EV Makers To Bet $20 Billion On South And Southeast Asia, Says Report

HONG KONG: The building of an electric car industry in South and Southeast Asia (SSEA) will be expensive. It will involve execution risk typical for cross-border expenditure, where entities will try to anticipate shifting policies over long investment horizons.

And yet, we anticipate the creation of the EV sector in SSEA will be somewhat credit positive, particularly for the Chinese car firms.

This is according to a report titled “EV Makers To Bet $20 Billion On South And Southeast Asia.”

“By our estimate, rated carmakers will be spending more than US$20 billion building electric vehicle [EV] production in South and Southeast Asia for the next few years. The expansion will likely enhance the business strength of some rated entities,” said S&P Global Ratings credit analyst Claire Yuan.

For example, production in SSEA will help Chinese carmakers diversify their operations and customer base, while competition is intense at home. It also provides a potential means of exporting to markets such as Europe, which impose steep tariffs on direct China-originated battery-EV imports.

The main outlier will be Japanese firms, which face a gradual slippage in market share, as EVs erode their dominance in light-vehicle sales over the coming decade.

That said, Japane se carmakers should maintain a leading market position over the coming few years thanks to the strength of their internal combustion engine (ICE) and fuel-efficient hybrid vehicles. ICE and hybrids will account for most light-vehicle sales in SSEA.

Japanese carmakers such as Toyota Motor Corp. and Honda Motor Co. Ltd. are also leveraging their advantage in hybrid vehicles. Hybrids are a transition vehicle for consumers wanting the fuel savings but may be concerned about getting stranded, given the lack of charging infrastructure in the region.

Korean Producers Invest To Expand in India: Korean carmakers are in the middle. They are investing in the region to seize the growth potential. Such companies have increased their production capacity in SSEA and will leverage their ability to quickly shift between EVs and hybrid models based on market appetite. The investment in the region will likely help entities offset their weak position in China.

India is increasingly important to the Korean entities Hyundai Motor Co. (HMC) and Kia Corp.,
which combined rank as the second-largest carmaker in the country. The market accounted for
about 12% of the group’s global sales volume in 2023. Hyundai also acquired a plant in India from
General Motors Co. in 2023; with a launch of operations set for 2025.

Hyundai plans to continue investing in India, including in local EV production. It will start with its
first fully electric model made in the country, launching in January 2025. The company recently
completed an initial public offering in India, and part of proceeds will be used to further their
growth and improve its product offerings in that market.

Korean automakers are also making sizable investments in Indonesia. They built an EV production
base there, including a joint venture with a battery-cell maker LG Energy Solution Ltd. The
Indonesian plants will serve as a EV production hub for the broader SSEA market. The strategic
importance of SSEA for Hyundai-Kia will increase–as a market and as a production center

“While firms will be incurring capital expenditure [capex] to build EV factories in the region, the financial burden will be spread over years, and typically shared with partners,” said Ms. Yuan. “Among rated entities building factories in SSEA, their investments will comprise less than 15% of the firms’ combined total capex over next few years, we estimate.”

Indian Producers Focus To Maximize Their Local Advantages: 

Tata Motors Ltd. sells the most EVs in India. It aims to maintain its top slot in the segment through
model launches, even as competition grows briskly. Already India’s third-largest carmaker by
sales, the company targets an 18%-20% share of the passenger-vehicle market by fiscal 2030.

“We believe Tata Motors has sufficient financial headroom in its credit metrics to undertake its EV
investments. In September 2024, the firm announced plans to invest about US$1 billion in a new
EV plant in the south Indian state of Tamil Nadu. The company raised about US$1 billion from the
asset managerTPGCapitalin2021foritsEVinvestments.” the report says.

Its parent entity, Tata Sons Pte. Ltd., has also announced an investment in a lithium-ion battery
plant in the northwestern state of Gujarat, with an initial capacity of 20 gigawatt hours. The plant
will support more development of the EV supply chain in that region.

This report does not constitute a rating action.