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While engaging in fierce competition in terms of pricing and configurations in China, automakers have also expanded their footprint overseas.

According to media reports, Cheng Jinkui, the president of Great Wall Motors' ASEAN region, said in an interview that the company plans to build new factories in Malaysia, Indonesia, and Vietnam in the next two years.

Cheng Jinkui revealed that Great Wall Motors is cooperating with Malaysia's EP Manufacturing to seek product assembly in Malacca state, with production expected to commence as early as July. The assembly plant in Indonesia is expected to start production in July or August this year. According to the plan, the Vietnam plant will achieve local assembly next year. Cheng Jinkui further disclosed that the company believes its investment in the ASEAN region is still in its early stages and expects to make more progress.

It is worth mentioning that on May 31, Great Wall Motors held the "Winning Overseas" international organization and institutional reform conference, reorganizing and splitting into ten major theaters. Each regional business unit directly connects with the market and users, unifying the allocation of research, production, supply, sales, and service resources on a regional basis.

Behind this is the increasing importance of overseas markets. According to official data from Great Wall Motors, from January to June 2024, the company sold a cumulative total of 559,700 vehicles, representing a year-on-year increase of 7.79%; of which, overseas sales reached 201,500 vehicles, representing a year-on-year increase of 62.59%. Based on these figures, overseas sales account for approximately 36% of total sales, and their growth rate is higher than the overall growth rate, making overseas markets a driving force for Great Wall Motors' sales growth.

In fact, entering 2024, in addition to Great Wall Motors, automakers such as Zeekr, GAC AION, and BYD are also increasing their investments in Southeast Asia. In this market, some automakers have been present for many years, while others are new faces. They all want to reap the benefits of the electric vehicle transformation in Southeast Asia, but achieving this goal is not easy.

01

Must Expand Overseas

According to data from the General Administration of Customs, in 2023, China exported 5.221 million vehicles, an increase of 57.4% year-on-year. China's automobile exports successfully surpassed Japan, making it the world's largest automobile exporter. Among them, new energy vehicle exports reached 1.773 million, an increase of 67.1% year-on-year.

From January to May 2024, China exported 2.45 million automobiles (including chassis), representing a year-on-year increase of 29.8%; of which, new energy vehicle exports reached 939,200, an increase of 44.9% year-on-year. In contrast, domestic growth has slowed down. According to data from the China Association of Automobile Manufacturers, from January to May 2024, domestic automobile sales reached 9.187 million, representing a year-on-year increase of 3.7%.

Expanding overseas has become an important way for automakers to find future growth, but overseas conditions are changing rapidly.

In May 2024, the United States announced that it would further increase tariffs on Chinese goods on top of the existing 301 tariffs. Among them, the tariff on electric vehicles was raised from 25% to 100%, and the tariff on battery components was raised from 7.5% to 25%. In June, the European Union issued a preliminary ruling on the anti-subsidy investigation into Chinese electric vehicles, proposing to impose temporary anti-subsidy tariffs ranging from 17.4% to 38.1% on electric vehicles imported from China, with tariffs of 17.4%, 20%, and 38.1% imposed on BYD, Geely Automobile, and SAIC Motor respectively.

On June 24, the Canadian Ministry of Finance announced that it would start a 30-day public consultation period from July 2 to discuss a series of potential measures targeting the import of Chinese electric vehicles, including imposing additional taxes under Article 53 of Canada's Customs Tariff Act, and adjusting other potential solutions such as the federal zero-emission vehicle incentive program and investment restrictions. At the same time, the Canadian government wants to understand whether additional actions are needed, such as further policy guidance, supervision, or restrictions on transactions and investments from China in Canada's electric vehicle supply chain.

Under the increasing tariff barriers, building factories for local production is the only way to overcome this obstacle, and the trend has shifted from exporting products to exporting production capacity.

In Southeast Asia, Chinese automakers face more favorable policies.

Under the multilateral free trade agreements signed with ASEAN countries, including the "China-ASEAN Comprehensive Economic Cooperation Framework Agreement" and the "Regional Comprehensive Economic Partnership Agreement (RCEP)," countries like the Philippines and Malaysia provide tariff reductions or zero-tariff policies for cars produced in China.

In addition, in 2018, Thailand began implementing a zero-tariff policy on imported electric vehicles from China, which was later adjusted to provide corresponding tariff reductions for imported pure electric vehicles of different prices. Malaysia implemented an electric vehicle tax reduction policy starting in January 2022, including exempting 100% of electric vehicle import taxes and consumption taxes, as well as road taxes on imported electric vehicle complete vehicles before December 31, 2023. Indonesia also relaxed its electric vehicle import tax policy at the end of 2023.

However, to promote the development of the local automotive industry chain, under preferential policies, many Southeast Asian countries have also begun to have the demand for factory construction.

At the end of 2023, based on the EV3.0 policy, Thailand introduced the EV3.5 policy, stipulating that foreign electric vehicle manufacturers importing pure electric vehicles into Thailand in 2024 and 2025 will receive a 40% reduction in import tariffs and a 2% reduction in consumption taxes, as well as market subsidies.

However, to enjoy policy incentives, automakers must produce electric vehicles in Thailand in a 1:2 ratio to compensate for the import of complete electric vehicles (CBU) by 2026 (for every imported vehicle, two must be produced in Thailand as compensation), and this ratio will increase to 1:3 in 2027 (for every imported vehicle, three must be produced in Thailand as compensation).

Countries like Indonesia and Malaysia have also introduced similar measures to attract automakers to build factories and promote the development of their new energy automotive industry chain.

02

"Frantically" Building Factories

As one of the earliest Chinese automakers to expand into Southeast Asia, Great Wall Motors is increasing its local production capacity.

In November 2020, Great Wall Motors acquired General Motors' (GM) Rayong plant in Thailand, becoming the first fully-owned Chinese automotive brand to enter Thailand. According to the information, after the acquisition, Great Wall Motors transformed the plant to enable co-line production of three new energy vehicle models (HEV, PHEV, and BEV) and traditional fuel vehicle models.

After the transformation, the plant became Great Wall Motors' second overseas full-process vehicle manufacturing plant and its first overseas new energy vehicle production plant. Its initial production capacity is 80,000 vehicles, of which 60% are supplied to the Thai market and 40% are exported.

Currently, models such as the Haval H6 HEV and PHEV, Tank 300 HEV, Tank 500 HEV, and Ora Good Cat have achieved local production in Thailand. At the same time, data shows that Great Wall Motors' localization rate of parts and components in the Thai market has exceeded 50%.

After achieving localized production in Thailand, Great Wall Motors has also begun to deploy production capacity in other Southeast Asian countries.

In January 2024, Great Wall Motors officially completed the signing of a CKD assembly cooperation agreement with Malaysia's large manufacturing listed group company, EP Manufacturing Berhad (EPMB), which will initially focus on assembling and producing the Haval H6 HEV and Haval JOLION HEV.

According to the information, CKD refers to the import or introduction of automobiles in a completely disassembled state. The various components of the vehicle (such as the body, engine, transmission system, etc.) are produced and disassembled into parts in the manufacturing country and then transported to the assembly plant in the target market for assembly and final commissioning. In contrast, a full-process vehicle manufacturing plant has a complete production line from parts production to vehicle assembly, including processes such as stamping, welding, painting, and final assembly. Precisely because of this, the investment in CKD assembly plants is also lower.

In June, Great Wall Motors revealed that Indonesia and Vietnam will also achieve localized production through assembly. In fact, in addition to Great Wall Motors, automakers such as NIO, Changan Automobile, Chery Automobile, and Wuling have also adopted the CKD model to achieve localized production in Southeast Asia.

It is worth mentioning that on July 4, BYD held a ceremony in Rayong, Thailand, marking the completion of its Thai factory and the off-line of its 8 millionth new energy vehicle. According to the information, BYD's Thai factory took only 16 months from construction to production, with an annual production capacity of approximately 150,000 vehicles, including the four major processes of vehicle manufacturing and parts factories. At the same time, BYD also became the first automaker in the world to achieve the off-line milestone of the 8 millionth new energy vehicle, with the Dolphin model making its debut at the Thai factory.

In January 2024, GAC AION's Thai factory project officially commenced, making it GAC AION's first overseas production base with a designed annual production capacity of 50,000 units. In April, GAC AION announced the signing of a strategic cooperation agreement with Indonesia's INDOMOBIL Group, aiming to conduct comprehensive strategic cooperation in areas such as vehicle manufacturing, automotive sales services and finance, energy ecology, mobility markets, and upstream and downstream industries.

In June, Zeekr announced the formal signing of cooperation agreements with PT Premium Auto Prima in Indonesia and Sentinel Automotive Sdn.Bhd. in Malaysia, entering the Indonesian and Malaysian markets.

Behind the deepening of the industrial chain, Chinese automotive brands are gradually attracting the attention of Southeast Asian consumers.

03

Pure Electric Vehicles as the Dominant Force

As the largest automobile producer in Southeast Asia, China's automakers' layout in Thailand is also a microcosm of most regions in Southeast Asia. According to the KASIKORN Research Center, currently, Chinese automotive brands in the Thai market are mainly dominated by battery electric vehicles (BEV), and it is expected to expand to other models in the future.

Taking Thailand as an example, according to autolife data, from January to May 2024, Thailand sold 31,900 pure electric vehicles. Among them, BYD Dolphin, BYD Seal, NIO V, BYD Atto3 (Yuan PLUS overseas version), MG 4 EV, and Changan DEEPAL S07 (Shenlan S7 overseas version) sold 5,640, 4,021, 3,551, 3,139, 2,831 units respectively, occupying the top five positions among pure electric models. Great Wall Motors' Ora Good Cat sold 813 units, ranking 10th.

In fact, among the top 10, only Tesla Model 3, a non-Chinese automaker model, appeared, selling 1,511 units and ranking 8th.

However, in terms of the overall automotive market in Thailand, the proportion of pure electric vehicles is still relatively small. According to the Thai Electric Vehicle Association, as of February 29, 2024, the cumulative registration of BEVs (battery electric vehicles) in Thailand reached 107,300 units; HEVs (hybrid electric vehicles) reached 360,400 units, and HPEVs (plug-in hybrid electric vehicles) reached 55,800 units. Meanwhile, autolife data shows that in 2023, the cumulative sales of pure electric vehicles in Thailand exceeded 76,300 units, and the proportion of pure electric vehicle sales rose to 12%.

In addition, the Southeast Asian market is still dominated by Japanese automakers. Data shows that in 2023, Toyota, Daihatsu, Honda, Suzuki, and Mitsubishi dominated the top five in Indonesian car sales, with a combined market share of 81.8%. In Thailand, Toyota, Honda, Isuzu, and Mitsubishi also rank in the top five, with a combined market share of around 70%. BYD, MG, and NIO rank 6th, 7th, and 10th respectively, with a combined market share of 9.2%.

It can be seen that Chinese automakers have gradually taken away part of the market from Japanese automakers.

At the same time, under the strong promotion of the electric vehicle transformation in Southeast Asia, Japanese automakers have also taken action. In December 2023, the Thai government stated that Toyota, Honda, Isuzu, and Mitsubishi are expected to invest US$4.3 billion in Thailand over the next five years to produce electric vehicles.

In Indonesia, Toyota plans to invest IDR 27.1 trillion (approximately US$1.8 billion) in the next five years to produce electric vehicles. Mitsubishi Motors announced an additional investment of US$666 million over the next three years to expand production and develop hybrid and electric vehicles.

Currently, in Southeast Asia, especially in regions where Japanese automakers have a profound influence, and with Japanese automakers accelerating their layout in new energy, it is not easy for Chinese automakers to seize the market. However, optimistically speaking, although Japanese cars occupy the vast majority of the Southeast Asian market, Chinese automakers have already made a breakthrough. With more and more automakers investing in building factories with real money, the overseas expansion of Chinese cars will also usher in a new chapter.

Author | Fanie

Source | WhaleDimension (ID: WhaleDimension)

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