Latest / China Economy with Fexingo: Beijing's Policies, Trade, and Asia-Pacific Markets / Why China EV Makers Are Pivoting to Southeast Asia
Transcript
- Lucas: If you look at the top five export markets for Chinese-made electric vehicles a year ago, three of them were in Europe. Belgium, the UK, Germany. That picture is changing fast. Luna: We've been tracking the tariff story for months. But the numbers now are starting to show a real pivot. Where are Chinese EVs actually going? Lucas: Increasingly, they're going to Southeast Asia. Not just as finished cars either. The big story is that Chinese EV makers are building factories in Thailand and Indonesia. BYD just opened a plant in Rayong, about two hours southeast of Bangkok. That facility has an annual capacity of 150,000 vehicles. Luna: And this is not just about dodging European tariffs? Lucas: It's partly that. The EU's provisional tariffs on Chinese EVs, announced last fall and now in effect, add roughly 17 to 36 percent depending on the manufacturer. That's a big headwind. But the Southeast Asia play is also about accessing a market that's growing from a very low base. EV penetration in Thailand was under two percent two years ago. Now it's around 12 percent. That's a real inflection point. Luna: And Thailand has its own incentives, right? They've been cutting import duties and offering tax breaks for EV makers who set up local production. Lucas: Exactly. Thailand's EV 3.0 and then EV 3.5 policy package basically says: import EVs with reduced duties for a couple of years, but commit to building a factory here by 2026 if you want to keep the benefits. BYD, Great Wall Motor, Neta, and others all took that deal. The result is that Thailand is becoming a regional production hub. And it's not just assembly. Chinese battery makers like CATL and Eve Energy are setting up shop nearby. Luna: So you've got the full supply chain moving. That's different from just shipping cars. It's harder to reverse. Lucas: It's a much stickier investment. Once you've sunk capital into a battery plant and a stamping line, you're not leaving quickly. And it aligns with China's broader Belt and Road thinking — build infrastructure, secure resource access, create demand for Chinese industrial equipment. Luna: Let's talk about Indonesia. They have nickel. That's the critical battery metal. Are Chinese firms integrating vertically there? Lucas: They absolutely are. Indonesia has become the world's largest nickel producer, and Chinese companies — Tsingshan, Huayou Cobalt, CATL — have poured billions into processing facilities in the Morowali Industrial Park on Sulawesi Island. They're turning nickel ore into battery-grade materials on site. Then they ship those materials to battery plants in China or increasingly to new battery factories in Indonesia itself. Last year, Indonesia started exporting nickel-based EV batteries to the US under the free trade agreement. Luna: That's a workaround. They're using Indonesia's trade deals to access markets that are closed to Chinese-made batteries directly. Lucas: Right. And it's effective. The US Inflation Reduction Act has strict rules about battery components from 'foreign entities of concern' — China is top of that list. But if a battery is assembled in Indonesia with Indonesian nickel, and processed by a company domiciled in Indonesia, it can qualify for tax credits under the IRA. The Chinese parent companies are structuring subsidiaries to meet those rules. Luna: It's a clever geopolitical hedge. But is the Southeast Asian consumer market actually ready for EVs? Charging infrastructure is still sparse. Lucas: It's uneven. Thailand has about 9,000 public chargers, mostly in Bangkok. That's not nothing, but it's concentrated. The Chinese makers are tackling this by bundling home chargers with every car sale — a 7-kilowatt wall box — and by partnering with local oil companies like PTT to install fast chargers along major highways. In Indonesia, the grid is less reliable, so the model is more focused on two-wheelers and small city cars that can charge overnight at home. BYD's Dolphin, which starts around 600,000 baht, about 17,000 dollars, is their bestseller. Luna: That's competitive with a Toyota Corolla. And it's not just price. Chinese EVs come with features that matter in this market — big screens, voice control in local languages, really good air conditioning because it's hot. They've localised the product. Lucas: They've done their homework. That's the contrast with Japanese automakers, who have dominated Southeast Asia for decades. Toyota and Honda have incredible dealer networks and reputations for reliability. But they've been slow to launch affordable EVs. The Toyota bZ4X is priced around 1.3 million baht in Thailand — double the Dolphin. So Chinese makers are exploiting a price gap and a product gap. For now. Luna: What does this mean for the yuan? Because we've talked before about how the yuan's trade-weighted value doesn't tell the full story. Lucas: It's relevant. When Chinese companies build factories abroad, they often finance them in yuan if they're using Chinese banks. And they pay Chinese suppliers in yuan. So the currency's international use expands even if the trade surplus narrows. The yuan has been fairly stable against the dollar — around 6.77 per dollar as of this month — but the volume of yuan-denominated trade with ASEAN is growing. Thailand's central bank and the People's Bank of China have a swap line. Indonesia has one too. More transactions are settling in yuan. Luna: So the narrative that China's exports are just about shipping surplus goods is outdated. The model now is export of capital, technology, and supply chains — not just products. Lucas: Exactly. And it has implications for how we think about trade balances. The US trade deficit with China in goods has narrowed slightly over the past year, but the deficit with ASEAN has widened. Some of that is just transshipment — Chinese components assembled in Vietnam and then shipped to the US. But a lot of it is genuine value creation in Thailand and Indonesia. The EV battery supply chain is a clear example. Luna: If you're finding these economic shifts as fascinating as we do, and you want to keep the show ad-free and independent, listeners can support us at buy me a coffee dot com slash fexingo. We don't run commercials, so this kind of listener support really does keep the lights on. Just a quick mention, then back to the story. Lucas: Appreciate that. So where does this leave legacy automakers? Japanese companies in particular have a lot at stake. Thailand produces over 1.8 million vehicles a year, mostly for export. If Chinese makers capture a significant share of that production base, Japanese firms lose not just market share but a key manufacturing hub. Luna: Toyota has announced it will invest 1.2 billion dollars in EV production in Thailand by 2027. But that's a year away from volume production. In the meantime, BYD is already selling cars. Lucas: First-mover advantage matters a lot in these markets. Once consumers get comfortable with a brand and the charging ecosystem builds around it, switching costs rise. Chinese EVs also benefit from the halo of consumer electronics brands like Huawei and Xiaomi, which have strong reputations in Southeast Asia. So the trust barrier is lower than it might have been ten years ago. Luna: One thing I'm watching is the used-car market. EVs depreciate fast, and Chinese brands in particular have been criticised for poor resale value. If the first wave of owners get burned, it could slow adoption. Lucas: That's a real risk. In China, some EVs lose 40 percent of their value in the first year. In Thailand, the market is too new to have good data. But BYD is addressing this by offering battery warranties of up to 8 years and buyback guarantees on some models. They're trying to reassure buyers that the total cost of ownership works out. And with fuel prices in Thailand relatively high, the operating cost advantage is real. Luna: Let's zoom out. What does this mean for the global auto industry over the next three to five years? Lucas: I think we're seeing the early stages of a geographic realignment. Chinese automakers are using Southeast Asia as a beachhead to build scale, reduce costs, and prove their technology in a market that's less politically sensitive than Europe or North America. If they succeed there, they'll have a stronger hand when trade frictions eventually ease — or when they find other routes into Western markets. Meanwhile, Japanese and European automakers have to decide whether to compete aggressively in ASEAN or cede ground and focus on premium segments. The next 18 months are critical. Luna: And for listeners who want to track this, what should they watch? Lucas: Two things. One: monthly EV sales data from Thailand and Indonesia, which the Thai Automotive Institute publishes. If Chinese brands hold above 50 percent market share in new EV sales for a full year, that's a tipping point. Two: announcements about battery gigafactories in the region. If Chinese battery makers start building capacity beyond what local assembly needs, they're planning to export — and that changes the trade flow again. Luna: So the story isn't just about cars. It's about batteries, geopolitics, and the long arc of Chinese industrial strategy. Lucas: It really is. And it's unfolding in factories that most people have never heard of, in places that are suddenly at the centre of the world's most important industry transition. That's the kind of story we'll keep following.