2024 identifies three major themes will define the ASEAN automotive market in 2024: accelerating vehicle electrification, intensifying competition between Indonesia and Thailand in their quest to attract foreign investments and emerge as automotive production powerhouses in the region, and the mounting challenge to Japanese automakers from Chinese and South Korean rivals.

Market Landscape in 2023

For a variety of reasons ranging from supply chain disruptions to macroeconomic headwinds, passenger vehicle and pickup vehicle sales across the five main automotive markets of Indonesia, Malaysia, the Philippines, Thailand, and Vietnam dipped from 3.2 million in 2022 to 3.1 million units in 2023. In contrast to the Philippines and Malaysia which witnessed strong YoY growth, Thailand and Vietnam were hit by steep YoY declines with Indonesia also experiencing a marginal drop in growth from 2022 levels.

From a competitive standpoint, Japanese OEMs, led by Toyota and Honda, were market leaders in the region. In Indonesia, ASEAN’s largest automotive market, the five major Japanese OEMs collectively accounted for around 89% of sales.  However, their traditional dominance is being challenged by South Korean and Chinese OEMs that are transforming competitive dynamics. Automakers from China such as BYD, Chery, NETA, Wuling Motors, Ora, and Great Wall Motors are banking on affordability and innovation to boost their customer appeal.

To learn more, please see: ASEAN Automotive Outlook, 2024, or contact sathyanarayanak@frost.com for information on a private briefing.

Electrification Gains Momentum

Many foreign automakers are targeting electrification trends in the region to drive growth. In 2023, BYD, for instance, was the best-selling EV OEM trailed by NETA and Ora in Thailand, Hyundai and Wuling Motors laid claim to being the top EV OEMs in Indonesia, while Vietnamese EV OEM VinFast clocked up sales of over 31,000 EVs even as it pursued an aggressive geographic expansion strategy. VinFast is the undisputed leader of the domestic Vietnamese market and has emerged as a strong competitor to Chinese brands, even as it looks to penetrate new markets across ASEAN, such as the Philippines.

Due to a clutch of factors— government policy support, tax subsidies, incentives, evolving customer demands, the entry of Chinese, South Korean, and Japanese EV OEMs, and the availability of more economical models—EV sales experienced significant regional growth in 2023. In particular, the battery EV (BEV) segment registered strong growth in major markets like Thailand, Indonesia, Vietnam, and Malaysia.

While EVs will play a pivotal role in the region’s transition towards clean mobility, adoption levels still trail that of more well-developed EV markets including in China, Japan, and South Korea.  Growth over the near-term is likely to be impacted by factors like high EV prices, limited model availability, and inadequate charging infrastructure.  Nevertheless, sales are projected to surge over the long-term as key ASEAN countries move to decarbonize both public and private transport. Already, there have been signs of accelerated EV uptake in important markets like Thailand where BEV sales rose 639% YoY in 2023 and Malaysia which registered YoY growth of 276.3%.

Government backing in the form of policy support, incentives and tax subsidies will provide a fillip to EV penetration. Indonesia, for example, has the stated objective of producing 600,000 EVs by 2030, while Thailand’s ambitious 30@30 policy targets 30% of vehicles manufactured domestically being zero emission by 2030.

Bouncing Back

Disappointing performance in 2023 notwithstanding, Frost & Sullivan expects the ASEAN automotive market to bounce back in 2024 with a projected YoY growth rate of 6%. All eyes will be on the Philippines, which is anticipated to post a 12% YoY increase as a result of the entry of Chinese OEMs, and the launch of more cost-effective models in the popular MPV and SUV segments.

Japanese OEMs will remain on top of the leaderboard, performing strongly particularly in Indonesia, Thailand, and the Philippines. However, rising competition from Chinese and South Korean OEMs rivals will result in a contraction of market share, even as they turn to aftersales services to retain their edge.

Chinese EV and battery manufacturing factories are on track to boost their presence in the region. For instance, Great Wall Motor and Changan already have manufacturing plants in Thailand, with BYD and Chery poised to follow suit. BYD also has plans to set up production facilities in Indonesia this year. Backed by their sizeable manufacturing capacity and government subsidies, Chinese OEMs will continue to build on their gains, and flood markets with cost-effective cars. Simultaneously, intense rivalry in the EV segment will likely trigger fierce price competition.

Strong government support for vehicle electrification, reinforced by rising customer demand, will underpin exceptional growth for the BEV segment in Indonesia, Thailand, and Vietnam. These trends will motivate foreign OEMs to offer wider EV portfolios that specifically target the region.

Focus on Investments and Partnerships across EV Ecosystem

Frost & Sullivan expects more strategic investments in EV manufacturing, particularly from Chinese, Japanese, and South Korean OEMs. Beyond individual passenger EV sales, Chinese OEMs will strengthen their market presence by focusing on large scale commercial sales to government agencies as well as private and public fleets.

Mirroring customer demands for cost-effective, flexible, and sustainable transport, stakeholders will explore the potential of business models like subscription services as well as EV ridesharing, shuttles, and taxi services.

Ecosystem partnerships will be crucial to developing the EV market. With vehicle electrification still in the nascent stage, foreign OEMs should look to Indonesia and Thailand which have set down aggressive roadmaps to transition to clean mobility and position themselves as EV manufacturing hubs.

With inputs from Amrita Shetty, Senior Manager, Communications & Content – Mobility