Automotive brief – November 2017
- Asia Pacific
- Investor Services
New energy vehicle market in South East Asia – hurdles along a promising path
In 2017, new car sales in Southeast Asia are set to be amongst the highest in the world. Economic growth continues and car ownership is on a steady rise.
With increasing demand, is the region’s automotive sector ripe for new energy vehicle (NEV) disruption? The answer is yes. However, the fledgling regulatory and infrastructure environment demands manufacturers’ government relations and external affairs teams to engage with stakeholders as early as possible to shape market conditions.
Currently, the primary hurdles for the sector are:
- A non-transparent regulatory environment. Though it is improving, the regulatory environment lags behind China, the United States and Europe.
- A lack of infrastructure. Transport infrastructure is not keeping pace with demand.
Effectively working with stakeholders to overcome these obstacles and exploit demand will require outreach to national, sub-national and municipal regulators.
Electric cars in Singapore: a cautionary tale
A private citizen imported a pre-owned Tesla, the electric sports car manufactured in the United States, to Singapore in 2015. With Singapore’s commitment to sustainable growth and its embrace of new technologies, one would assume that the owner faced little red tape getting it registered. However, after several months of communication with the regulators the owner was told he could register his car if he paid a sizable fine, arguing that the automobile was adjudged to have a CO2 output similar to a gasoline powered sports car. The irony is that a Tesla, being electric, does not emit any emissions of its own.
Instead, regulators calculated the Tesla’s CO2 emissions by determining the carbon dioxide emitted when charging the car from the mains. In the United States, by contrast, Tesla owners enjoy healthy rebates based on their cars’ zero emissions.
Eventually the car was registered and, while the import was undertaken privately, this tale points to the need for manufacturers to engage government stakeholders to ensure the appropriate regulations are being developed to foster the growth of the NEV market.
Engage the regulators now
Governments are indeed pushing reforms to grow the electric vehicle market. Thailand is currently trying to leverage its automobile manufacturing base by offering car companies tax incentives for building NEVs in the country. In Malaysia, the government is pushing lithium ion battery production to provide a cost-effective battery production base for local manufacturers. While changes like these are good for nurturing a new market segment, they do not adequately address the key demand side concern: vehicle price.
Most electric vehicles, excluding some Chinese models, still carry a price premium compared to hydrocarbon powered vehicles when controlling for range and performance. The incentives noted above are aimed at getting manufacturers to build or assemble electric vehicles in the region as cheaply as possible, but it remains to be seen how cost savings will be passed along to car buyers.
Manufacturers should now be working to engage regulators on the issue of buyer incentives. Discussions should be held over promoting regulations related to buy-side inducements, such as registration tax exemption, reduced company car taxes, reduced toll road/congestion fees and VAT reductions. Few of these benefits are present in Southeast Asia when compared to other markets. Engaging regulators now will help car makers ensure that the buy-side incentives exist, therefore tapping demand and enhancing the ability to plan product launches and portfolios.
Work across stakeholder groups
Buyers are unlikely to move en masse to electric vehicles if the infrastructure is not provided to sustain their use. Chief among this deficit is a lack of charging stations. Without a substantial investment, NEV use will remain concentrated among car owners in major cities, which does not provide sufficient market size.
Manufacturers should also be engaging government stakeholders not just at the national level on the issues of buyer incentives, but at regional and local levels to ensure that the infrastructure required to support the NEV market is put into place. Municipalities in particular must be encouraged to construct charging stations and dedicated free parking locations for NEVs. The consumer demand is present, but exploiting that demand will only be successful if manufacturers work across stakeholder groups.
Effective government relations is key
While both the NEV regulatory and infrastructure environments remain behind other regions, the good news is that governments across the region are generally keen to ensure they are making the right moves on transport policy and infrastructure development. Manufacturers must therefore ensure that they are speaking to the spectrum of stakeholders in order to unleash demand and encourage the development of infrastructure that will keep that demand sustainable.
Mapping out the ecosystem of stakeholders such as ministries of trade, transport, energy and environment, along with sub-national and city regulators should be the first step in an NEV market development plan.
The second step should include identifying key concerns among those stakeholder groups. While consumers broadly demand NEVs, it is not a given that all regulators support their growth. NEV champions will not be found in the same stakeholder group in each Southeast Asian country.
The third step is the development and delivery of tailored messages to each stakeholder group. If the group is adversarial, the messages should be educational about the long-term economic and environmental benefits of NEV use. If the group is agreeable, the message needs to ensure that they are working to enhance both the consumer-side and the manufacturer-side of the NEV equation.
With NEV demand growing, a well-thought-out, step-by-step government relations strategy will be the difference between manufacturers that best exploit that demand, and those who do not.
- Steven Westervelt, Associate Director