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Oxford Business Group

Oxford Business Group

Oxford Business Group (OBG) is a global publishing, research and consultancy firm, which publishes economic intelligence on the markets of the Middle East, Africa, Asia…

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These Emerging Markets Are Looking To Bolster Electric Vehicle Production

  • Several emerging markets are moving to develop EV production capacity.
  • Thailand and Indonesia have offered a range of incentives to boost the industry.
  • Auto exporters in particular are recognising a need to transition to EVs.

As demand for environmentally sustainable transport grows, a number of emerging markets are ramping up their efforts to incentivize the sale and production of electric vehicles (EVs). One of the latest attempts to stimulate growth in the sector in Thailand, which last month approved a package of incentives designed to establish itself as a regional leader in the field.

As part of a plan to encourage the purchase of EVs, the measures include a 40% reduction in import duty on completely built EVs costing up to BT2m ($60,500) and a 20% reduction on EVs valued between BT2m and BT7m ($60,500-$212,000).

In addition, the government announced that it will cut excise tax on imported EVs from 8% to 2%, which is expected to add 7000 EVs to the country’s fleet within a year.

Meanwhile, in a bid to bolster EV production in the country, eligible car manufacturers will receive subsidies of between BT70,000 and BT150,000 ($2120-$4540) for each car produced, and BT18,000 ($545) for each electric motorcycle.

The incentives support the country’s strategic plan, which aims to ensure that EVs will account for 30% of all vehicles produced in Thailand by 2030.

The most recent measures come on the back of previous incentives designed to accelerate the growth of the EV industry. In November 2020 Thailand’s Board of Investment introduced excise duty reductions and corporate income tax holidays for those investing in the space.

As one of South-east Asia’s leading industrial producers and carmakers, with annual vehicle production figures of around 2m, Thailand is well positioned to capitalise on the shift towards electric mobility.

Indonesia leverages natural advantages

Thailand is not alone in the region when it comes to building up its EV capacity, with Indonesia also unveiling a series of measures in recent years.

In September 2020 the country released its Electric Vehicle Roadmap, which outlined plans to produce 600,000 four-wheeled EVs and 2.45m two-wheeled EVs annually by 2030.

This was accompanied by a series of tariff reductions and other benefits for those investing in the sector, while in March 2021 four state-owned enterprises formed the Indonesia Battery Corporation, tasked with managing the EV battery industry.

The developments seem to have had the desired effect.

In December 2020 South Korean multinational LG and the Indonesian government signed a memorandum of understanding (MoU) with regard to a $9.8bn EV battery investment deal. As part of the MoU, in September last year, LG and carmaker Hyundai started construction on a $1.1bn EV battery plant, which is expected to produce enough batteries to power 150,000 EVs once completed.

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Furthermore, Hyundai will become the first company to produce EVs in Indonesia, with new models expected from its Cikarang plant later this year.

Although the EV market is still at a nascent stage, representing just 0.5% of Indonesia’s total car sales in the first half of last year, the country does have one key advantage in its quest to expand production: nickel.

Indonesia is home to around one-quarter of the world’s nickel reserves, a key component in the production of batteries. Given that batteries account for around 35% of the production costs of an EV, a steady supply of nickel could significantly reduce Indonesia’s manufacturing expenses and thus make the industry more competitive.

Emerging markets reacting to demand

Although the global EV market is dominated by China, Europe, and the US, emerging markets – as seen in the case of Thailand and Indonesia – are looking to capitalize on growing demand and carve off their own slice of market share.

According to the International Energy Agency, the total number of electric cars, trucks, vans, and buses is set to increase from 11m to 145m by the end of the decade.

The need to move to electric mobility will be all the more pressing for existing auto-producing countries, with preferences in many markets shifting rapidly towards electric-powered vehicles.

For example, last year the EU proposed measures that would essentially ban the sale of new petrol and diesel cars from 2035.

As a country that exports 64% of its manufactured vehicles abroad, including to EU markets Germany, France, and Belgium, South Africa is an emerging market that has identified the need to develop its EV capacity.

Although production levels remain low and the vehicles are subject to heavy taxes, government support exists for a transition. In October last year, President Cyril Ramaphosa said the shift towards EV production would be “fast-tracked”, with many in the industry expecting incentives to be implemented.

Elsewhere, Morocco, another key automotive exporter to Europe, has already taken its first steps towards an EV-centric future. Last year German carmaker Opel began EV manufacturing in the country, with the Rocks-e model to be the first completely electric passenger car manufactured in North Africa.

By Oxford Business Group

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