Driving new opportunities in Asia’s auto sector

China has been setting the pace, with EVs forecast to make up around 45% of new vehicle sales this year.³ EV makers are also increasingly focused on South and Southeast Asia, where a growing middle class is coming of age as government regulation, fiscal policy, and ambitions to move up the manufacturing value chain are converging to create a sweet spot for the EV market. A recent EY report estimates the average compound annual growth rate of the EV market in the six biggest ASEAN economies at 16-39% between 2021 and 2035, with annual sales reaching USD100 billion by 2035.⁴

This rapid growth is an opportunity for developing markets to leapfrog legacy technology. The global fleet of passenger cars and light commercial vehicles is set to more than double to 2.5 billion by 2050, with most of the growth coming from developing markets.⁵

Asia’s diverse range of policy frameworks, infrastructure readiness and uneven wealth distribution mean the electrification of mobility will follow different paths in individual markets. Two- and three-wheelers and public transport will continue to lead in some markets; private cars and commercial fleets in others. Vietnam, for example, is the world’s second-largest market for electric two-wheelers (E2Ws), according to HSBC Global Research, which projects annual combined E2Ws and electric car sales could rise from less than one million in 2024 to over 2.5 million by 2036.⁶

For businesses looking to pivot towards the EV sector, as well as those looking to enter the market, the opportunity encompasses all aspects of the EV revolution, not only all along the innovation, supply chain and distribution networks, but also in ancillary sectors, such as software, automation, charging, and grid infrastructure or ride share and rider experience applications.

Sustainability will be a key consideration for businesses at every part of the value chain. While battery-only EVs have a lower overall emissions profile than hybrid or combustion-engine models,⁷ manufacturers face mounting pressure to reduce the environmental impact of their production. EVs require far more copper, lithium, nickel, and graphite than conventional cars,⁸ and the extraction of these critical battery minerals can have a high social and environmental toll. Upstream businesses that can demonstrate a strong focus on sustainability and lower carbon intensity may be best placed to serve the growing EV market.

"As incomes rise across Asia Pacific over the coming decades, car ownership is set to increase, with Asia forecasted to account for over 60% of the 115m EVs sold worldwide over the next 5 years.⁹ The falling cost of production of electric vehicles¹⁰ gives the region an opportunity to electrify its fleet, reducing carbon emissions and improving air quality in congested cities.¹¹ The increased sale and production of electric vehicles may present many opportunities across the value chain, including battery manufacturing, the roll-out of charging infrastructure, and financing solutions for consumers.¹²^,¹³"

Brian Peers | Global Head of Sustainable Transport & Fuels, HSBC

Businesses could look at different ways to tap into the trend of EV adoption in each of Asia’s markets, driven by wide variations in consumer enthusiasm, as well as differing policy agendas and subsidy regimes.

Indonesia, which boasts ample reserves of battery minerals such as nickel, is building an integrated EV supply chain, from mining and refining to final assembly: its first EV battery factory, built by a Korean-Indonesian consortium, is due to begin operation in June.¹⁴

Thailand, meanwhile, is well placed to ramp up EV production as it has the most advanced automotive manufacturing industry in South and Southeast Asia,¹⁵ with 1,820 companies catering to over 35 automobile and motorcycle brands.¹⁶ Net exports of vehicles and parts contributed around 8% of GDP in 2022, according to HSBC Global Research.¹⁷

India, with EV penetration at a lower rate than other Asian markets, may offer a compelling long-term opportunity. (See Table.) The government has set ambitious targets of 30% of private car sales and 80% of motorcycles to be electric by 2030.¹⁸ EV manufacturers, including fast-growing Asian brands, are building local facilities to access the Indian consumer base. Vietnamese market leader VinFast, for example, is investing USD500 million in a new factory in Tamil Nadu.¹⁹

Asia still has a number of hurdles to clear before EVs gain mass adoption. Pricing is a particular barrier in emerging economies as most people in Southeast Asia buy their vehicles secondhand²⁰ and, even with EVs’ rapid depreciation rates,²¹ today’s electric cars are often perceived to be too expensive.²²

Access to finance is another barrier. With battery packs making up a significant share of the cost of EVs, innovative financial solutions have the potential to accelerate sales further, such as leasing the batteries separately from the purchase of the actual vehicle.²³

Another key to mass adoption is infrastructure. According to the latest IEA forecast, a twentyfold jump in global charging capacity will be required by 2035 to meet current government targets.²⁴ Considerable infrastructure development will be needed to prepare for mass market adoption, presenting a considerable challenge – as well as an opportunity for investment and engagement from businesses.²⁵

Sourcing, distribution, and sales of used EVs will also be a business opportunity, while the recycling of batteries is another growth area well-suited to emerging Asian markets.²⁶

• Manufacturing: As automakers build local supply chains and regional manufacturing nodes, early movers stand to gain from providing intermediate goods and services, such as components and manufacturing machinery. Demand for power supply equipment, for example, is a particular growth area.²⁷
• Technology: Consumer demand for specialisation and customisation to local tastes creates opportunities for technology and software providers. Southeast Asia’s tech savvy population already has multiple use cases and success stories for consumer-facing software applications, such as US-listed ride-sharing platform Grab and Indonesia’s GoTo Gojek Tokopedia, which is investing in an electric scooter factory to build an all-electric fleet by 2030.²⁸
• Finance: The EV transition will require massive investment in charging and infrastructure, raw materials processing, and power grids, alongside manufacturing capacity, logistics, and workforce training. Manufacturers who are able to make the switch to EVs may be able to benefit from access to sustainable financing – as China’s Geely Auto, one of China’s largest vehicle manufacturers, demonstrated when it established a sustainable financing framework in 2021.²⁹ This framework sets out how Geely Auto can get financing in different types of transactions, including use of proceeds rules which align with the United Nations Sustainable Development Goals.³⁰ From this, the company was issued a USD400 million sustainable club loan (i.e., a loan provided by HSBC and other banks) which will be used to support research and development of vehicles in the new energy segment.³¹
• Infrastructure: Charging infrastructure and electricity grids must also be upgraded to cope with increased demand for electricity and the growing use of renewable generation. Several global automakers have committed to use only renewable energy by 2050,³² bolstering demand for clean power to support EV manufacturing and supporting the investment case for grid decarbonisation. In countries with advanced solar and wind capacity, EV infrastructure is an early-stage opportunity: in Vietnam, for example, over USD12 billion is needed for charge-points alone.³³

The transition to electric mobility holds enormous potential across Asia for businesses that are able to navigate the intricacies of the region’s individual markets. It also comes with new challenges, including the management of complex supply chains, waste materials, and the environmental impact of key components. As in every sector, expanding across borders requires a deep understanding of local customs, regulations, and finance.

HSBC is working to help automotive businesses transition to zero-emissions vehicles and unlock new opportunities across the electric vehicle value chain.³⁴ For example, we have been involved in helping PT Blue Bird Tbk and Subsidiaries (“Bluebird”), a leading taxi fleet in Indonesia, with an IDR350 billion Term Loan, including an IDR50 billion Green Term Loan which was dedicated to acquiring EVs. Bluebird is aiming to reduce its CO2 emissions by 50% in 2030 and having 10% of its taxi fleet made up of EVs by 2030.³⁵ And to facilitate EV adoption, we are also looking to support the build out of new charging infrastructure and exploring new EV financing solutions for business and retail customers.³⁶

With our roots in Asia for over 150 years, we look forward to continuing to support our clients and moving towards a more sustainable economy.

Today we finance a number of industries that significantly contribute to greenhouse gas emissions. We have a strategy to help our customers to reduce their emissions and to reduce our own. For more information visit www.hsbc.com/sustainability.