Towards a New Division of Labour? Industrial Policy and the Electric Vehicle Value Chain in ASEAN

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Abstract:

Purpose: Southeast Asia hosts Global Value Chains (GVCs) of various industries. Regarding the automotive industry, it is well documented that the current division of labour within this GVC has been shaped by the interaction of industrial policy and firm strategy. Further, it is crucial to emphasise that this division of labour has been remarkably stable over time, i.e. the basic pattern of allocating production of specific automotive components to specific countries is basically unchanged since its politically negotiated origin of the 1990s (Schröder 2021, p. 208).
Two factors motivate state policy towards the emerging electric vehicle (EV) value chain. First, EVs are reshaping existing GVCs as certain components of internal combustion engine vehicles (ICEVs) become superfluous (Davies et al. 2015, p. 186) and others such as electric motors and EV batteries are added. Second, given the persistent nature of automotive division of labour within production networks, it can hardly be surprising that countries seek to shape a new division of labour within the emerging EV value chain in their favour.

Design: The study uses a qualitative research design. First, it analyses industrial policies of selected ASEAN members towards the automotive sector to extract the aims and strategies of individual states. Second, to assess the impact of these policies, investments related to the EV value chain are mapped and analysed.

Findings: ASEAN countries deploy different industrial policies to secure their position in the emerging EV value chain. Thailand seeks to defend its current position as the main production and export hub of the region by promoting BEVs as the new product champion. This means that demand and supply side are provided incentives to adopt and produce a targeted vehicle type. It is found that the policy clashed with the interests of Japanese carmakers, which are dominant producers in the region, as most Japanese firms preferred production of HEVs in ASEAN and judged BEVs as inappropriate for the local market. However, Thailand could attract investment of Chinese carmakers and Japanese start-ups. Indonesia tries to leverage domestic nickel which is an important input for EV batteries to take the crown from Thailand as the region’s main production. By restricting export of unprocessed nickel ore, Indonesia requires creation of forward linkages, i.e. localisation of downstream EV battery production processes. Indonesia’s controversial policy seems to be successful in attracting investment into a fully localised value chain from nickel to EVs.

Practical and theoretical implications: The Indonesian and the Thai policies both are reasonably successful. Indonesia’s aggressive leveraging of domestic nickel works due to the relative scarcity of the resource, large Indonesian deposits, and the relative low price of extracting these deposits. It may be added that Indonesia is not particularly dependent on nickel exports as a source of government revenue, meaning that restricting export was not particularly risky. Thus, a combination of factors make Indonesian nickel particularly desirable for the EV battery value chain and the country was in position to limit access to this resource at limited economic risk. Indonesian policy has exploited this fortunate constellation of factors, but would-be imitators must ask themselves if their natural resources feature a similarly favourable constellation of factors.
Thai policy could attract investments into HEVs and BEVs alike. HEVs are a larger market catered to by Japanese carmakers. BEVs are a niche market that is targeted by Chinese carmakers which seek to expand the Southeast Asian markets. Also, there are EV start-ups from Japan that implement a division of labour between design and production of key components in Japan plus sourcing of most components from and assembly in Thailand. Chinese carmakers and EV start-ups are attracted by Thailand’s strong supplier industry, i.e. the current position as the main production hub for conventional vehicles is leveraged to attract investments into the EV value chain that is similar yet different from the ICE value chain.

References
Davies, H., Cipcigan, L.M., Donovan, C., Newman, D., and Nieuwenhuis, P., 2015. ‘The Impact of Electric Automobility’ in Nieuwenhuis, P. and Wells, P. (eds.) The Global Automotive Industry. Chichester: Wiley, pp. 185-198.
Schröder, M. 2021. ‘Automotive value chain development in Vietnam: pathways between a new domestic carmaker, supplier development, and differing production systems’, International Journal of Automotive Technology and Management 21:3, pp. 200-227.