Chinese electric vehicle (EV) makers are setting their sights on Southeast Asia, as tariffs in Europe and the United States restrict their market access. The US imposed 100% tariffs on Chinese EVs in May, followed by the European Union imposing up to 38% tariffs on three major Chinese EV manufacturers—SAIC, Geely, and BYD—starting July 4. These measures stem from concerns over Beijing’s subsidies, which the EU claims undermine fair competition.

Facing limited opportunities in Western markets, Chinese carmakers are pivoting to Southeast Asia, where the market for EVs is rapidly growing and expected to reach a value of $100 billion by 2035. Gary Ng, a senior economist at Natixis Corporate and Investment Bank, highlights the region’s relatively neutral geopolitical stance as a key factor in this shift. “Southeast Asia’s relatively neutral geopolitical stance provides a window of opportunities for companies from China to expand,” he told South China Morning Post.

Strategic investments and market potential

China’s major EV manufacturers, including BYD, Xpeng, and Geely, are investing heavily in Indonesia, Thailand, and Malaysia. These investments are aimed at capturing a significant share of Southeast Asia’s emerging market for sustainable vehicles. According to a report by EY-Parthenon, the market for EVs in Southeast Asia is projected to grow from $2 billion in 2021 to between $80 billion and $100 billion by 2035. Indonesia is expected to be the largest market in the region, with estimated sales of 4.5 million units by 2035.

Chinese EV makers are already making strides in these markets. BYD plans to build a $1 billion factory in West Java, set to start operations in 2026. Neta Auto has partnered with Handal Indonesia Motor to produce EV models locally. In Malaysia, Geely is investing over $10 billion to develop manufacturing facilities with its local affiliate Proton, aiming to transform Tanjung Malim into a major automotive hub.

Price wars and consumer challenges

Despite the promising market potential, Chinese carmakers face significant challenges, particularly in terms of pricing. Most Southeast Asian consumers have lower budgets, which could lead to fierce price competition among EV manufacturers. This was evident when Neta unveiled its V-II model at the Jakarta EV show, priced at $12,100—up to 60 times the average monthly salary in Indonesia.

In Malaysia, strict market entry barriers only allow higher-priced imported EVs to be sold. The cheapest EV, the BYD Dolphin, costs $21,200, significantly higher than the average price of domestic cars. Jigar Shah, head of sustainability research at Maybank Investment Banking Group, noted that EV prices must fall considerably to attract Malaysian buyers.

Amid these pricing challenges, Chinese EV makers could trigger a price war similar to that seen in the early 2000s with Chinese motorcycle makers. Jiayu Li, senior associate at Global Counsel, warned that aggressive price competition might lead to cost-cutting and compromised product quality, which could allow established brands to regain market share.

Long-term growth prospects

Despite these hurdles, the long-term growth prospects for Chinese EV makers in Southeast Asia remain promising. The region’s growing middle class and increasing environmental awareness are driving demand for cleaner vehicles. Local governments are also ramping up support for EV production. Indonesia, for example, plans to increase local EV production to 600,000 units by 2030, leveraging its substantial nickel reserves.

Wang Yangchen, managing director at market intelligence firm Shanghai Metals Market, told SCMP, “Southeast Asia is a booming market and access to this market does not have boundaries for Chinese companies, so there is a huge potential for growth.”

As Chinese EV manufacturers navigate the complexities of pricing and consumer preferences, their strategic investments and commitment to local production are likely to pay off, making Southeast Asia a key battleground in the global EV market.