Asia to lead global EV growth

  • The outlook for Asia’s electric-vehicle (EV) sector is bright, as policy-makers beef up support for domestic green-car production and sales through subsidies and trade protectionism.
  • EIU forecasts that Asia will account for 63% of the 115m new EVs sold worldwide over the next five years, with EVs accounting for 39% of new-car sales in the region by 2028. 
  • Despite rising trade barriers, China will remain the world’s biggest EV manufacturer, with established businesses covering the whole EV supply chain. 
  • Prospects for Japan’s and South Korea’s EV producers are mixed, due to a late start, although demand for hybrid vehicles should provide opportunities.
  • South-east Asia is likely to emerge as a hub for battery and parts manufacturing, whereas India is likely to focus on vehicle manufacturing and assembly for the Asian region. 

Two decades ago the Chinese government began to invest heavily in subsidies for EV technology and batteries, in order to help its domestic automakers carve a niche and compete in global markets. That policy is now paying off resoundingly. Based on full-year 2022 data, China accounted for 58% of global sales of electric vehicles (EVs) and a mammoth 70% of total EV production. Yet in recent months, the US and EU have been imposing new tariffs and local-content requirements as they try to build up their own EV supply chains, while China has retaliated with its own export controls, most recently for graphite. These rising trade barriers will complicate the rapid adoption of EVs across Asia over the next two decades, but will fail to slow demand or investment.

China’s EV dominance is facing a Western challenge

China’s leading position in the global EV markets has been enabled by two decades of government policies and funding, ranging from subsidies for EV buyers to tax breaks for investment into EV and battery technology. As a result, in the last quarter of 2023 China’s BYD overtook Tesla (US) to become the world’s biggest EV maker, while three Chinese companies together command  just over 50% of the world market for EV batteries. The Asian giant is also the world’s largest producer of graphite, which is an important component used to make the anodes in EV batteries, and dominates the processing of critical minerals such as lithium. 

From this month onwards the US Treasury Department has imposed new restrictions on EV makers sourcing battery components and materials from China and other “foreign entities of concern”, as part of tax credit eligibility under the US Inflation Reduction Act. The EU, meanwhile, is reviewing China’s EV subsidies to see if their impact on fair competition warrants imposing an additional tariff. With China retaliating by imposing its own trade barriers, EIU believes that Western-allied companies will derisk their EV supply chains by shifting investment away from China. This will result in higher near-term costs and reduced efficiency for western carmakers as they struggle to replicate sourcing strategies in alternative markets. 

China’s EV-makers, meanwhile, will face the additional cost of trade barriers. However, their cost-competitiveness means that China’s EV exports are still likely to rise further, while its control over critical resources will remain strong. Moreover, Chinese EV and battery makers will cement their market share in their domestic EV market, which is the world’s largest. While we expect Chinese demand for new vehicles to be subdued in 2024 and beyond, sales of EV will remain buoyant. On the whole, we expect the share of EVs in new-car registrations to rise from 25% in 2022 to 49% in 2027, well above government targets. 

Japan and South Korea have lost ground

China’s championing of EV technology has come at the cost of Japanese and South Korean dominance of Asia’s automotive sector, which was prevalent until a decade ago. Japan’s policymakers and automakers have focused not on battery technology but on hybrids and hydrogen fuel cells, leaving companies struggling to catch up on battery EVs. Nevertheless, Japan remains the world’s third-largest vehicle market and producer, behind China and the US, while its role in shaping global automotive technology will remain important. South Korea, meanwhile, is the fifth-largest producer, despite a relatively small domestic market.

Even so, both countries are seeing double-digit growth in EV sales, and continue to attract investment into the EV sector from important domestic companies such as Toyota (Japan) and Hyundai (South Korea) as well as foreign partners. Strong international trade networks give them both some strong advantages, as seen by the continued growth of Toyota and Hyundai. Japan may even benefit from its technology bets. Until recently hybrids were rapidly losing out to full EVs, but demand has revived in China and elsewhere in recent months. Hybrid vehicles, because they do not rely on charging networks, could also prove popular in less developed Asian markets, although they are vulnerable to adverse regulation – few governments other than Japan have an incentive to prioritise them. The bet on fuel-cell technology could also pay off in the longer term, but if that happens, then competition will intensify and Japanese makers will have to work hard to retain their early lead.

The EV story remains strong for the rest of Asia

The EV market in the rest of Asia has been performing well, particularly in large emerging vehicle markets such as India and South-East Asia, thanks to government support as well as new model launches. Although EV and battery supply chains in these markets are small and underdeveloped, investment is rising. In India, Hyundai plans to complete an investment of Rs7bn (US$8.4m) in a battery facility by 2025, while domestic automakers Maruti Suzuki and Tata Motors have already begun retooling existing plants to assemble EVs as well as batteries.  In June last year the latter signed a deal with the Gujarat state government to build a lithium-ion cell factory, as part of India’s efforts to create its own EV supply chain. Indian policymakers are now drafting a new EV policy that could slash import taxes for automakers committing to some local manufacturing in 2024. 

The development of an EV ecosystem in South-East Asia is also gaining momentum. China’s Neta Auto has begun production at its first overseas EV plant in Thailand, one of the few Asian markets offering cash subsidies for passenger EVs. Thailand and Malaysia both provide tax support for final EV purchases, while in November 2023 Thailand announced new cash subsidies for EV production as well. Indonesia and Vietnam, however, may eventually emerge as the biggest battery hubs in the region thanks to their domestic reserves of vital battery metals. Indonesia has the world’s largest deposits of nickel, tin, bauxite and copper, whereas Vietnam boasts vast nickel reserves. 

Indonesian policymakers are already flexing their muscles, with various export bans on material such as nickel intended to encourage investment into local production and processing. In June 2022, Indonesia opened its first battery plant in the Central Java region, while South Korea’s LG Energy Solution and Hyundai Motor are likely to start mass production of battery cells at another facility in 2024. Meanwhile, Vinfast, a Vietnamese automaker, began construction of a battery facility in December 2021. Other Asian firms, including battery-maker Contemporary Amperex Technology (CATL) and Foxconn, are reportedly also targeting India and Indonesia. 

Competition for EV investment within Asia will increase rapidly over the next five years, encouraged by policy-makers and the rerouting of supply chains. While China will continue to dominate EV production – vying with India, Japan and South Korea – South-East Asian countries will become important suppliers of EV components and batteries. They will also become promising and fast-growing markets in their own right. The International Renewable Energy Agency, expects that 20% of all vehicles in the South-East Asian region will be electric by 2025, up from less than 5% in 2019. The region’s population of more than 680m people and a burgeoning middle class also bodes well for longer-term growth, although the lack of charging infrastructure (and reliable power supplies in some countries) will remain a barrier to adoption.

For Asia as a whole, we see EV sales averaging 22% growth a year in our 2024-28 forecast period. This growth will take their share of new-car sales to 31% in 2025 and 39% by 2028. Even more impressively, of the 115m EVs we expect to be sold worldwide over the next five years, Asia (mainly China) will account for 63%. This demand alone will be enough to support a thriving EV sector across the region, despite the rising trade barriers elsewhere in the world.

The analysis and forecasts featured in this piece can be found in EIU’s Country Analysis service. This integrated solution provides unmatched global insights covering the political and economic outlook for nearly 200 countries, enabling organisations to identify prospective opportunities and potential risks.