1. In February 2022, Thailand released new government incentives for its electric vehicle (EV) industry as part of its ambitious plan to transform 50 percent of its total auto production to EVs by 2030 and become a production base for cleaner vehicles in Southeast Asia. The new incentive package includes significant exemption in import duty and excise tax for a wide range of EV models.
2. Indonesia is set to build its first electric vehicle (EV) battery plant and aims to begin production by 2023.
THAILAND EV INCENTIVE PACKAGE
1. The EV incentive package reflects ASEAN’s gradual investment into environmentally friendly transportation to align with the global shift to electric vehicles by major car manufacturers. According to a 2021 EV report, the total stock of ASEAN electric-powered vehicles reached 3.4 million in 2019 and is forecasted to rise amid improving economic development, growing population, and concern for the environment.
2. Within Southeast Asia, Thailand has consistently ranked first in terms of total auto production output, and 11th in the 2019 global ranking. The country annually manufactures 2 million internal combustion engine vehicles for major brands, such as Toyota, Honda, and Mitsubishi. In an attempt to preserve its leading reputation in the automotive industry, Thailand plans to attract 400 billion baht (US$12.08 billion) in investments over the coming years and support the production of 1.2 million EVs and 690 charging stations by 2036.
3. A 40 percent reduction in import duty for completely built-up (CBU) of battery EVs priced up to 2 million baht ($61,805) and a 20 percent reduction for those priced between 2 million ($61,805) and 7 million baht (US$211,278) from 2022 to 2023; and
4. Excise tax cut from 8 percent to 2 percent for imported EVs, which is predicted to add 7,000 EVs in the first year.
5. The incentives will initially apply to some 27 model types of EVs comprising of:
-Eco-cars with 10 seats or less;
-Electric pickups;
-Hydrogen fuel cell-powered trucks;
-EVs with 10 seats or less; and
-Plug-in four-door passenger pickups.
6. The package is a follow-up to earlier February subsidy programs to encourage EV production and purchases, which include:
- A 70,000 baht (US$2,111) subsidy is available per EV unit for passenger cars with 10 to 30 kWh battery capacity for completely knocked-down (CKD) and CBU units;
- A 150,000-baht (US$4,523) subsidy for each EV unit for passenger cars with more than 30kWh battery capacity for completely knocked-down (CKD) and CBU units;
- An 18,000-baht subsidy for electric motorcycles from eligible car producers between 2022-2023; and
- Exemption of import duties on important electrical components: batteries, traction motors, compressors for battery EVs, battery management systems, drive control units, and reduction gear between 2022-2025.
7. The subsidy programs are funded by 3 billion baht (US$90.4 million) from the 2022 central budget and from the longer-term 40-billion-baht (US$1.2 billion) investment in the EV industry between 2023 – 2025.
CHALLENGES FOR THAILAND
1. Insufficient EV infrastructure - Insufficient EV infrastructure development is one barrier to Thailand developing a holistic EV manufacturing industry. According to the Bangkok Post, the country could take up to a decade to produce EVs effectively since existing supply chains are tailored towards manufacturing parts and bodies for vehicles with internal combustion engines (ICE).
2. There is also a lack of charging stations throughout Thailand, with only 1,000 or so public charging points compared to around 30,000 gas stations — there is also a lack of home charging stations. Further, many Thai consumers are concerned about EV performance barriers including reliability, batter lifespan, range, engine power, and charging time.
3. However, since early 2022, several private sector entities such as PTT Oil and Retail Business and Eppo are looking to invest in charging stations in the country.
4. Financial barriers - High purchase costs, battery costs, and resale value are also barriers for Thailand’s EV industry — compared to ICE vehicles, EVs are often more expensive due to the lack of an economy of scale. Moreover, a significant portion of the total EV costs is battery costs, and capacity increase with size, type, and range.
5. While other ASEAN countries, such as Indonesia and the Philippines, are important global sources of nickel, such deposits are not as large in Thailand, meaning there could be a potential material supply shortage to produce the lithium-ion batteries used in electric vehicles.
6. Another challenge lies in the government’s targeted approach to focusing on battery-powered electric vehicle (BEV) in its EV policy. As was earlier mentioned, certain incentives, such as the latest reduction in import duties, only apply to BEVs. However, investors should be cautious as analysis shows limited interests in BEVs despite the government leverage.
7. In 2021, the number of new registrations for BEVs approximated 1,900 units, a significantly small fraction compared to the 38,600 newly registered hybrid electric vehicles (HEV)s and plug-in hybrid electric vehicles (PHEVs). Investors should also keep in mind the novelty and complexity of BEVs’ technology that in a relative infant EV industry is difficult to mass-produce in Thailand.
THAILAND SUPPORTING FACTORS
1. Despite the challenges, there are several factors that support Thailand’s ambitions to be an EV production hub. In addition to government incentives, a well-developed logistics network and supporting infrastructure can help propel the EV industry.
2. The introduction of the latest incentive packages shows that Thailand is eager to build an advanced EV production hub and industry in Southeast Asia. Experience from Nordic countries like Norway and Sweden have demonstrated the potential of generous tax schemes in attracting international EV manufacturers, which is exemplified by Norway’s US$3 billion EV tax subsidies that laid the ground for the impressive EV domestic market share of more than 55 percent.
3. A study on the impacts of US federal EV subsidies has also concluded that “without tax subsidies, EV purchases would have fallen by about 29 percent.”
4. Attractive incentives continue to help - While Thailand’s economic capacity is not on par with that of Northern Europe nor the US, its ambitious and concrete government actions could promise an optimistic forecast for the EV industry. Many countries like Germany, China, and Israel have already been inclined to open EV battery plants in Thailand. The subsidies are also causing demand to surge over time.
5. As the most prominent ASEAN EV market, in 2020, Thailand recorded 2,854 EV registrations, within which were 1,572 new cars, a record-breaking 380 percent increase from 2018. In 2021, besides the cumulative 219,044 hybrid and plug-in hybrid EVs, new EV registrations reached 5,781 – according to the Electric Vehicle Association of Thailand (EVAT). These figures clearly prove the effectiveness of consistent government incentives since Thailand issued its official EV policy in 2017.
6. Short-term boost due to high gas prices - Thailand’s EV industry might also benefit in the short term from soaring gas prices, which have continued to increase due to the escalating Ukraine – Russia crisis. Electric vehicles could potentially emerge as an economical transportation alternative to fuel-driven vehicles. Although 55 percent of Thailand’s electricity continues to be powered by natural gas, the country currently reserves 4.9 trn cubic feet of natural gas to secure a self-sufficient supply while promoting the use of renewable energy in the Power Development Plan 2018-2037.
7. Strategic location and well-developed infrastructure - Thailand’s position as the number one automotive exporter in the region is enhanced by its strategic position at the heart of mainland ASEAN, a market of more than 600 million and a growing middle-class.
8. Thailand’s Eastern Economic Corridor, which is the country’s industrial and economic heartland, is already home to leading carmakers and components provides an environment that supports the development and scaling of new innovations in the EV industry.
9. The country’s Laem Chabang Port, the world’s third-largest gateway port and the 20th busiest in the world is to begin its Phase 3 expansion that will see the port have a container throughput capacity of 18 million twenty-foot equivalents (TEU) per year by 2029. Under Phase 3, the port will increase car exports from 2 million units to 3 million units per year.
EV BATTERY PLANT IN INDONESIA
1. The project is being initiated by Indonesia Battery Corp (IBC) — a holding company consisting of four state-owned enterprises, namely MIND ID, PT Pertamina, PT Perusahaan Listrik Negara, and PT Aneka Tambang Tbk — and a consortium led by South Korea’s LG Group in what will be an initial investment worth US$1.2 billion.
2. However, the total investment for the IBC-LG project is estimated to reach US$9.8 billion and employ 1,000 workers.
3. The Kota Deltamas industrial area in Bekasi, West Java province, has been chosen as the facility site, being only two hours from Jakarta by road, and will span some 33 hectares. The facility is expected to have a capacity of 10 Gigawatt hours (GWh) (one gigawatt equals 1 billion watts of electric power), with the batteries manufactured there slated to be used in Hyundai electric vehicles.
4. Furthermore, a Chinese consortium, which includes China’s Contemporary Amperex Technology (CATL), will invest US$5 billion in a lithium battery plant in Indonesia, with production starting in 2024; both CATL and LG supply the batteries for Tesla’s made-in-China models.
5. Indonesia wants to increase production to reach a battery capacity of 140 GWh by 2030 from which 50 GWh will be allocated for export. The remainder will be used for Indonesia’s domestic electric vehicle industry — mainly for motorbikes rather than cars.
6. With Indonesia looking to boost investment in its EV battery sector to US$33 billion by 2033, the country presents ample opportunities for foreign EV manufacturers.
INDONESIA PULL FACTOR
1. Abundant natural resources - A key material in the production of electric vehicle batteries is nickel, and Indonesia has one of the world’s largest reserves for these commodities.
2. Indonesia accounted for roughly 30 percent of the world’s nickel production and is home to 22 percent of the world’s known nickel reserves, ahead of Australia and Brazil, with some 21 million tons. Indonesia produced 760,000 tons of nickel in 2020.
3. Another key component in electric vehicle batteries is copper, and Indonesia’s Grasberg mine has the second-largest reserve of copper in the world as well as the world’s largest reserve of gold.
4. Indonesia wants to move up the EV supply chain from mining the ore to refining it, to manufacturing the batteries and eventually manufacturing the vehicles. And since the country controls the raw input, it is finding that it has a lot of leverage.
5. A decade ago, Indonesian nickel exports reached 64 million tons in 2013, but the following year, outgoing President Susilo Bambang Yudhoyono banned the exports of the commodity, with the goal of developing the downstream industry by forcing nickel companies to build smelters and refine the ore in Indonesia. The ban was only implemented in January 2020 and the government also announced a ban on unprocessed copper concentrate and bauxite by 2023.
6. Demand for nickel has continued to increase, thanks to EV batteries, and Indonesia saw over US$6 billion in foreign investments for the construction of nickel smelters and other downstream processing activities.
7. Furthermore, Indonesia is also focusing on developing two nickel-based battery blends, consisting of nickel-cobalt-manganese and lithium-cobalt-nickel-aluminum, which are considered two of the most popular blends used in EV lithium-ion batteries.
8. Available incentives - In 2019, Indonesia’s government introduced a variety of incentives for EV manufacturers, transport companies, as well as consumers. This includes import tariff reductions for machinery and materials used for EV production, and tax holiday incentives for up to 10 years for EV manufacturers that make at least 5 trillion rupiah (US$346 million) in investments in the country.
9. Divestment of shares still required for foreign investors - Mining activities are not included in Indonesia’s latest Positive Investment List and are technically open to 100 percent foreign ownership.
10. However, foreign investors must be aware of Government Regulation No. 23 of 2020 and Law No. 4 of 2009 (amended), which states that foreign-owned mining companies must gradually divest at least 51 percent of their shares to Indonesian shareholders, by the 10th year of commencing commercial production.
11. Most notably, this rule was implemented by Freeport-McMoran (FCX), the owner of PT Freeport Indonesia (PTFI), which operates the Grasberg mine in Papua province; the mine is home to the world’s largest gold reserve.
12. PTFI was previously 90.64 percent owned by FCX, but in 2018, the Indonesian government took control of 51.23 percent of the company in exchange for the extension of Freeport’s mining operation permit.
Sources:
https://www.aseanbriefing.com/news/thailand-issues-new-incentive-package-for-electric-vehicle-industry/
https://www.aseanbriefing.com/news/indonesia-to-build-electric-vehicle-battery-plant-production-starting-in-2023/
