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Competition for EVs in Southeast Asia heats up

Competition for EVs in Southeast Asia heats up

24 Feb 2021

As the world turns its attention towards electric vehicles (EVs), countries with an established automotive ecosystem are vying for a slice of the action.

When we talk about the automotive industry in Southeast Asia, Thailand comes to mind. As the region’s hub for automotive manufacturing and assembly, the country has been aggressively promoting its automotive industry.

Thailand came up with an EV policy in 2017. To attract investments to the sector, it offers tax holidays for manufacturers and assemblers of hybrid EVs (HEVs), plug-in hybrid EVs (PHEVs) and battery EVs (BEVs).

The Board of Investment (BOI) of Thailand offers HEV producers tariff exemptions on imported machinery, while PHEV manufacturers enjoy corporate income tax exemption for three years, in addition to tariff exemptions on imported machinery.

PHEV manufacturers that make more than one key EV part are also entitled to an additional year of corporate income tax exemption per piece, subject to the combined tax exemptions not exceeding six years.

Meanwhile, BEV investments are entitled to five to eight years of corporate tax exemption. If the company manufactures more than one key EV part in the country, it is also entitled to another year of corporate income tax exemption per piece, subject to a combined maximum of 10 years.

Thailand also provides specific incentives for battery electric buses, whereby the producers are exempt from tariffs on imported machinery, while enjoying a three-year corporate income tax holiday.

They are eligible for an additional year of corporate income tax exemption if they produce more than one key part of battery electric buses in the country, with the combined tax exemption not exceeding six years.

The BOI also lists 10 important EV parts that will enjoy corporate income tax exemption for eight years if produced in the country. They include batteries, traction motors, battery management system, electric converters and inverters, portable electric vehicle chargers, electrical circuit breakers and EV smart charging systems.

Thailand also cut the excise tax for HEV and PHEV passenger cars to 5% from 25% based on carbon dioxide emissions, while BEVs will only be charged a 2% excise duty, down from 10%.

Known as the land of pickup trucks, Thailand also reduced excise duty on passenger pickup vehicles and double-cab pickup trucks that release less than 175g of CO2 to 23% and 10% respectively, from 25% and 12%.

Last November, the BOI announced an upgrade to the EV packages. For four-wheelers, qualified projects with a total investment package worth at least THB5 billion (RM675.5 million) will be granted three-year tax holidays for PHEVs and eight years for BEVs, which will be extended in case of R&D investments or expenditures.

As for qualified projects with a total investment of less than THB5 billion, Thailand offers three-year tax holidays, with the tax-holiday period for BEVs extended if the project meets set requirements, such as commencement of production by 2022, additional part production, minimum production of 10,000 units within three years and R&D investments or expenditures.

Thailand also offers a three-year corporate income tax exemption for the production of electric motorcycles, three-wheelers, buses and trucks. In addition, it offers eight-year tax exemptions for the production of electric-powered ships with less than 500 gross tonnage.

The BOI also added four EV parts to the list of critical parts, namely high voltage harness, reduction gears, battery cooling system and regenerative braking system. The production of these parts will receive eight-year corporate tax exemptions.

The country is also promoting local production of EV batteries, with the BOI approving additional incentives for both battery modules and cells by granting a 90% reduction of import duties for two years on raw or essential materials not available locally.

Up to November last year, the BOI had approved 26 projects producing EV of various types, including five HEVs, six PHEVs, 13 BEVs and two e-bus projects, with a combined production capacity of over 566,000 units per year.

Seven of those projects have started commercial operations, and are by the likes of Nissan, Honda and Toyota for HEVs, Mercedes-Benz and BMW for PHEVs, and FOMM and Takano for BEVs. The BOI also approved 14 projects to make critical parts for EVs, including 10 in battery production.

Meanwhile, Indonesia is emerging as a regional competitor to Thailand in automotive production. In 2019, it produced 1.29 million units of automobiles, while Thailand produced slightly more than two million units.

Indonesia started promoting EVs in 2019. The republic offers corporate income tax holidays for the manufacturing of EVs, batteries, electric motors, and electric power control units, ranging from five to 20 years depending on the value of investments.

For investment values of between IDR500 billion (RM144.3 million) and IDR1 trillion, corporate income tax exemptions will be given for five years, while investments of more than IDR30 trillion will enjoy a tax holiday of 20 years.

Indonesia also offers super deductible tax for companies that conduct R&D activities. The companies will be given a gross income tax deduction of 300% of the value of the R&D investments if they undertake it in Indonesia.

The largest economy in Southeast Asia has also revised its luxury goods tax structure, with a specific tax structure on EVs. PHEVs and BEVs enjoy 0% luxury tax, while a 2% luxury tax on low-cost green cars using ICE powertrains has been imposed.

Indonesia’s development of EVs and batteries must also be seen in the context of the government’s ban on the export of raw and unrefined minerals. It has the world’s largest reserves of nickel, one of the key raw materials for the production of lithium-ion batteries.

This is one of the reasons why battery companies such as China’s CATL and South Korea’s LG Chem Ltd are setting up production in Indonesia. LG Chem is planning to invest close to US$10 billion (RM40.4 billion) in the production of lithium-ion batteries in the country.

Indonesia is also trying to attract Tesla Inc to produce EVs in the country, leveraging on its 21 million tonnes of nickel reserves, as well as the growing supply chain of EV parts and components in the country.

So far, only Toyota has committed to producing EVs in Indonesia, with an investment of US$2 billion.

While Malaysia is still awaiting a specific policy on EV, the National Automotive Policy (NAP2020) does mention energy-efficient vehicles (EEV), which cover EVs.

Under NAP2020, Malaysia aims to develop critical components in the production of EVs between 2020 and 2024.

These critical components include the battery management system, thermal management system, battery pack and capacity. NAP2020 will also continue with the EEV policy, with the addition of Next Generation Vehicles (NxGV) — connected and autonomous vehicles.

However, under NAP2020, Malaysia retains a customised incentives policy. This policy looks at the value of investment, total production, technology transfer, R&D activities, critical component manufacturing, supply chain development, employment opportunities, total exports and many other factors to determine the level of incentives to be given to automakers.

The economic incentives for the production of EEVs include a 100% tax break for 10 years for corporate tax, maximum 10% tax break for import duties, and maximum 10% tax break for excise duties.

The local production of EEV-related parts enjoys a 50% tax break on excise duties, and a 100% tax break for 10 years for corporate tax for the production of electric motors, hybrid and EV batteries, battery management system, inverters, air-conditioning units and air compressors, among others.

Malaysia has been doing rather well in the EEV segment, with the production of these vehicles making up about 70% of the country’s total automotive production. In 2020, Malaysia produced 485,186 vehicles.

The country has also been receiving investments in the manufacturing of parts that are used in the production of EVs. In January this year, South Korea’s SK Nexilis announced a RM2.3 billion investment to produce copper coils in Kota Kinabalu Industrial Park.

Samsung SDI Energy Malaysia Sdn Bhd has long been producing lithium-ion batteries at its plant in Senawang, Negeri Sembilan. While this plant initially produced batteries for gadgets, the Malaysia Automotive, Robotics and IoT Institute (MARii) is working together with Samsung SDI to produce batteries for EVs.

It is hoped that the specific EV policy that the government is formulating will help Malaysia play catch up in EV investments and development in Southeast Asia.

Source: The Edge Markets

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