Southeast Asia Can Navigate Growing Fractures in Global Automotive Sector

Southeast Asian governments have for decades sought to propel national development through the automotive industry. The sector’s transformation by technological change and the rise of Chinese automakers present opportunities. But reactions from advanced economies, whose own automakers face an existential threat, have made it another front in the technology wars.

Southeast Asian states will likely remain “technology takers” throughout this supply chain and must work with all sides to benefit from the global transition to electric vehicles (EVs) and intelligent driving. The “operating environment”, meaning the automotive industry itself and its rising politicisation, will continue to be shaped by big players outside the region.

The rise of Chinese automakers reached critical mass in 2024. In October, estimates for China’s share of the global EV market ranged from two-thirds to three-quarters. Chinese manufacturers are turning to export markets as foreign legacy automakers struggle. They lead the foreign incumbents not only on price and scale of production but also in iterative speed. One recent example is BYD’s introduction of intelligent driving assistance across its model range for no extra cost.

Chinese firms’ dominance in the battery supply chain, which shows few signs of slipping, underpins its lead in EVs. But China’s rise is now shaking many segments of the global automotive industry. In silicon carbide (SiC) substrates for power management chips, Chinese suppliers have upended the global market within a few years. Competition from these lower-cost rivals is among the chief pressures causing foreign industry leaders to suspend or abandon projects across the automotive supply chain, such as R&D for sensing technologies or new chipmaking plants.

This disruption to incumbent firms’ dominance has drawn a response from their home governments, aggravated by the role of Chinese industrial policy in driving these outcomes. The European Union (EU) has imposed tariffs on EVs made in China, which vary with the assessed degree of state support for the automaker.

The US approach to countering the Chinese EV juggernaut has been far broader and uncompromising. The provisions in the Inflation Reduction Act to exclude Chinese firms from the US automotive market’s battery supply chain were followed by raising tariffs on Chinese EV imports to 100 per cent. In January 2025, the Biden administration finalised a rule to secure the “connected vehicles” supply chain. This will effectively exclude from the US not just Chinese automakers but all vehicles made in China, or in third countries which input Chinese digital connectivity technologies into their US-bound exports.

In contrast to the situation with artificial intelligence, the automotive sector’s more distributed nature means that Southeast Asian countries have room to manoeuvre in choosing foreign partners that seem to be mutually incompatible.

The Biden administration also announced a new trade investigation in December to focus on Chinese practices in the automotive sector, specifically on SiC substrates.

However, for automotive chips, the leading vendors are European rather than American firms. Infineon, NXP, STMicroelectronics and Bosch are localising production and R&D in China, partnering with Chinese firms and increasing their range of production activities in China. Likewise, European carmakers are doubling down on China and partnerships with Chinese leaders in EV and “connected vehicle” technologies.

Billionaire entrepreneur Elon Musk’s influence in Donald Trump’s administration raises questions about whether some of the US restrictions could be tempered. Musk remains the largest single shareholder in EV maker Tesla, which has its biggest EV production and export facility in Shanghai. This will soon be joined by a battery megafactory serving Tesla’s global energy storage business. Musk may have successfully lobbied to remove prohibitions on investing in China’s advanced technology sectors from the US government funding bill passed in late 2024.

But tensions could still escalate under President Trump. His transition team reportedly proposed further barriers against Chinese automotive sector firms and used tariffs as leverage to open foreign markets to US-made vehicles.

Southeast Asia’s position in the global automotive industry straddles these political fractures. The role of Chinese firms in the region’s automotive supply chain is growing fast, from minerals extraction and processing to the assembly of finished vehicles. The rapid rise in EV production and demand is driving the foreign investment surge into the region’s semiconductor sector. This enmeshes US, European, Japanese, Korean and Chinese actors into Southeast Asia’s economies.

In contrast to the situation with artificial intelligence, the automotive sector’s more distributed nature means that Southeast Asian countries have room to manoeuvre in choosing foreign partners that seem to be mutually incompatible. In Malaysia for instance, German multinational Infineon is expanding the world’s largest SiC chip production facility. It supplies Chinese automakers and sources wafers from Chinese vendors reportedly being courted by Kuala Lumpur to establish plants locally.

By contrast, Vanguard International Semiconductor Corporation’s expansion of chip production in Singapore is likely a means of competing with Chinese chip vendors. The Taiwanese firm is seeking to serve the automotive sector’s demand. Likewise, EV demand is driving Taiwan’s United Microelectronics Corporation to expand production in Singapore.

Southeast Asian states have their own imperatives to climb value chains and provide employment. They also need to tackle air pollution, roll back fossil fuel subsidies and adapt to climate change. With the US and EU share of the electrified transport market falling, and multinational suppliers in the automotive sector doubling down on the Chinese automotive sector, countries in the region would be ill-advised to take sides on political grounds. Finding ways to work with all the technological leaders, despite their mutual hostility, remains the path forward.

2025/70