By Akshay Prasad, Senior Engagement Manager, Arthur D. Little SEA.
The growth of electric vehicles (EVs) holds immense potential for the Philippine economy. The electrification of vehicles can significantly contribute to decarbonization of the transport sector, which is the third largest greenhouse gas emissions in the country. While it contributes to lower emission and cleaner air, higher electrification also reduces the oil demand in the country, which is heavily reliant on imports that saw a 105.5% increase from June 2021 to June 2022. The Philippines’ significant share of nickel and cobalt also provides potential to develop Lithium-Ion cell manufacturing capability resulting in an estimated market opportunity of USD $11 billion by 2030.
To achieve its goal of eliminating gasoline-powered cars by 2040, the national government is already laying the groundwork for a strong EV market by providing tax breaks for EV imports over the next five years. Further initiatives are needed in the domain of supply side incentives such as production linked incentive scheme, tax rebate on research and development, demand side subsidy for EV purchase, as well as reduced electricity tariff for EV charging. Without these policies, Filipinos would continue to prefer internal combustion engines (ICE) over EVs.
Neighboring countries like Thailand and Indonesia are moving aggressively with a host of supply side and demand side incentives enabling them to be key players in the regional EV market. Some of these incentives include corporate tax exemption linked to certain investment size, exemption on duty for imported components and materials, demand subsidy and other incentives as well as downstream services such as low-cost capital for charging infra deployment.
EVs to kickstart local automotive manufacturing
State-owned enterprises (SOEs) in Thailand and Indonesia play a key role in the EV ecosystem such as PTT in Thailand and IBC in Indonesia. Such firms are leading local manufacturing and development along the value chain through investment, joint ventures, and product introductions that result in more affordable EV accelerating market growth.
The Philippine market faces several obstacles, such as a lack of targeted policy initiatives, an excessive reliance on assemblers that causes scaling problems, the fact that most small and medium-sized businesses are only partially engaged in the automotive component industry, and these companies constrained financial resources. Without the adequate support for manufacturing, the country risks losing the electrification opportunity to kickstart local automotive production.
Limited charging infrastructure is another issue. Latest records from the Land Transportation Office (LTO) showed there were 7,000 registered EVs but only 18 charging stations nationwide in 2018. The country needs to build battery production facilities, charging stations, and assembly lines—to create a local supply chain and ensure sustainability in the market.
Strengthening EV manufacturing
Enabling EV manufacturing requires a step wise approach. No country can transform overnight for EV manufacturing. To kickstart EV production, the Philippines should consider utilizing completely knocked down (CKD) kits from China to assemble and produce quality electric two wheelers (E2W) and electric three wheelers (E3W). The assembly of CKD kits is one of the easiest entry modes to EV manufacturing given its ease of deployment, low capital investment, and quicker turnaround time. Assembling EV CKD kits requires minimal investment to the tune of USD 500K – 1 Mn for 2W/3W assembly line. In fact, this is the entry approaches utilized by several startups in markets such as India and Indonesia. Moreover, the investment starts showing immediate returns as the vehicles can be sold in the market provided it meets local homologation and certification requirement. In addition, this, the Philippines can consider EV conversion service for four-wheeler (E4W) which is converting powertrain of existing ICE to EV by removing traditional powertrain and adding battery, pack, battery management system, installation, component etc. Globally, EV conversion services are gaining popularity as the incremental cost of converted EV vs a new EV purchase is almost half. The French Government already provides subsidies for EV conversion service while Indonesia is doing something similar for its ICE two-wheeler.
Such an approach would provide the Philippines with an understanding of core EV components. Once it has attained adequate knowledge and skill in handling core EV components, the Philippines should focus on utilizing its nickel and cobalt sources for Lithium-Ion cell and battery production. As it enters the global value chain, the national government declared in late 2022 that it wants to draw investments in EV-related technology. The manufacture of EV batteries using metals like nickel, copper, and cobalt—all of which the nation has in abundance—as well as the country's switch to sustainable energy are both seen as complementing this strategy. If the Philippines commercializes local cell and battery production, it has opportunity to create USD $20-30 billion opportunity by 2030.
As the Philippine government establishes the relevant policy framework, businesses have a responsibility to develop expertise and capabilities in new areas – an EV ecosystem is a once-in-a-century megatrend that presents the Philippines with more opportunities than challenges. This is the first step in ensuring that Filipinos can readily obtain and use EVs for daily use and fully realize the benefits of electrification trend.