A market analyst with 15 years of experience covering energy markets, sustainability and geopolitics in the Asia-Pacific region.

Southeast Asia's electric vehicle (EV) development is facing several challenges. Thailand, Indonesia and Malaysia have introduced policies aimed at establishing the region as an EV manufacturing hub.

However, these policies could result in higher costs and a fragmented market at a time when governments are seeking to make EVs affordable for mass adoption. These countries are also seeking to develop domestic EV manufacturing hubs to support employment and economic development, expand their tax bases and reduce their reliance on foreign EV imports, particularly from China and Japan.

EV development could also help these countries reduce transport-related carbon emissions and achieve their decarbonisation goals sooner. However, the extent of these emissions reductions will depend partly on the sources of electricity used to charge EVs, as a significant proportion of electricity in the region is still generated by gas- and coal-fired power plants.

Thailand, Southeast Asia's leading automobile producer, links its incentives to domestic production. According to Thailand's Board of Investment (BOI), automakers benefiting from imported EVs must compensate by producing two vehicles locally for every imported vehicle by 2026, increasing this to three by 2027. Thailand also requires significant local sourcing of components and is tightening regulations on imported battery cells.

Indonesia has introduced statutory local content requirements for EV manufacturers. According to an article by media sources, at least 40% of a vehicle's components must be sourced domestically through 2026, rising to 60% from 2027 to 2029 and 80% from 2030. The government also links EV import privileges to investment in domestic manufacturing.

Malaysia is also shifting towards local EV assembly. During a three-month research project in Kuala Lumpur last year, this transition was visible on the streets, with Grab drivers increasingly using locally assembled EVs to reduce fuel costs, while also reporting constraints related to charging infrastructure and other practical issues. However, most EVs in the country are still imported from China.

Malaysia's government has since ended special incentives for fully imported EVs while extending tax breaks for locally assembled models through 2027, according to a media report. It has also introduced price and power requirements that effectively exclude some lower-priced imported EVs from the market. These measures are intended to support domestic manufacturing but could affect the availability of lower-priced EVs for consumers.

Thailand, Indonesia and Malaysia face several challenges in developing their EV manufacturing industries.

Thailand's efforts to develop its EV manufacturing sector face challenges from the increasing presence of Chinese imports. Free-trade agreements have enabled lower-cost Chinese EVs to enter the market, contributing to price competition that is putting pressure on local component suppliers and creating challenges for the country's established automobile manufacturing base. The issue has also received coverage in domestic media.

Although the production mandates are intended to support local manufacturing, scaling up domestic assembly has proved difficult because of supply-chain gaps and limited domestic battery manufacturing capacity.

Indonesia's new production mandates are also creating domestic challenges. Charging infrastructure outside urban areas of Java remains limited, while the national electricity grid continues to rely predominantly on coal, according to a working paper by the International Council on Clean Transportation (ICCT).

Furthermore, as the global automotive industry shifts towards lower-cost, nickel-free battery chemistries, Indonesia could face challenges if its domestic supply chain remains concentrated in technologies that become less competitive as battery technologies and market demand change. Coal dependence also remains a factor in Indonesia's power sector.

Malaysia is also facing challenges. The government's strategy to develop the domestic EV industry around national brands Proton and Perodua has encountered obstacles, while import barriers are providing protection for domestic brands. Malaysian automakers are also facing difficulties in expanding their local supply chains.

The transition from petrol-powered vehicles to EVs requires capital investment in battery assembly, electric powertrains and specialised domestic supplier networks. Domestic suppliers are still developing the capabilities required to support these activities.

Meanwhile, the rollout of fast-charging stations is falling behind government targets because of grid capacity constraints and regulatory hurdles. Nationwide fossil-fuel subsidies also reduce the difference in operating costs between EVs and petrol-powered vehicles. This leaves Malaysian automakers facing development costs while some mass-market consumers remain hesitant to switch from relatively inexpensive petrol-powered vehicles.

A broader regional challenge also exists. Thailand, Indonesia and Malaysia are each seeking to establish their own EV manufacturing and supply chains, but they have adopted different localisation requirements and incentive structures. This creates additional costs for automakers, many of which increasingly view Southeast Asia as a single regional market rather than a collection of separate national markets.

Instead of benefiting from greater regional economies of scale, automakers may need to develop different sourcing, assembly and investment strategies for each country. This adds to operating costs, particularly while EV demand in Southeast Asia is still developing. These additional costs could ultimately be absorbed by manufacturers, governments through incentives or consumers through higher vehicle prices.

These costs could affect efforts to increase EV adoption, even when the underlying industrial policies are intended to support domestic manufacturing. Governments are seeking to attract the employment and investment associated with local production while also ensuring that EV prices remain affordable enough to encourage consumers to switch from conventional vehicles. Pursuing both objectives simultaneously could present policy and cost challenges.

Thailand, Indonesia and Malaysia continue to have reasons to increase domestic participation in the EV supply chain rather than relying primarily on imported vehicles. These include potential employment, investment and technological development.

Governments also need to establish policy priorities and consider the potential trade-offs. Localisation policies that increase EV prices, restrict access to lower-cost imports or expand domestic production requirements beyond the capacity of local markets could affect the pace of EV adoption.

Southeast Asia could develop its EV manufacturing capabilities while also increasing the availability of affordable EVs to consumers. Achieving both objectives will depend on how governments address the costs and supply-chain requirements associated with their respective industrial policies.