Asia's electric-vehicle market is poised for growth. Those who approach the challenges and opportunities with an ecosystem view can create significant value for their business -- and the global climate.
Regulators around the world have introduced ambitious goals for electric vehicles. These include the European Union's Fit for 55 plan to achieve carbon neutrality by 2050, and the US government's target for half of new automobiles sold in the United States in 2030 to be EVs.
In line with these goals, by 2030 we could expect EV adoption to reach 45% under current regulatory targets. This estimate includes battery electric vehicles (BEVs), plug-in hybrid electric vehicles (PHEVs), and fuel cell electric vehicles (FCEVs).
In Asian countries, consumers are adopting EVs at different paces. Compared with mature markets, such as China and Japan, emerging Asia -- particularly India and Asean -- is lagging. In 2021, EVs made up less than 1% of new vehicle sales in the region.
Building an EV ecosystem in emerging Asia is imperative for Asean countries to accelerate consumer uptake and achieve their climate goals. This means radically building out the EV value chain by stimulating both supply and demand.
Creating this ecosystem will require greater investment in partnerships, infrastructure and technology development, accelerated low-cost EV model distribution (with total cost of ownership at or ahead of parity with internal combustion engines), integrated finance, government incentives to encourage EV adoption and discourage internal combustion engine (ICE) vehicles, and a supporting green investment framework.
For emerging EV markets, we see three typical challenges:
- Parity in total cost of ownership (TCO), which is closely tied to the regulatory environment;
- OEM (original equipment manufacturer) model availability and supply chain readiness;
- Critical mass in charging infra- structure.
When looking at mature and greatly accelerating markets, we observe strong policy frameworks driving TCO parity; OEMs from incumbents to startups delivering a wide array of attractive models, including low-cost EV models with close feature parity to ICE equivalents at similar price points; and large-scale government and corporate investment ahead in charging infrastructure. Again, evidence points to the need to stimulate supply and demand simultaneously.
OWNERSHIP COST THE KEY
These challenges are pronounced in emerging Asia, where TCO parity and supply chain readiness are the keys to unlocking consumer uptake. McKinsey research across Asean suggests TCO remains the top concern, whereas environmental friendliness is a weaker demand driver of mass-market adoption behind cost, prestige and technology.
Without continued investment in low-cost EV models and distribution, we estimate that under the current "business as usual" distribution trajectory, TCO parity will not be reached by 2030 in many countries of Southeast Asia; this is especially likely for four-wheelers.
Regulation is key to drive TCO parity and consumer adoption. Take Indonesia, for example: our model predicts that a 25% reduction in import tax can take EV penetration to as much as 24% by 2035; if local manufacturing is enabled, this rate can go up to as high as 63%.
But if present trends continue, total cost of EV ownership will remain unfavourable in much of emerging Asia through 2030.
European EV imports still dominate EV distribution in emerging Asia, with less than 20 new low-cost models planned for local distribution. This is in stark contrast to more mature Asian markets where more than 200 low-cost EV models are in production or commercially available.
Infrastructure is also critical, yet many Asean markets lack sufficient charging stations to support the projected growth of EVs on the road or, as importantly, to increase consumer confidence and overcome "range anxiety".
According to McKinsey's modelling, Asean markets collectively will require an estimated 95,000 public AC and 40,000 DC charging points to support forecast numbers of registered EVs by 2030 -- 30 times greater than the number today.
Without government intervention, demand for EVs and charging infrastructure becomes a chicken-and-egg problem: private companies have diminished incentives to expand charging networks with high upfront cost and initial low utilisation, while consumers are reluctant to purchase EVs with limited charge point availability. While Thailand and the Philippines have started to offer incentives to expand EV infrastructure, considerable change is still required across Asian markets.
CAPTURING VALUE
Thinking in terms of an EV ecosystem, centred around shifting user preferences and behaviours, goes beyond the traditional auto industry frame of reference to involve a broader network of technology, energy and financial players that come together to deliver compelling value propositions and seamless, integrated experiences.
Technology giants will play an increasingly large role in this ecosystem. They can use the ecosystem to deepen customer relationships through connected experiences, provide omnichannel e-commerce and build sophisticated data models to predict customer needs, behaviours and preferences. For example, charge point operators are increasingly using data to drive loyalty programmes and subsidised charging through digital marketing.
Traditional players can accelerate through innovative partnerships, specifically with competitors-turned-collaborators for new technologies. They can enable joint R&D investments to share capital expenditures for infrastructure projects.
RESILIENT SUPPLY CHAINS
Ecosystem partnerships also improve supply chain resiliency. For example, the case for battery and component players includes long-term partnerships with materials producers to hedge against supply chain fluctuations.
As the interveners, governments can stress the big picture and tie EV targets to climate change targets. Mass consumer transport electrification is not only a necessary path to net zero but also can significantly boost national economies that specialise in key segments.
For example, Indonesia has the potential to become a major regional battery supplier, given its access to raw materials such as nickel and captive demand, and Australia has clear opportunities in minerals and energy exports (among others) that would add over A$75 billion to the Australian economy each year through 2035.
EV ecosystems may take several years to build, but conditions are shifting quickly, and there is a real and urgent need for Asia to participate in green business building. The opportunities for building green businesses, particularly in EV, are more attractive than ever.
Asian players -- both established firms and startups -- should seize the moment and apply the lessons learned globally to build tomorrow's EV ecosystem.
