Building an electric car industry in South and Southeast Asia (SSEA) will be expensive since it will involve risk on execution typical for cross-border expenditure, where entities will try to anticipate shifting policies over long periods.

Standard & Poor’s Global Ratings report titled “EV Makers To Bet $20 Billion On South And Southeast Asia” said despite the trend, it anticipates the creation of an EV sector in the region as credit positive, particularly for the Chinese car firms.

“By our estimate, rated carmakers will be spending more than $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,” S&P Global Ratings credit analyst Claire Yuan said.

SSEA output 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.

What about Japan makers?

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

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

Hybrids as rival

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 fuel savings but may be concerned about getting stranded, given the lack of charging infrastructure in the region.

Korean carmakers 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.

“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,” Yuan said.

“Among rated entities building factories in SSEA, their investments will comprise less than 15 percent of the firms’ combined total capex over next few years, we estimate.”