Indonesia and Thailand Add Local Production Requirements to BEV Support Policy… Promote Domestic Industry Development
There is room for Korea to make up for its disadvantageous tariff requirements compared to China and Japan.

Recently, there has been an increase in the possibility that the ASEAN region will grow into a global automobile production base, and an analysis has shown that Indonesia and Thailand are advantageous in terms of investment and manufacturing conditions as leading countries in the battery electric vehicle (BEV) industry.

On the 19th, the Korea Automobile Research Institute (hereinafter referred to as KARI) published an industry trend Vol. 1 on the topic of ‘ASEAN Automobile Market Trends and Implications.’ 107 was distributed.

Hanjayeon said that the BEV transition will create a new opportunity for Korean and Chinese automakers to aggressively advance into the ASEAN region, as the ASEAN auto market has been virtually monopolized by Japanese automakers.

According to Hanjayun's analysis, Indonesia and Thailand are likely to be the leaders in the BEV industry among ASEAN member countries due to their investment and manufacturing conditions.

Hanjaeyeon said that while local production requirements in Indonesia and Thailand are a burden to companies, they can also serve as an opportunity to make up for the unfavorable tariff requirements for Korea compared to its competitors, China and Japan.

The ASEAN passenger car tariff rate for our country is 40%, which is higher than China's 0% and Japan's 20%, which presents a disadvantage to exports.

However, as the Regional Comprehensive Economic Partnership (RCEP) comes into effect in 2022 and tariff rates on some items are reduced, a positive impact on our country's exports is expected.

On the other hand, as the BEV industry support policy imposes a local production requirement, Korean, Chinese, and Japanese automakers are all forced to produce locally, putting them on the same level of competition.

In order to become a leader in the ASEAN BEV industry, Indonesia and Thailand are expected to add local production requirements, and automobile manufacturers in each country, including Korea, are expected to actively pursue local production.

Hyundai Motor Group has been producing BEVs in Indonesia and selling them in the ASEAN market since 2022, and recently established a production and sales subsidiary in Thailand to begin direct sales, moving away from the existing consignment sales system, and is also considering producing BEVs in Thailand.

Chinese carmaker BYD has decided to make a large-scale investment to produce 150,000 BEVs in Thailand starting in 2024, while Japanese carmaker ArayZ is planning to produce BEVs in Thailand.It is expected that local production and sales will begin within 2025 after initial exports.

Indonesia is expected to continue to attract large-scale investment from foreign companies as it has abundant reserves of key minerals (such as nickel) that are essential raw materials for BEV battery manufacturing. Its strengths include its large domestic market size and high potential growth rate.

Thailand is considered a stronghold of automobile production and export base, with its network of parts suppliers, human resources, and supply chain accumulated over time.

However, Thailand has relative weaknesses compared to Indonesia, such as higher wages, lower population growth rate, and the burden of converting existing internal combustion engine vehicles.

Hanjayun predicted that the BEV industry in ASEAN will be divided by vehicle type and segment rather than being dominated by one country, with preferred vehicle types being minivans in Indonesia and pickup trucks in Thailand.

Indonesia and Thailand are promoting domestic industry development by adding local production requirements to their BEV industry support policies.

Indonesia introduced a ban on nickel ore exports in 2020 to ensure that battery manufacturing and processing are carried out domestically, and exempted BEVs that meet localization requirements from the luxury tax (15%).

Also, according to Reuters, Indonesia is planning to introduce a BEV purchase subsidy system. Although the timing of introduction and total budget size have not been determined, it plans to pay 80 million rupiah (about 5,131 dollars) to BEVs produced by manufacturers with factories in the country.

Thailand has added requirements for the use of domestically produced batteries and parts when providing BEV purchase subsidies and applying tax benefits to BEV and parts companies.

Thailand is the only ASEAN member country to operate a BEV purchase subsidy system starting in 2022, and is adding requirements for the use of domestically produced batteries and parts to support battery manufacturing. We aim to build an industrial base.

In September 2022, Thailand's Ministry of Finance announced that six Chinese companies (including BYD, Great Wall Motors (GWM), NETA (under Hozon), and MG (under SAIC)) and two to three Japanese companies (including TOYOTA) are preparing to apply for the BEV purchase subsidy system.

In addition, recognizing that Korea lacks domestic competitiveness compared to Indonesia, which has a large amount of key minerals, the government plans to provide extensive tax benefits to BEV and parts manufacturers, but impose penalties for those that do not meet local production requirements.