Asia’s emerging EV market set to boom

Asia’s rapid growth and urbanization leads to a high demand for energy. China alone consumes more than three times the total energy used in Europe. This complicates the region’s efforts to reach net-zero. But the risks of not doing so are great as Asia is at the forefront of climate challenges. The continent is home to 93 of the 100 most polluted cities and six of the top ten countries most affected by climate risks.

This is the result of the old growth model still prevalent throughout the region. What is needed is a new, sustainable growth model that is based on innovation, collaboration, sustainable investing, and green business building. The transport sector is one of the largest sources of greenhouse gas (GHG) emissions, so decarbonizing it will be pivotal to meeting the climate change challenge in Asia. McKinsey estimates that between 2018 and 2050, the sector could contribute around 14 percent of emissions abatement potential. Key to that will be the adoption of electric vehicles (EVs). Consumers in Asia are adopting EVs at different paces. Compared with mature markets, such as China and Japan, in emerging Asia, particularly India and ASEAN, EVs make up less than 1 percent of new-vehicle sales.

Building an EV ecosystem in emerging Asia is imperative to accelerate consumer uptake and help the region achieve its climate goals. This means radically building out the EV value chain by stimulating both the supply and demand. It also requires greater investment in partnerships, infrastructure, and technology development. Low-cost EV model distribution (with total cost of ownership (TCO) at or ahead of parity with internal combustion engines) needs to be accelerated. And all this needs to be integrated with financial and government incentives to encourage EV adoption and discourage the internal combustion engine, all within a supportive green investment framework.

?For emerging EV markets, we see three typical challenges:

• Parity in TCO, which is closely tied to the regulatory environment
• ?OEM model availability and supply chain readiness
• Critical mass in charging infrastructure

These challenges are pronounced in Asia’s emerging markets. TCO parity and supply chain readiness are the keys to unlocking consumer uptake. Many surveys suggest that Asian auto consumers’ top concern for adoption of EVs is TCO. Indeed, environmental friendliness is not a core motivator of early market adoption, but rather a secondary consideration behind cost, prestige, and technology.

Regulation will be key to driving TCO parity and consumer adoption. Take Indonesia, for example: a 25 percent reduction in import tax may take EV penetration to as much as 24 percent by 2035. If local manufacturing is enabled, this rate can go up to as high as 63 percent.

Infrastructure is also critical. Yet, many ASEAN markets lack sufficient charging stations to support the projected growth of EVs on the road to increase consumer confidence and overcome ‘range anxiety’. According to our modelling, ASEAN markets require 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.

Despite these challenges, we have identified four key signs that Asia’s EV market has the potential for rapid growth.

1. Adoption is strengthening: On its currently trajectory, the adoption rate in China will reach 60 percent, and China will represent more than 40 percent of total new EVs sold by 2030. Meanwhile, production of EVs in ASEAN looks set to rise to more than two million units annually by 2030.
2. Electric two-wheelers (E2W) are booming: India overtook China to become the largest market for electric two-wheelers in 2017. By 2030 the electrification rate of two-wheelers will be 36 percent in India and ASEAN, compared with less than 1 percent today.
3. EV regulations are ramping up: China, Japan, and South Korea have comprehensive policy frameworks to support EV adoption. In emerging Asia, Thailand has its 3030 EV Production Policy, which aims to reach 30 percent of domestic vehicle production by 2030; while Indonesia is banning all sales of fossil fuel motorcycles by 2040 and fossil fuel cars by 2050.
4. Asian brands are on the rise: Asian brands already account for a large share of the region’s consumer automotive spending, with similar trends emerging in EVs. Between 2017 and 2021, we calculate that 13 out of 20 top-selling EV brands came from Asia.

Asia’s EV market is on track for enormous growth, and for significant value creation across the value chain. However, capturing these opportunities and tackling the challenges requires thinking and working in ecosystems. EV ecosystems take several years to build, but conditions are shifting quickly and highlight Asia’s urgent need to participate in green business building. The opportunities for building green businesses, particularly in EVs, are more attractive than ever now. Asian players—both established firms and start-ups—should seize the moment and apply the lessons learned globally to build tomorrow’s EV ecosystem.