Driving the Electric Future: Asia's Role in the EV Revolution

Navigating the transformative shift in the global automotive industry as Asia drives investment opportunities.

By Judith Lee
Published December 5, 2023 | 5 min read

As demand for electric vehicles (EVs) reshapes the global automotive landscape, Asia emerges as a pivotal hub for investment prospects. The fundamental shifts within the automotive sphere are also emblematic of the broader changes we are witnessing in our approach to energy consumption and sustainability. The age of traditional fossil-fuel powered vehicles is giving way to a more sustainable, electric-driven era. The quest for cleaner energy solutions and reduced carbon footprints has fast-tracked the growth and acceptance of electric vehicles on a global scale.

Asia, historically a continent of innovation and rapid industrial growth, finds itself at the confluence of this change. Countries such as China, Japan, and South Korea have been trailblazers, not just in adopting EVs, but in pioneering advances in battery technology — the heartbeat of the electric revolution. Their expansive manufacturing infrastructure, coupled with robust research and development initiatives, has enabled these nations to establish themselves as dominant players in the global battery supply chain.

With predictions indicating that two-thirds of all new car sales worldwide will be electric by 2040, it's clear that this isn't just a shift in automotive tastes, but a profound redirection in the global energy landscape. At the heart of this evolution is the battery ecosystem, and Asia, with its technological advancements, manufacturing capacities, and strategic positioning, is primed to capitalize on these vast investment opportunities.

 

China: The world's EV and battery powerhouse

The tidal wave of EV popularity, already making ripples in the automotive sector, finds its heart in China. As of 2022, a staggering 60% of global EV sales originated from Asia’s largest economy, reinforcing its dominance as the epicenter of EV production. To put this into perspective, 580,000 EVs were exported from the country, most of them by Western brands.

But the momentum doesn't stop there. Battery technology, the lifeblood of EVs, is poised to be the next battleground. Unsurprisingly, China has already established itself as a forerunner. Factors such as the localization of battery manufacturing, technological advancements in the battery space, and access to a comprehensive infrastructure and skilled workforce make China a battery powerhouse.

 

Opportunities for other Asian countries

Asia's already-strong foothold in the global car manufacturing industry positions it well for the surge in demand for electric vehicles (EVs) and their associated batteries. Dominating with over 70% of global EV production,[1] battery manufacturing, and critical mineral refining, China is currently the leader. However, geopolitical strains and supply chain disruptions have caused markets like the U.S. and Europe to consider diversification.

Enter Southeast Asia, the seventh-largest automotive producer globally. The region manufactured an impressive 3.7 million vehicles in 2022, driven by nations such as Thailand, Indonesia, Malaysia, and Vietnam. Government-backed incentives across these countries are further bolstering foreign investment in local EV and battery manufacturing.

 

Government initiatives and gigafactory expansion in Asia’s EV market

The booming demand for EVs in Asia has urged governments to step up their support for the industry. With batteries being essential, there's a pressing need for massive production sites, commonly known as “gigafactories.” Legislative measures, akin to the U.S's Inflation Reduction Act (IRA) and the EU/UK's Rules of Origin, highlight this increasing governmental push for manufacturing support.

However, setting up these gigafactories isn't straightforward. Ensuring a steady power supply stands as a critical requirement, often taking precedence over having the factory close to manufacturers or target markets. This challenge is further intensified by the limited availability of professionals specialized in battery production and its underlying technology.

 

Battery recycling and untapped potential

While primary production often dominates the spotlight, the potential of recycling technologies in battery production remains a significant, yet underexplored, opportunity. Surprisingly, about 40% of battery metals don't get utilized in the production phase. This substantial percentage signifies a massive scope for innovation in the realm of recycling. Asian original equipment manufacturers (OEMs), given their considerable investments and advanced technological bases, are well-positioned to lead and capitalize on this recycling frontier. Their proactive engagement could not only optimize resource utilization but also drive a new era of sustainable battery production and usage in the region.

 

Supply and demand imbalances

Europe and North America, despite their grand visions for the EV industry, are confronted with a reality: the explosive demand for batteries surpasses existing supply. Often, there's an inclination to be overly optimistic about future production capabilities, overlooking potential hurdles that may emerge. This scenario carves out a niche for Asian investors. Armed with advanced technology and substantial resources, they are well positioned to address the Western demand.

 

Anticipating supply chain challenges

As the momentum for electric vehicles continues to grow, Asia's investment landscape is coming to terms with impending supply chain constraints. One pressing concern lies with the availability of battery metals. The current reserves and production rates are unlikely to meet the skyrocketing demand in the near future. Such a shortfall could result in significant bottlenecks, amplifying the prices of these essential commodities.

Aware of these looming challenges, many OEMs and battery manufacturers are not leaving things to chance. They are establishing specialized mining teams, focused on conducting rigorous due diligence, making strategic investments, and ensuring a consistent supply for the future. These initiatives highlight the proactive steps being taken within the industry. Collaborations are also being forged across international borders, uniting various stakeholders in an effort to introduce new projects and secure critical upstream metals, ensuring the continuity and vibrancy of the battery ecosystem in Asia and beyond.

 

The rise of hydrogen fuel cells in Asia

In response to the limitations posed by conventional batteries, hydrogen fuel cells are also rapidly gaining traction in the Asian energy sector. Japan has emerged as a forerunner in the push towards hydrogen fuel cell technology, with automotive giants Toyota and Honda leading the charge. Both companies have had over three decades of research and development in this field, bolstered by significant government investment aimed at carbon neutrality. Toyota's Mirai and Honda's FCX Clarity exemplify their commitment to FCEVs, while also exploring diverse applications such as buses, trucks, and even aerospace endeavors in collaboration with the Japan Aerospace Exploration Agency. On another front, Nissan is exploring bioethanol electric power through solid oxide fuel cells as an alternative to hydrogen. Meanwhile, South Korea's Hyundai, already a key player with its iX35 FCEV, envisions a hydrogen-centric future for all areas of life and industry, aiming to introduce fuel cell systems across its entire commercial vehicle lineup by 2028.

On the Chinese front, automotive stalwarts BYD and Geely, while primarily focused on BEVs, have begun branching into the FCEV arena. With projects like BYD's hydrogen fuel cell bus in Honolulu and Geely's F12 commercial bus, these companies are showing an early yet growing interest in hydrogen technology. Their pursuits, though currently in early stages compared to global peers, are expected to accelerate, particularly with the Chinese government's ambitious plan to have 50,000 hydrogen FCEVs on their roads by 2025. Accentuating the global thrust toward hydrogen, Honda, Toyota, Hyundai, and other industry behemoths including BMW and Shell have formed the Hydrogen Council, promoting hydrogen's adoption worldwide. Today, this council comprises over 130 global members, symbolizing the unified effort toward a hydrogen-fueled future.

The EV ecosystem, with its multifaceted challenges and opportunities, is undeniably an anchor of the Asian energy transition. As EVs become an indomitable force in the automotive sector, sustainable solutions will dictate the pace of this transformation. With industry behemoths, strategic alliances, and informed investment advisory roles at the helm, the industry's future seems not only promising but also electrifying.

While the rise of EVs is pivotal to understanding Asia’s energy shift, just one piece of the region’s transition story. This narrative is multifaceted, encompassing technological advancements, economic strategies, geopolitical maneuverings, and societal transformations. The next few decades will witness Asia navigating these complexities, setting precedents for the world to follow in the quest for a sustainable energy future.


[1] https://www.stratasadvisors.com/insights/southeast-asia-emerges-as-a-key-electric-vehicle-and-battery-manufacturing-hub-as-europe-us-reduce-reliance-on-china/2023-02-14t000000-0500

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Judith Lee
Judith Lee
Head of Global Investment Banking, Asia

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