Is the future of ASEAN vehicle production in the hands of Chinese and Korean automakers?

ASEAN Light Vehicle production grew from 2.06 million to 4.11 million units in the 2009-2019 decade. This was driven largely by a huge increase in output of Japanese models, from 1.57 million units in 2009 to 3.30 million units ten years later. Other OEMs also posted growth in the period, albeit at far lower volumes when compared with their Japanese counterparts, from 488,000 units to the 810,000 units. This pushed market share for the Japanese automakers from 76% of total ASEAN Light Vehicle production in 2009 to 80% in 2019.

The key factors behind this growth were the increase in overall Light Vehicle demand in the region, coupled with various government incentive policies, most notably Thailand’s eco-car scheme and Indonesia’s Low Cost Green Car (LCGC) programme. The only brands able to qualify for both schemes were Japanese as they were better able to comply with the stringent requirements. These include minimum production levels of 100,000 units/year under the Thai scheme, and a price ceiling of ₹95 million (US$9,505) under the Indonesian programme (at 2014 prices) – note that LCGC model prices fluctuate according to economic indicators.

The minimum production requirement under Thailand’s eco-car scheme boosted export volumes of Sub-Compact Cars, while Indonesia’s LCGC programme took up a significant proportion of the country’s overall Light Vehicle market, accounting for around 23% of total sales in 2019, and also gave rise to a whole new segment. So, it comes as little surprise that increased capacity and production volumes from the Japanese automakers drove much of the growth in ASEAN Light Vehicle output over the last decade, with a significant impetus from government incentive measures.

As we look ahead, however, we anticipate a change. In future years, Chinese and Korean automakers are set to become the key growth drivers of production in the ASEAN region for the following reasons:

• Most of the leading Japanese OEMs already have operational plants in the region, with excess capacity, following substantial investments over the last decade.
• Chinese OEMs have been entering the ASEAN market and boosting investments. Notable among them are MG and Great Wall in Thailand, and Wuling and Dongfeng in Indonesia. All four intend to use their new ASEAN plants as export hubs.
• Hyundai’s newly built factory in Indonesia is due to begin operations in 2021. As well as producing vehicles for the ASEAN market, the plant will also export vehicles to the Middle East and across the ASEAN region.
• Regional governments are now targeting non-Japanese automakers, hoping to attract new investment. For instance, the Thai government has reopened its electrified vehicle incentive scheme to welcome Chinese OEM Great Wall, despite the official closure of the scheme in 2018. In a similar move, the Indonesian government has allowed Korean OEM Hyundai to participate in its tax incentive programme.