Southeast Asia’s automotive industry has experienced significant growth in the past decade. This was evident when Thailand ranked among the world’s top 10 automotive producers in 2012, with annual production exceeding 2.45 million vehicles (Techakanont, 2017). Indonesia also showcased its potential, with vehicle production surpassing 1 million units in the same year (Rachman, 2012). Additionally, notable national automotive brands such as Proton and Perodua in Malaysia, as well as Vinfast from Vietnam, have made their mark in the industry. Proton and Perodua have been active for over two decades in Malaysia, while Vinfast, despite being relatively new, has expanded internationally and is now establishing a manufacturing base in the United States (Tempo, 2024).
However, the industry’s future does not look as promising today. The COVID-19 pandemic drastically impacted all sectors, including the automotive industry. In April 2020, during the initial global lockdown, there was a significant drop in four-wheeled vehicle production across Southeast Asia. Thailand and Indonesia were severely affected, with production plummeting by approximately 80% compared to the same period the previous year (Thailand Automotive Institute, 2020). This bleak scenario was compounded by ongoing global economic uncertainty in the aftermath of the pandemic. Challenges such as the prolonged Russia-Ukraine conflict, rising energy costs during the post-pandemic recovery period, and escalating trade tensions between the United States and China, including unilateral tariff impositions by the U.S., further strained the industry.
These tensions have exerted substantial pressure on the sector. As Chinese industries adapted their strategies to focus on markets outside the U.S., Southeast Asia saw a surge in the presence of Chinese electric vehicles (EVs) (Bhaumik, 2023). Additionally, the U.S.’s unilateral tariff policies did little to aid the industry’s recovery in Southeast Asia. Thailand, for instance, faced direct repercussions due to its significant export of automotive components to the U.S. (Board & Mahmud, 2025).
It is important to note that the automotive industry has extensive ripple effects due to its interconnected supply chain. While assembly units are the ones that are visible to public consumers, the industry is supported by thousands of suppliers that provide components such as steel for vehicle frames, plastics for accessories, copper and cables for electrical systems, and semiconductors for embedded electronics (Dicken, 2011). Thus, any slowdown in the automotive industry impacts various related sectors in Southeast Asia, where most components are locally sourced (Hsiao, 2024), further amplifying economic challenges.
The slowdown in Southeast Asia’s automotive industry is evident in several countries. Nissan decided to close its assembly plant in Indonesia in 2020, effectively ceasing sales under the Datsun brand (Tempo, 2020). By 2024, other manufacturers like Subaru and Suzuki followed suit, halting their operations in Thailand and Malaysia (Marus, 2024). Honda also announced the deactivation of one assembly plant in Thailand in 2025 due to declining production output (Leussink, 2024).
In response, Southeast Asian countries have actively implemented measures to sustain their automotive industries. One notable strategy involves promoting the development of EV production bases. In 2019, Thailand introduced incentives for investments in EV-related industries, including battery manufacturing and assembly of motorcycles, cars, buses, and trucks (Thailand Board of Investment, 2019). Indonesia issued similar policies through Presidential Regulation No. 55 of 2019, which provided incentives for EV component and assembly industries and tax breaks for EV ownership (Presiden Republik Indonesia, 2019). Malaysia unveiled its fourth National Automotive Policy (NAP 2020) in 2020, focusing on EV industry development and envisioning Malaysia as a regional production hub (Malaysia Ministry of Trade and Industry, 2020). Vietnam also rolled out EV-related incentives in 2023, complementing consumer EV ownership benefits that had been in place since 2022 (Ha & Phung, 2023).
Amid these dynamics, Southeast Asia’s automotive industry continues to adapt to domestic, regional, and global conditions. Adaptation encompasses adopting new automotive technologies and devising strategies to endure and grow amidst economic and political uncertainties. As noted by Board and Mahmud, Southeast Asia’s automotive industry is less dependent on markets in developed countries like the U.S. or Europe, except Thailand, which has a higher export volume relative to its domestic market. Strengthening intra-ASEAN markets and expanding to untapped Southern markets are crucial (Board & Mahmud, 2025). This approach is further complemented by domestic market initiatives offering tax incentives to boost EV adoption, ensuring the sustainability of local automotive industries.
Additionally, it is essential to recognize that the automotive industry is not solely about assembly units but also involves the broader supplier network. As various automotive principals establish assembly bases in the region, this encourages the development of local automotive component industries. Governments across Southeast Asia are leveraging this opportunity by offering incentives for advanced technology investments and vehicle assembly processes, both conventional and electric, to maintain industry stability and performance.
Despite facing various global challenges, Southeast Asia’s automotive industry has shown resilience through its distinctive strategies and characteristics. Governments in the region are continually advancing industry capabilities through incentives for technological development and modern vehicle assembly methods, ensuring relevance in the future. Such efforts are complemented by consumer incentives aimed at boosting domestic market adoption. Additionally, ASEAN governments can enhance regional cooperation to expand the scope of the automotive market, which has traditionally been limited. By diversifying markets, Southeast Asia’s automotive industry can not only survive but also thrive, positioning itself as a regional or even global production hub.
References
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