THE ECONOMIST: Thailand, Indonesia and Vietnam in three-way battle to be next electric vehicle superpower

In a scrappy office that is more startup than ivory tower Yossapong Laoonual, head of the Electric Vehicle Association of Thailand, strikes a bullish tone. Clinging to the internal-combustion engine is “like doubling down on horse-drawn carriages long after motorised vehicles became the standard”, he says.

A stroll around Mr Yossapong’s campus at KMUTT, an engineering college in Bangkok, makes such optimism seem natural. Three electric buses sit beside a charging point. Signs outline the university’s plan for carbon neutrality.

Governments around South-East Asia are betting that Mr Yossapong is right. Many in the region, particularly Thailand, Indonesia and Vietnam, want a share of EV growth. By fostering investment relatively early, the thinking goes, they can become crucial production centres, with spillover benefits such as a reduction in deadly air pollution.

But success is far from assured, and vast sums are being risked. Many of the schemes look a little foolhardy.

Thailand has been the most aggressive of the three countries, hoping that a burgeoning consumer market will lure production. Under its “EV 3.0” scheme introduced in 2022, purchases are subsidised via tax cuts and direct payments of up to 150,000 baht ($7000) per vehicle, meaning EVs cost no more than regular cars. From nearly nothing a few years ago, their share of auto sales has surged to around 15 per cent.

In Indonesia that share is 5 per cent; the lower figure is in part explained by the fact the Government is targeting producers not consumers.

A medley of inducements, from tax exemptions to investment perks, has been rolled out. But the country is also trying to make the most of its dominance in EV-making minerals, using export bans to force firms into local production. In nickel, where Indonesia enjoys a near monopoly, a raw-ore export ban that took effect in 2020 has led to investment in smelters.

Meanwhile, Vietnam is betting on VinFast, its national champion. The firm, an outgrowth of Vietnam’s leading conglomerate, which has links to the state, has dominated its home market since 2022, when it began to sell solely EVs.

A push into America failed — “basic functions don’t work reliably”, wrote one of the gentler reviewers of VinFast’s VF8 — but fresh expansions into India and Indonesia are under way. At a new VinFast dealership in Jakarta, drivers are invited to adopt an “unbound imagination”.

VinFast receives some financial support from the state, including a recent plan to subsidise electricity at 150,000 (largely VinFast-owned) charging stations. More significant is political support. As Marco Förster of Dezan Shira & Associates, a consultancy, notes, the company is a “glory project” to which Vietnam’s leaders are deeply attached.

Each approach has run into difficulties. Thailand is South-East Asia’s biggest car producer, with Japanese auto firms relying on its car-parts suppliers.

Yet EVs use fewer parts than regular cars. What is more, Chinese EV-makers in Thailand rely on parts made back home. Thailand’s policy thus risks a net reduction in jobs.

Ominously, the country’s parts-makers are already complaining of a sharp drop in orders. In response, a new “EV 3.5” scheme tightens local requirements and trims subsidies. Ministers have also begun to ramp up support for hybrids, to which Thailand’s Japanese producers are better suited.

Although Indonesia’s industrial strategy has appeared to lure in EV manufacturers, the reality is less encouraging. Between 2016 and 2024 Indonesia received $US29 billion ($46b) in EV-related greenfield foreign direct investment, according to the Lowy Institute, a think-tank.

However, much of this is by Chinese firms, which again assemble vehicles from imported kits. In principle, they are subject to local-content requirements that rise over time, but it is unclear how aggressively Indonesia will enforce these. Critics accuse the government of tax giveaways worth far more than the benefits accruing to Indonesians.

And VinFast is struggling mightily. Despite rising deliveries and revenue, it has never turned a profit. The firm sells cars at a steep loss; its gross margin is -45 per cent and prices are falling, with the latest reductions announced on March 2.

VinFast has survived only thanks to the munificence of its owner. Pham Nhat Vuong, a billionaire who also runs the wider conglomerate, has pledged $US2b of his personal wealth to the firm. He has also used the conglomerate’s resources to prop up its subsidiary. In 2023 some 90 per cent of VinFast’s revenue came from sales to other businesses controlled by Mr Vuong, according to Hunterbrook, a hedge fund-cum-media outlet.

All three places now face similar risks. One is that — at a time of global EV oversupply driven by Chinese output — resources are squandered. Another is that they find themselves stuck as assembly hubs, a low-value-added part of the process.

Advantages that once underpinned traditional car-making, such as good production networks, may matter less for EVs, where most value is added in software and electrical engineering, notes Pavida Pananond of Thammasat Business School.

The underlying problem is that South-East Asia is full of technology-takers — i.e, it is dependent on foreign, largely Chinese expertise. Officials hope to combine handouts with technology-transfer requirements.

But it is difficult to get foreign firms to accede to these owing to the small size of South-East Asian markets, as well as bosses’ ability to play countries off against one another, says Tu Le of Sino Auto Insights, another consultancy. Indonesia, the biggest market of the three, relies heavily on Chinese investment, hindering its ability to get tough with Chinese firms.

Optimists expect that China’s EV-makers will in time settle on a few regional hubs, which would give host governments more clout in localising production, as Thailand’s managed with Japanese carmakers in the 1970s.

But the corollary is that, at best, only one of South-East Asia’s EV industrial-policy bets might pay off big. That would leave two costly failures.