21st Century Business Herald trainee reporter Lai Zhentao reports from Guangzhou
In a race to compete for emerging markets, Tesla chose to give up when faced with difficulties.
A few days ago, according to reports from Thailand, Tesla has cancelled its plan to build an electric vehicle factory in Southeast Asia. The factory execution team originally sent to Thailand has withdrawn and is currently only considering building infrastructure such as charging piles locally. Tesla will not build new super factories in Thailand, Malaysia, Indonesia, or any other place except for China, the United States, and Germany.
Soon, this information was confirmed by senior officials in Malaysia. Malaysian Prime Minister Anwar responded that Tesla's decision to postpone its expansion plan in Malaysia is not due to poor performance in Malaysia, but rather due to fierce competition between Tesla and Chinese car companies. Malaysia's Minister of Investment, Trade and Industry, Zafri, also stated that Tesla's decision to halt its factory plans was due to the loss of market orders, making it difficult for them to compete with Chinese car companies. However, Tesla's withdrawal will not have a substantial impact on Malaysia.
In the territory of many car companies, Southeast Asia is a promising place with vast growth potential, and it can also "transit" into the European and American markets. However, in the crucial battle of layout in Southeast Asia, where did Tesla lose? How can Chinese car companies shake the inherent dominance of Japanese cars in Southeast Asia?
Unfinished blueprint for Southeast Asia
In March of this year, Tesla's Model Y was delivered for the first time in Malaysia, and the owner of the first new car in the country posted a commemorative message on social media. A few hours later, Rohan Patel, Senior Director of Public Policy and Business Development at Tesla, forwarded the tweet and wrote that Southeast Asia will undoubtedly become the main growth region for battery storage and electric vehicles in the coming years.
At that time, Musk was also expressing his optimism towards Southeast Asia through actions. Last July, Musk had a video call with Malaysian Prime Minister Anwar Ibrahim to discuss potential investments. Last September, Musk met with the then Thai Prime Minister Seta again, who revealed that Tesla and other American companies would invest at least $5 billion in Thailand. At the end of November last year, Tesla executives visited Thailand. In May of this year, Musk met with Indonesian President Joko Widodo and after the launch of "Starlink" in Indonesia, it was rumored that he would give a "gift package" to Tesla's battery factory.
On the one hand, the growth of new energy vehicles in Southeast Asia is remarkable. According to market research firm Counterpoint Research, in the second quarter of 2023, the total sales of electric vehicles in the Southeast Asian market surged by 894% year-on-year, the highest in the world. In the first quarter of this year, sales of fuel vehicles in Southeast Asia declined by 7%, but sales of electric vehicles doubled compared to the same period last year. Under the dazzling growth rate, Tesla naturally covets the cake of emerging markets in Southeast Asia.
On the other hand, in order to attract Tesla to set up factories and drive the transformation of the domestic automotive industry, several Southeast Asian countries have thrown away significant policy incentives. Indonesia has abundant battery resources such as nickel, manganese, and cobalt, and has offered Tesla preferential policies such as nickel mining concessions, tax reductions, and tram subsidies. Malaysia has always insisted on equal rights laws, which require local indigenous people to invest in foreign investment, except for Tesla, which can enter Malaysia as a wholly foreign-owned enterprise. Thailand has stated that it can provide 100% green energy to Tesla factories.
But when the outside world thought Tesla and Southeast Asia were heading in both directions, why did Musk still slam on the brakes and halt the factory project in the end?
Lower than expected sales may be the main reason. Chen Weiwei, a market analyst at Gaishi Automotive Research Institute, analyzed to 21st Century Business Herald reporters that the scale of the local pure electric market in Southeast Asia is still insufficient to support Tesla's enthusiasm for building factories locally. Currently, the production capacity of the Shanghai factory is still sufficient to cover the demand of Southeast Asian and Asia Pacific markets. Therefore, from an economic perspective, Tesla would rather bear the cost of tariffs and sell cars to Southeast Asia through imports rather than setting up factories locally. Also, due to Tesla's positioning as a mid to high end company with greater profit elasticity, the cost of tariffs is still within an acceptable range.
In 2022, Tesla and BYD's market share in Southeast Asia will be basically equal, both around 6%, and neither will be able to enter the top five electric vehicle brands in Southeast Asia. But in 2023, Tesla will be overtaken by BYD, and the gap between the two will continue to widen. According to Counterpoint's data, BYD's market share in the Southeast Asian electric vehicle market exceeded 26% in the second quarter of 2023, while Tesla's market share was approximately 8%. In the first quarter of this year, Tesla's market share shrank to 4%, and BYD has already secured 47% of the tram orders in Southeast Asia.
In addition to losing market share, Tesla also needs to consider the difficulty of setting up factories in Southeast Asia. Lin Shi, Secretary General of the China Europe Association for Intelligent Connected Vehicles, told 21st Century Business Herald reporters that Tesla's super factory in Shanghai can leverage local advantages such as complete industrial supporting facilities and sufficient talent reserves; However, in Southeast Asia, the electric vehicle industry chain is weak, workshop workers are relatively inefficient in production, there is a shortage of engineering talents, and there are many loopholes in local laws, regulations, and business environment, all of which are the disadvantages that easily discourage companies from setting up factories.
Racing on a different track, Japanese cars are lost
For a long time, with the advantages of going global early and strong localization, Japanese cars have turned the Southeast Asian market into their own "backyard". In 2023, Japanese cars will sell 1.93 million units in five Southeast Asian countries including Thailand, the Philippines, Singapore, Malaysia, and Indonesia, taking a 68.9% market share. In the most influential period around 2016, the market share of Japanese cars exceeded 80%.
So, whether it's Korean cars, German cars, Chinese car companies, or global electric car leader Tesla, to enter the Southeast Asian market, the first thing they need to face is the competition from Japanese cars.
Japanese cars have been going global since the 1960s and 1970s, and the entire dealer system has been established very well. Their distribution channels have penetrated extensively in Southeast Asia, "said Chen Weiwei. After Japanese cars occupied the market through a strong distribution network, the number of oil cars in Southeast Asia was large, so dealers can also obtain stable profit income through after-sales maintenance.
However, the dominant position of Japanese cars is shaking.
Indonesia has the largest automobile market in Southeast Asia. In 2023, Toyota, Daihatsu, and Honda, the three major Japanese brands, won 66% of the market share in Indonesia. From January to July this year, the market share of the three major automakers declined to 63%. The contraction of Japanese cars in Thailand is more pronounced, with Japanese car brands accounting for 86% of new car sales in Thailand in 2022. Last year, this number dropped to 75%, while the presence of BYD, Great Wall Motors, and SAIC in the local area continued to rise.
Honda announced in July this year that it will merge its two production bases in Thailand into one by 2025. Suzuki Motor also announced in June this year that it would stop producing cars in Thailand due to declining sales.
The slow transition to electrification is considered the main reason for the loss of growth momentum in Japanese cars. Thai Prime Minister Saita stated at the end of last year that Japanese manufacturers have fallen behind and if they do not accelerate their electrification transformation, they will fall behind in the industry. Sanshiro Fukao, Senior Researcher at Itochu Institute of Integrated Research, frankly stated that Thailand has become an export base for neighboring countries, and if Japanese car manufacturers do not take measures, their leading position in Southeast Asia may be changed.
In the race of changing lanes in new energy, Chinese car companies have secured a leading position in Southeast Asia. According to a report by Counterpoint Research, Chinese brands represented by BYD accounted for over 70% of electric vehicle sales in Southeast Asia in the first quarter of this year.
The highly cost-effective positioning of Chinese brand cars helps to penetrate the wide range of mid to low end markets in Southeast Asia. Chen Weiwei also added that various car companies are also very competitive in marketing. For example, when Japanese cars still use the 4S store model, Chinese car companies copied domestic practices and moved their car showrooms to supermarkets, offering various benefits such as charging stations, points, and license plate registration when selling cars.
At the same time, car companies are iterating their overseas models. Chen Weiwei said that in the past, China mainly entered the Southeast Asian market through the export of complete vehicles, but it was subject to many restrictions, such as high tariffs, quota restrictions, and the need to allow local Southeast Asian car brands to have a low price advantage. In recent years, car companies have begun to change their strategies. Chery, Guangzhou Automobile Group, Great Wall Motors and other car companies in Malaysia, Indonesia, Vietnam will seek local assembly partners to complete localized production through CKD (full assembly) or SKD (semi assembly) methods. Thailand has a more mature automotive industry foundation and the largest tram market in Southeast Asia. Therefore, in recent years, car companies such as BYD and Great Wall Motors have also begun to build full process vehicle manufacturing plants in Thailand to meet the local market, and then use Thailand as a base to export vehicles to Southeast Asian countries, Australia, New Zealand and other surrounding areas. Due to signing FTA agreements with many countries, Thailand can enjoy zero or low tariff treatment.
Potential 'headwinds'
Since the beginning of this year, the United States and the European Union have successively set high tariff barriers on Chinese cars, and emerging markets have become an important supporting force for domestic car exports. According to data from the General Administration of Customs of China, China's automobile exports to ASEAN increased by about 10% from January to May this year. Among them, exports to Vietnam increased by 22%, exports to Malaysia increased by 11%, and exports to Indonesia and Thailand also exceeded the same period last year.
Although Southeast Asia generally welcomes Chinese car companies to set up factories locally to drive the expansion of the automotive industry and the transformation to new energy, the road to going global will inevitably encounter the headwinds of local protectionism.
Chen Weiwei stated that among the major Southeast Asian automobile producing countries such as Thailand, Indonesia, and Malaysia, only Malaysia has two relatively strong local automobile brands, Proton and North Deer. Therefore, when facing external automobile companies, Malaysia has a more obvious tendency towards local protectionism. They hope that Chinese automobile companies will not only invest and build factories locally, but also provide corresponding technological output.
Chen Weiwei gave an example, just like more than a decade ago, when a certain independent car company first entered the Malaysian market, it found a local partner to build a KD factory. However, the then Malaysian government believed that the car company did not provide technical output, so it took restrictive measures, requiring that only about 40% of the cars produced locally be sold in Malaysia, and the remaining 60% must be exported abroad. Later on, the car company's sales in Malaysia were hit hard. After Geely acquired 49.9% of the shares in Proton, it transferred the patent rights of its models to Proton for OEM production, which was welcomed by Malaysia.
During the process of going abroad, in addition to easily kicking the steel plate of protectionism, replicating domestic models sometimes encounters setbacks.
In early July, the Thai Consumer Protection Association stated that it had received complaints from consumers that BYD dealer Leifu had significantly reduced the price of its cars, causing dissatisfaction among some car owners. Customers who had already placed orders were caught off guard by repeated discounts and promotions on the same model, as well as large cashback efforts. Currently, the Office of the Prime Minister of Thailand has instructed the country's consumer protection agency to initiate an investigation.
Lin Shi also pointed out that the crazy price war not only compresses profit margins to the extreme, affecting the survival and development of enterprises, but also affects the brand image of enterprises, which is easily perceived by overseas consumers as low-end brands and gradually loses their favorability.
At the same time, Lin Shi reminded that many Southeast Asian countries often offer highly attractive investment promotion policies to attract car companies to build factories, but there are also significant variables in whether the promises can be fulfilled after the project is implemented.
Now Chinese car companies have captured the vast majority of the Southeast Asian new energy vehicle market, but whether they can establish a foothold locally still depends on whether they can capture the market for fuel vehicles, because the proportion of new energy in the automotive market is not yet high, and fuel vehicles still dominate. "Chen Weiwei admitted that in order to truly reverse the deeply rooted position of Japanese cars in Southeast Asia, Chinese car companies still need to gradually build a complete system of parts matching, vehicle production capacity, distribution system, financial services, and after-sales market, which will take time step by step.