Southeast Asia's transition to electric vehicles (EVs) is creating challenges for smaller companies, as Chinese automotive manufacturers rely on imported components and established supplier networks rather than sourcing parts locally.

Manufacturers in Indonesia, Thailand and Malaysia face declining demand for components used in petrol and diesel-powered internal combustion engine (ICE) vehicles, alongside difficulties entering EV supply chains.

Analysts say vehicle repair and servicing, along with demand for hybrid vehicles combining a petrol engine with an electric motor, could provide alternative sources of business. However, without additional government support and better access to Chinese manufacturers, the EV transition could reduce the participation of established local suppliers in the automotive industry.

According to an independent economist, Chinese EV investments have so far generated limited business for established local component manufacturers.

"The supply chain is very different between Japanese autos and Chinese EVs," said the economist. "The biggest barriers are financing, technology and access to manufacturers."

Similar concerns have emerged in Thailand, which has an established automotive manufacturing industry. Krungsri Research, the research arm of Thailand's Bank of Ayudhya, stated in its 2026-28 industry outlook report that local suppliers were struggling to enter Chinese EV supply chains. Manufacturers either imported major components or relied on existing Chinese suppliers, putting Thai vendors at a disadvantage in terms of costs and access to proprietary technologies.

Hybrid vehicle demand

Continued demand for ICE vehicles and hybrids could generate revenue to finance the transition to electric vehicle components. However, the economist said financial pressures were already restricting smaller Indonesian companies' ability to invest.

Weak domestic consumer spending and rising fuel costs have reduced demand, forcing smaller suppliers to downsize, reduce product quality or seek credit restructuring to maintain operations.

"There are no transitional incentives from the government for small ICE suppliers," the economist said.

He called on the Indonesian government to help smaller manufacturers connect with EV brands and assembly plants, while using local-content rules, which require a specified proportion of a vehicle's value to be sourced domestically, to ensure their inclusion in the supply chain.

"The government can ensure that investment and sales of EVs to meet local content requirements must absorb local small manufacturers," the economist said.

In Thailand, Krungsri Research found that hybrid production supported demand for conventional engine components and electrical systems, with Japanese hybrid manufacturers sourcing substantial volumes of components domestically.

An automotive master plan published by the Economic Research Institute for Asean and East Asia on October 13th similarly recommended supporting lower-emission vehicles and hybrids in the near term while preparing for wider electrification.

Some Thai manufacturers are diversifying into other industries. Sompol Tanadumrongsak, president of the Thai Auto-Parts Manufacturers Association, has previously urged local suppliers to adapt their manufacturing capabilities for railway equipment, medical equipment, aviation and agricultural machinery.

This Week in Asia contacted Sompol and the association for comment but had not received a response at the time of publication.

The aftermarket replacement parts sector is another source of potential demand. According to Krungsri Research, motorists retaining older ICE vehicles could sustain demand for replacement components in Thailand despite technological changes and increasing competition from overseas manufacturers.

In Malaysia, Chinese EV manufacturer BYD recently abandoned plans for an assembly plant in Tanjung Malim following a dispute over export quotas and pricing conditions set by the Ministry of Investment, Trade and Industry. The ministry maintained that the requirements were non-discriminatory.

Earlier this month, BYD partnered with local contract assembler Inokom to assemble passenger vehicles at an existing facility in Kulim, in the north-western Malaysian state of Kedah.

Local value addition remains limited. Malaysian media reported in March that domestically assembled EVs contained 20-30% local content, compared with up to 70% for foreign-branded ICE vehicles.

Malaysia has also sought to connect domestic suppliers with Chinese automotive supply chains. In May last year, the Malaysian Investment Development Authority brought together 23 domestic component suppliers and 12 technology suppliers with Chinese automaker Chery, resulting in four commercial agreements covering components, technology transfer and joint investment.

Aiman Abdullah, managing editor of Motoring Malaysia and a long-time automotive industry observer, said domestic automakers' electrification programmes were contributing to the development of local engineering and manufacturing capabilities. Experience with high-voltage systems in hybrid vehicles could also help suppliers expand into EV components, he added.

However, suppliers require clearer production and investment plans from the government and automakers. Component manufacturers typically need six to 18 months to prepare for full-scale production, while investments often take approximately a decade to generate returns, he said.

"Investors need to see stability and focus in terms of policy before they take out their chequebooks," Aiman said.

He added that smaller businesses might have technical expertise but often lacked the financial resources to enter the EV sector. He proposed establishing a fund to help them expand operations and increase production capacity.

Aftermarket opportunities

Vehicle servicing and reconditioning provide another route for businesses to participate in the EV industry, although this segment also has limitations.

Teoh Jiun Ee, co-founder of regional used-car platform Carsome and chief executive officer of its training division, Carsome Academy, said Malaysia had an established network of businesses providing conventional automotive services, including body repairs, tyre replacement and suspension maintenance. However, servicing high-voltage systems, conducting battery assessments and handling model-specific components require specialised expertise.

"The key distinction is between work we can carry out here and the parts, data and specialist systems we can access to carry it out."

Carsome operates its own vehicle inspection centres and refurbishment facilities and can inspect EVs. However, it cannot repair or replace individual battery modules, referring such cases to manufacturers, particularly for vehicles still covered by warranty.

According to Teoh, technicians can build on their existing knowledge of vehicle systems and fault diagnosis by acquiring additional skills in electrical systems, high-voltage safety and EV diagnostics.

Access to training partly depends on who bears the costs, he said, adding that employers, the government and industry partnerships could contribute towards training programmes.

"If the cost falls entirely on individual technicians, there is a risk that the people who most need to upgrade their skills may be the least able to access it [training]. For us, the broader opportunity is to develop a more mature used-EV ecosystem here, where vehicles can be assessed consistently and safely, and buyers have greater confidence in the condition of the cars they purchase," Teoh said.