MARKET DATELINE Regional Thematic | August 2021 PP19489/05/2019 (035080) The Future Is Is ASEAN Ready? EV Regional Thematic 20 August 2021 Electric Vehicles The Future Is EV: Is ASEAN Ready? In this report, we focus on the motor vehicles segment of travel and Analysts the transition to zero-emission vehicles (battery electric vehicles and fuel cell vehicles). Carbon dioxide (CO2) reduction targets should increase the demand for low-carbon electric power. Eddy Do Wey Qing Personal vehicle ownership has emerged as more lasting winner, from +603 9280 8856 the COVID-19 pandemic. Personal vehicles account for 61-82% of all [email protected] kilometres travelled. The lifecycle assessment (LCA) approach. A shift to CO2 emissions measurement criteria is based on the entire vehicle lifecycle, from Chatree Srismaicharoen manufacturing, to driving, batteries replacement, and to disassembly. +66 2088 9743 The LCA has concluded that the environmental impact of battery electric [email protected] vehicles is significantly lower than that of a vehicle with an internal combustion engine (ICE). Shekhar Jaiswal Government polices world-wide to drive electric vehicles (EVs) +65 6320 0806 adoption. The policy is shifting towards a low-carbon future through [email protected] measures such as a ban on the sale of ICE cars and the adoption of EV. The trend towards EVs aims to reduce and eventually eliminate emissions from cars and trucks. The transportation sector accounts for Andrey Wijaya 14% of total global greenhouse emissions. The world emits around 50bn +6221 5093 9846 tonnes of greenhouse gases (GHG) each year, as measured in carbon [email protected] dioxide equivalents (CO2 equivalent). Of the 50bn tonnes, the transportation sector emits 7bn tonnes of GHG. Within the sector itself, cars emit 47% of the total, or 3.3bn tonnes of GHG, and trucks emit 25% or 1.75bn tonnes of GHG – these altogether come up to 5bn tonnes of GHG. To reduce CO2 emissions: i) Battery EVs (for personal auto vehicles - smaller vehicles on short-distance city driving) and ii) hydrogen - the means by which to reduce commercial vehicles' CO2 emissions (larger vehicles on Contents Page no. long-distance driving). As trucks undergo greater electrification, we expect to see more fuel cell vehicles (FCV) technology in mid-sized and larger How EVs link back the efforts to control GHG 2 trucks, and more EV technology in small trucks and passenger cars. Electric vehicles 9 Cutting commercial vehicles’ CO2 emissions (H2) 13 CO2 reduction targets should increase demand for low-carbon electric Regulatory environment 15 power. Renewable energy (RE) is likely to have an advantage in the Indonesia 15 electrification effort. Environmentalists are focused on electrification as the Malaysia 19 fastest way to decarbonise the energy system. The electrification of Singapore 22 everything — and its accompanying grid enhancements — seems to be the trend. The customers are concerned about RE. Therefore, the electrification Thailand 30 of everything – even if theoretically fuel-neutral – is likely to result in a The EV supply chain 35 greater emphasis on RE. EV vs ICE: What makes up an EV 35 Leading global suppliers of EV components 39 Our eight actionable ideas on the EV theme in our region are shown in The nickel story in Indonesia 39 the table below and more details beginning with page 75. The semiconductor angle 43 The major players 45 The charging infrastructure in ASEAN 46 The “Chicken & Egg” dynamic 46 Indonesia 46 Malaysia 47 Singapore 48 % Upside P/E (x) P/B (x) ROAE (%) Yield (%) Company Name Rating Target Thailand 52 (Downside) Dec-21F Dec-21F Dec-21F Dec-21F EV principals 57 Astra International Buy IDR6,900 37.3 11.4 1.2 10.9 5.6 Volvo 57 ComfortDelGro Buy SGD2.00 23.5 18.4 1.3 7.2 2.7 Tesla 59 Global Power Synergy Buy THB88.00 12.1 27.2 2.1 7.8 2.0 PTT Oil and Retail Business Buy THB34.00 21.4 29.8 3.4 14.4 0.9 Toyota 63 Sime Darby Buy MYR2.70 28.1 12.0 0.9 7.8 5.2 Mercedes Benz 65 ST Engineering Buy SGD4.50 10.0 23.1 5.4 23.6 3.6 ASEAN power grids 67 UMW Neutral MYR2.94 0.9 12.1 0.8 7.0 2.1 Abbreviations used 74 Vale Indonesia Buy IDR6,200 21.6 25.5 1.6 6.6 - Appendix: Details of our actionable ideas 75 Source: Company data, RHB See important disclosures at the end of this report 1 Market Dateline / PP 19489/05/2019 (035080) Electric Vehicles Regional Thematic 20 August 2021 How EVs Link Back The Efforts To Control GHG Adoption of net-zero emission targets across many countries The Paris Agreement, adopted in Dec 2015 under the United Nations Framework Convention on Climate Change came into force in Nov 2016 (the Paris Agreement). In the Paris Agreement, countries agreed to keep the increase in the global average temperature to well below 2.0°C above pre-industrial levels, and to pursue efforts to limit the temperature rise further to 1.5°C. With the push to reduce GHG, currently over 100 countries have set net-zero emissions or neutrality targets. Figure 1: Countries in ASEAN that signed and acceded to the Paris Agreement Percentage of Date of ratification, greenhouse Date of Date of entry acceptance, approval, gases for signature into force or accession ratification Malaysia 0.52% 22 Apr 2016 16 Nov 2016 16 Dec 2016 Thailand 0.64% 22 Apr 2016 21 Sep 2016 4 Nov 2016 Singapore 0.13% 22 Apr 2016 21 Sep 2016 4 Nov 2016 Indonesia 1.49% 22 Apr 2016 31 Oct 2016 30 Nov 2016 Source: List of parties to the Paris Agreement Carbon pricing. The momentum is growing among countries and businesses to put a price on carbon pollution as a means of bringing down emissions and drive investment towards cleaner options. A price on carbon helps to shift the burden for the damage back to those who are responsible for it, and who can reduce it. Instead of dictating who should reduce emissions where and how, a carbon price gives an economic signal – and polluters decide for themselves whether to discontinue their polluting activity, reduce emissions, or continue polluting and pay for it. In this way, the overall environmental goal is achieved in the most flexible and least-cost way to society. The carbon price also stimulates clean technology and market innovation, fuelling new, low-carbon drivers of economic growth. The LCA approach. A shift to CO2 emissions measurement criteria is based on the entire vehicle lifecycle, from manufacturing, to driving, batteries replacement, and to disassembly. The LCA has concluded that the environmental impact of battery electric vehicles is significantly lower than that of a vehicle with an internal combustion engine (ICE). Government policy to drive EV adoption. The policy is increasingly shifting towards a low-carbon future through measures such as a ban on the sale of ICE cars (more countries are now banning the sale of gasoline or diesel vehicles from 2025) and the adoption of EV. i. In Europe, auto original equipment manufacturers are under pressure to cut CO2 emissions, with a c.20% reduction needed in 2021 vs 2019 levels. In China, the central government increased its target for new-energy vehicles in 2025 from 20% to 25% (vs 4.3% in 2019). Penalties for missing these targets in both regions could be severe: Financial penalties in Europe and the revocation of car manufacturers' licenses in China; ii. Norway plans to eliminate new petrol/diesel vehicle sales by 2025, which is four years from now. Several other countries plan to do the same thing by 2030. Japan plans to do so by 2035. The current ICE cars will still be driven – but one will not be able to buy newly manufactured ones; iii. Many cities plan on restricting the use of petrol and/or diesel vehicles by 2030. The Fit for 55 package: On 15 Jul, both EU and China unveiled sweeping plans to cut GHG emissions. The Fit for 55 package (aimed to reduce emissions by 2030 by 55%, compared to 1990 levels), which transposes into law the Green Deal objectives on Europe's climate neutrality, will cause a massive change – not only for utilities and power generation but also for several other industries. We anticipate huge cost increases, as a result, for both industry and consumers. Fit for 55 introduces a globally unprecedented carbon border adjustment mechanism (CBAM) for pricing imported carbon, it includes: i) Major overhaul of the Emissions Trading System (ETS) to extend carbon pricing to shipping, aviation, transport, and buildings; ii) accelerating the development of the renewable energy sector; iii) banning sales of new fossil-fuel cars after 2035; iv) providing social support for EU citizens affected by the green transition; and v) speeding up the modernisation of the building stock. See important disclosures at the end of this report 2 Market Dateline / PP 19489/05/2019 (035080) Electric Vehicles Regional Thematic 20 August 2021 EV adoption has gone from a niche idea to mainstream policymaking in recent years, and numerous governments currently have policies in place to incentivise consumers to buy EVs. We expect such efforts to continue, as the visible hand of policymaking (including EV purchase incentives, charging stations, etc) will remain important in the foreseeable future. Battery reuse and recycling will be imperative to enable truly sustainable electric mobility. i. There still remain several hurdles for EV makers. As of Jul 2021, the global chip shortage situation was still severe.