ASEAN's electric vehicle (EV) market and manufacturing sector are expected to expand significantly over the next decade, supported by rising consumer demand, growing industrial capabilities and increasing investment from Chinese automakers, according to a new industry report.

The report projects that EV penetration in the region's passenger vehicle market will reach 22.7% of total passenger vehicle sales by 2035.

Vietnam and Thailand are expected to remain ASEAN's largest EV markets, although Malaysia and Indonesia are forecast to contribute an increasing share of regional growth. Vietnam and Thailand are expected to account for more than 72% of ASEAN passenger EV sales in 2026, with their combined share projected to decline to 64% by 2035 as neighbouring markets expand.

Malaysia was identified as a key near-term growth market, supported by relatively high household incomes and improving EV affordability. Approximately 86% of Malaysian households had disposable incomes exceeding US$ 10,000 in 2025, with the figure expected to rise to 90% by 2030.

Although Malaysia's tax exemptions for completely built-up (CBU) imported EVs expired at the end of 2025, the report stated that the impact on consumers is likely to be moderated by competitively priced Chinese-made EVs, Tesla models and increasing competition among Chinese brands.

Indonesia is also expected to become a major long-term growth market. With a population approaching 280 million and ASEAN's largest middle-income consumer base, the country is forecast to benefit from rising household incomes and increasing vehicle ownership. More than 42% of Indonesian households earned disposable incomes above US$ 10,000 in 2025, with that proportion expected to increase to around 50% by 2030.

Vietnam and the Philippines were also identified as markets with long-term growth potential due to relatively low vehicle ownership rates and expanding driving-age populations. In Vietnam, the gradual shift from motorcycles to passenger vehicles is expected to support future EV adoption.

Manufacturing investment increases

The report noted that ASEAN is strengthening its role in the global EV supply chain.

Governments initially focused on stimulating EV demand through tax incentives, import duty exemptions and registration fee reductions. Measures such as Thailand's EV3.0 and EV3.5 programmes, Indonesia's import incentives and Malaysia's tax exemptions contributed to lower vehicle prices and higher EV adoption.

However, policy priorities are increasingly shifting towards local manufacturing.

Indonesia now requires manufacturers benefiting from duty-free EV imports to match imported vehicle volumes with domestic production by 2027. Thailand has linked incentive programmes to localisation targets, while Malaysia continues to provide incentives for completely knocked down (CKD) vehicles through 2027 after allowing CBU incentives to expire.

The report stated that these policies have encouraged increased investment by Chinese automakers seeking overseas expansion amid slowing demand and intense price competition in their domestic market. Malaysia and Indonesia were identified among the largest beneficiaries of rising Chinese vehicle exports and manufacturing investment.

Expanding role in the EV supply chain

ASEAN's growing importance extends beyond vehicle assembly.

Indonesia and the Philippines accounted for more than 68% of global nickel mine production in 2024, supplying a key raw material for EV batteries.

Vietnam holds around one-fifth of global rare earth reserves, while Malaysia, Thailand and Myanmar also produce rare earth elements used in electric motors and automotive electronics.

Malaysia is expanding its semiconductor industry under the New Industrial Master Plan (NIMP) 2030, including investments in silicon carbide power semiconductors used in EVs. Among the projects highlighted is Infineon's MYR 30.1 billion (US$ 7.37 billion) silicon carbide fabrication facility in Kulim, which is expected to become the world's largest facility of its type.

Indonesia has also attracted significant battery manufacturing investment, including CATL's US$ 6 billion battery ecosystem project and the Hyundai-LG Energy Solution battery cell plant. Thailand continues to expand battery pack production and automotive electronics manufacturing alongside vehicle assembly.

The report added that Vietnam is strengthening its position as an automotive manufacturing hub through VinFast's production expansion and rising domestic EV demand.

Challenges remain

Despite the positive outlook, the report cautioned that localisation policies could create challenges if they advance faster than the development of supporting supply chains.

Many recently established EV assembly facilities continue to operate below optimal capacity, raising concerns that premature localisation requirements could increase production costs and slow improvements in vehicle affordability.

Thailand was cited as an example where localisation has progressed alongside competitive pricing, with locally assembled Chinese EVs becoming more affordable despite the shift from imported vehicles to domestic production.

Overall, the report concluded that ASEAN is evolving from an emerging EV consumer market into a larger manufacturing and supply chain hub, with an expanding role in battery materials, semiconductors, component manufacturing and vehicle assembly over the coming decade.