Driving Asia’s Transition to Green Transportation: Opportunities for Investment and Impact

Decarbonising land transport, a sector accounting for one-sixth of global emissions, is key to our net-zero targets. Industry experts at Ecosperity Conversations shed light on Asia’s transition to decarbonising transportation.

In Asia, policymakers have beefed up incentives and subsidies to boost both supply and demand of electric vehicles (EVs) by 2030. The region is expected to be the global hub for EVs, accounting for the largest market for EVs worth 700 billion to 750 billion USD.

However, infrastructure, talent and digital gaps, change management challenges, and a lack of integrated solutions to solve these challenges pose significant roadblocks to Asia's pivot to sustainable transportation. This is exacerbated by an uncertain macroeconomic environment and volatile geopolitical landscape.

Mr Vijay Pattabhiraman, Managing Director, Global Head of Energy & Transport Transition, Real Estate & Private Markets at UBS Asset Management, said “Decarbonising transport, is a big market and a big opportunity.” Speaking at the Ecosperity Conversations session on 27 June 2024 held in partnership with UBS, presenters and panellists from across the EV value chain identified levers and investment opportunities for scaling of EV manufacturing as well as consumer and commercial adoption.

Asia’s Policy Push for Electric Vehicles

Ms Maggie Ye, Managing Director at NIO Capital shared that China’s road transport electrification policies were first targeted at public transport, which then grew to subsidies for cell makers to incubate local manufacturers in light of foreign competition, as well as favourable policies for original equipment manufacturers (OEMs) to manufacture new energy vehicle (NEV). Today, NEV penetration in China has exceeded 50% and continues to increase even as many of these subsidies were being rolled back.

Similarly, India is introducing a growing number of subsidies to support local cell manufacturing and OEMs. However, Ms Abanti Sankaranarayanan, Chief Group Public Affairs Officer & Member of Group Executive Board at Mahindra Group shared that India aspires to leapfrog from traditional powertrains to born-electric vehicles (BEV). This is very different from China’s approach, where the biggest NEV demand today is from plug-in hybrid electric vehicle (PHEV).  

Mr Dean Cher, Head, Mobility, Sustainable Energy Solutions at SP Group spoke about how Singapore is well-placed to succeed in meeting its target to ban ICE vehicle sales by 2030, with clear policy direction from the Singapore government and sufficient roll-out of charging infrastructure. However, he pointed out that while the government had rolled out subsidies for light vehicles, more ambitious policies could be implemented for buses and trucks responsible for higher emissions. Consequently, that would also provide EV Charge Point Operators (CPOs) with greater clarity and confidence to roll out relevant charging infrastructure in line with demand, including fast chargers for commercial vehicles. 

Finding the ‘Gold’ in ‘Green’

Effectively decarbonising transport requires a full ecosystem orchestration, from policy, to infrastructure to adoption.

“A lot of our neighbours are producers and consumers,” Dean shared when asked about Southeast Asia’s potential for EV investment opportunities. He noted the two clear standouts within the region: Thailand and Indonesia, that hold the most promise due to the former’s existing automobile industry and the latter’s rich nickel and cobalt reserves. Indonesia’s natural endowment is further enhanced with the help of policy; beginning in 2020, the country has been progressively outlawing the export of unprocessed nickel ore. This, in turn, has facilitated the development of cottage industries and battery production and assembly lines.

How can we convince more investors and adopters to see the opportunity in decarbonising land transport, especially in a known ‘inter-modal transportation hub’ like Singapore?

Vijay listed three considerations critical to fleet owners for EV adoption: Firstly, does the investment make financial sense? Next, is the switch convenient? Lastly, does the adoption of EVs effectively decarbonise land transport? Today, though nearly 20% of sales of private vehicles are EVs, commercial EVs only make up 3% of vehicle sales. There is a clear opportunity with commercial EVs given their potential to address a significant proportion of emissions from land transport.

“Think of "closed transport systems”, Vijay elaborates, “where adoption of EVs would make the most financial sense, would be executed in a convenient way and account for real reduction of carbon”.

Ms Mabel Kwan, Managing Director at Alton Aviation Consultancy, shed light on the aviation ecosystem where aircraft spend considerable amount of time on the ground in an airport environment, with on-ground activities supported by potentially a fleet of more than 20 different types of ground equipment. Aviation stakeholders are increasingly signing up to 2050 net zero targets and electrifying these support vehicles as a key tenet of decarbonisation efforts.

The maritime industry is also emerging as an opportunity for electrification, as regulators set ambitious decarbonisation targets for ports and domestic craft. Dean shared about the Maritime and Port Authority of Singapore’s ambition to transition all 1,600 domestic craft (harbour craft) to using bio-fuels or net-zero fuels. Vessels, unlike cars, have a longer lifespan and with that comes the big opportunity to retrofit them with electric engines which then leverage charging infrastructure on land.

The Road Ahead

Despite potential and progress, the roll out of EVs will not be without hiccups. EVs are often thought of as a key lever to decarbonising land transport but given the constantly evolving technologies and policies in this emerging market, that may potentially create regulatory risks for investors. However, Vijay put it very matter-of-factly that “the trend to decarbonise is so strong” that any transition-related opportunity that makes economic sense, would likely still succeed even without strong enabling policies.

One thing is for sure - innovation is key. For example, given the higher cost of EVs, manufacturers have found a way around to mitigate the higher costs and new technology risks. Manufacturers and operators “don’t want to be investing in a new type of electric vehicle only for the technology to become obsolete in a few years' time”, Mabel shared. As such, manufacturers have turned to retrofitting. Retrofitting electrification technologies on existing vehicles can help to reduce the higher initial capital outlay for adopters. New models of operations, such as electric car rental services, could also prove to optimise vehicle usage without the high price tag.

Where safety regulations may come in the way of deployment of EVs, such as the case of charging facilities at airports, stakeholder collaboration on the design, regulation and operation of EVs will be crucial to implementation. The nascency of the industry also means that the policies are also ever-evolving, especially in many parts of the emerging markets in this region, resulting in regulatory risks for investors. Mabel argued that “policy and infrastructure have to come hand-in-hand" to alleviate investment concerns. Traditional infrastructure investors typically seek stable but lower returns, and investments into developing industries may not fit their remit. She alluded to a growing group of niche investors with greater risk appetite who are willing to build up the knowledge and platforms to invest into greenfield projects and infrastructure necessary for EV deployment in the region.

“The momentum exists, the time is right,” as Abanti rightfully put across in her presentation. Asia’s EV market is poised for growth, driven by government policies, investments in infrastructure and increasing consumer awareness of environmental sustainability. With advancements in technology and the expansion of charging infrastructure, the region is well-positioned to lead the global transition to decarbonise land transport, offering immense opportunities for economic development and sustainability.