At a Dangerous Speed

The automobile industry is foundational to Japan’s economy, accounting for 2.9% of the nation’s GDP and 17.4% of manufacturing shipments. The sector also employs 8.3% of the workforce. That is unsurprising given the reputation of brands such as Honda, Nissan, and Toyota for high-quality and efficient automobiles, and their lead in global auto sales. 

The prominence of Japanese vehicles is especially apparent in Southeast Asia, where they have enjoyed unrivaled dominance for decades. Association of Southeast Asian Nations (ASEAN) member states such as Indonesia, the Philippines, and Thailand serve as important export markets and crucial manufacturing hubs for many Japanese automakers. More than 35% of Japanese overseas production plants are based in ASEAN countries, producing approximately 4 million motor vehicles annually.

However, Chinese electric vehicle (EV) manufacturers, benefiting from domestic support and global trends, have been rapidly gaining ground in ASEAN markets. This shift challenges Japan’s historically uncontested leadership position there. It also offers important lessons that the United States should heed.

Historical Dominance

Japanese automakers have been prominent players in ASEAN’s automotive ecosystem for decades. As early as the 1950s, Japanese car brands started exporting cars to the ASEAN market, and firms such as Nissan and Toyota built production plants in Indonesia, Malaysia, and Thailand the following decade. By the late 1970s, Japanese brands held more than 90% of market share in Indonesia and Thailand, and more than 60% in Malaysia. Such market dominance was maintained long thereafter. In 2015, Japanese brands accounted for 84% of vehicle sales in Southeast Asia, and as recently as 2019 almost every car in Indonesia was from Japan. 

Japanese original equipment manufacturers (OEMs) continue to hold a leading position in the ASEAN auto market, but they have recently seen a sharp decline in market share. In the ASEAN-6 (Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam), these companies saw sales plunge by 12% in 2024, and their market share fell that year to 63.9% from 68.2% the year before. Honda and Suzuki have consequently announced the closure of production plants in the region. The sales erosion is largely caused by a growing preference for Chinese EVs due to their low prices and their manufacturers’ aggressive expansion strategies.

The Chinese auto industry’s rise in ASEAN countries is a result of domestic and international factors. Beijing has provided extensive support to its EV industry through subsidies, tax breaks, procurement contracts, and policies to propel domestic demand. This has enabled companies such as BYD, SAIC, and Chery to invest in research and development, achieve scale, and lower costs. In addition, China’s access to critical minerals and its processing technology has allowed the establishment of a mature domestic supply chain and lower costs for producing EV batteries, one of the most expensive EV parts to manufacture. Meanwhile, ASEAN governments, facing pressure from global climate mandates and sustainability goals, have begun shifting to policies that favor EV adoption. These include tax incentives for buyers, reduced import duties, and support for local manufacturing.

Japanese automakers have been slow to fully embrace EVs. They have focused instead on higher-priced hybrid and traditional combustion engine vehicles, as Chinese firms have greatly expanded EV production and have won a competitive edge in markets in which these vehicles have become a policy priority. 

Still, the Chinese auto sector’s expansion in ASEAN countries is not without obstacles. It must deal with competition from local brands, geopolitical skepticism, changing global policies on environmental regulations, and market uncertainty after subsidies end.

The Importance of International Partnerships

These developments offer important lessons for US policymakers. Increased EV demand is occurring on a global scale, especially in emerging markets, and China’s rapid expansion in the auto sector represents an expansion of Beijing’s economic influence in the “Global South”. It is therefore crucial for Washington to take measures to prevent Chinese EVs from conquering more of the ASEAN market and to strengthen American businesses’ competitive advantages worldwide.

The United States should raise concerns about the overproduction of Chinese EVs in trade talks with ASEAN partners and push for the adoption of anti-dumping frameworks and safeguards. China’s domestic EV industry is highly saturated and faces oversupply issues. As a result, companies such as BYD are flooding other countries’ markets with subsidized vehicles. In response, Washington should propose an internationally coordinated approach that could include anti-dumping investigations and negotiating trade clauses that prevent market distortions arising from heavily subsidized manufacturing sectors.

The United States should also work to create regulatory environments favorable for American firms through trade agreements with emerging economies. Priority targets for such accords should be large Southeast Asian, Latin American, and African markets, many of which Chinese businesses are increasingly penetrating. Agreements that lower barriers to trade and investment, establish clear and transparent regulations, and enforce operating standards that align with those in the United States are desirable.

Washington must also diversify its sources of critical minerals and develop its own production capacity to address supply chain weaknesses. One of China’s major advantages lies in its control of lithium, nickel, cobalt, and rare earths. The United States must expand its resource diplomacy with critical mineral-rich countries by facilitating local extraction and processing partnerships. This will increase access to raw materials while reinforcing engagement with emerging economies, a double win. Countries such as Indonesia and Brazil boast rich reserves of several critical minerals and are potential targets for such cooperation.

Keeping Up

Japan finds itself losing ground in the ASEAN auto market due to China’s aggressive EV push. The increased demand for these vehicles is caused in part by global trends toward sustainability and electrification, largely driven by pressure from the “Global North”. Ironically, Japan and the United States, two countries among the initiators of these trends, cannot provide competitively priced EVs to meet rising demand. But ongoing trade talks and diplomatic engagement still offer Washington an opportunity to shape the terms of global EV competition.

The rise of Chinese EV exports is more than just a market disruption. It represents a geopolitical shift. As Chinese automakers gain a foothold in Southeast Asia, Beijing’s broader influence in the region also grows. Leadership in breakthrough technologies is again showing that it is key to market competitiveness. Therein lies a lesson for the United States. Washington must facilitate investment in innovation with policies that continually adapt to rapidly developing technologies in a rapidly changing geopolitical climate.

Jennifer Lan is a trainee with GMF Indo-Pacific.