Southeast Asia’s electric vehicle boom risks leaving the region’s smaller companies behind, as Chinese automotive giants bypass local part-makers in favour of imported components and locked-in supplier networks.

Local manufacturers across Indonesia, Thailand and Malaysia are facing a double squeeze: demand is weakening for parts used in petrol and diesel cars, collectively known as internal combustion engine (ICE) vehicles, while steep barriers to entry also keep them out of EV supply chains.

Analysts say repair and servicing work plus hybrids, which pair a petrol engine with an electric motor, could offer a lifeline, but without stronger government support and better access to Chinese manufacturers, the EV transition threatens to hollow out the region’s established supply base.

Chinese EV investments have so far generated minimal business for established local component makers, according to Indonesian economist Bhima Yudhistira Adhinegara.

“The supply chain is very different between Japanese autos and Chinese EVs,” said Bhima, executive director of the Centre of Economic and Law Studies in Jakarta. “The biggest barriers are financing, technology and access to manufacturers.”Similar concerns have emerged in Thailand, long seen as the backbone of Southeast Asia’s auto sector. Krungsri Research, the research arm of Thailand’s Bank of Ayudhya, said 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, it said, with Thai vendors at a disadvantage on both cost and hi-tech proprietary know-how.

Continued demand for ICE cars and hybrids could, in theory, generate the income needed to fund the switch to electric, but Bhima said the financial strain was already limiting smaller Indonesian firms’ ability to invest.

Sluggish domestic consumer spending and rising fuel costs have sapped demand, forcing smaller suppliers to respond by downsizing, cutting product quality or seeking credit restructuring just to stay afloat.

“There are no transitional incentives from the government for small ICE suppliers,” Bhima said.

He called on Indonesia’s government to help smaller manufacturers connect with EV brands and assembly plants, and to use local-content rules – requirements that a certain share of a vehicle’s value be sourced domestically – to ensure firms were brought into the supply chain.

“The government can ensure that investment and sales of EVs to meet local content requirements must absorb local small manufacturers,” Bhima said.

In Thailand, Krungsri Research found that hybrid production supported demand for both conventional engine parts and electrical systems, with Japanese hybrid manufacturers sourcing substantial volumes of their parts from within the Southeast Asian nation.

An automotive master plan published by the Economic Research Institute for Asean and East Asia on October 13 took a similar line, advocating support for lower-emission vehicles and hybrids in the near term while preparing for wider electrification in future.

Other Thai manufacturers are diversifying away from the automotive sector entirely. Sompol Tanadumrongsak, president of the Thai Auto-Parts Manufacturers Association, has previously urged local suppliers to repurpose for rail, medical equipment, aviation and agricultural machinery.

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

Replacement parts offer another potential market. Drivers holding onto their old ICE cars could prop up demand for aftermarket replacement parts in Thailand, Krungsri Research found, even as technological disruption accelerates and competition from abroad intensifies.

In Malaysia, Chinese EV pioneer BYD recently dropped plans for a proposed 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 defended the requirements as non-discriminatory.

Earlier this month, BYD changed tack, partnering with local contract assembler Inokom to assemble passenger vehicles at an existing facility in Kulim, in Malaysia’s northwestern Kedah state.

Still, local value add remains modest. Malaysian media reported in March that domestically assembled EVs comprised just 20 to 30 per cent local content, compared with up to 70 per cent for foreign-branded ICE cars.

Malaysia has attempted to link up its suppliers with Chinese supply chains. In May last year, the Malaysian Investment Development Authority brought together 23 domestic parts suppliers and 12 technology suppliers with the Chinese carmaker Chery, resulting in four commercial agreements covering components, technology transfer and joint investment.

Aiman Abdullah, managing editor of Motoring Malaysia and a long-time industry watcher, said domestic carmakers’ electrification programmes were gradually building up local engineering and manufacturing expertise, adding that experience working with the high-voltage systems in hybrids could help vendors move into EV components.

But suppliers still needed clearer planning from both the government and carmakers, he stressed, because vendors typically required six to 18 months to prepare for full-scale production,while investments often took about a decade to pay off.

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

Smaller businesses might have the vision and some amount of technical expertise, but lacked the financial means to break into EVs, he said, proposing a fund to help them expand and scale up production.

Servicing and reconditioning cars offers an alternative way into the wider EV economy, though this again has limits.

Teoh Jiun Ee, co-founder of regional used-car platform Carsome and CEO of its training arm, Carsome Academy, said Malaysia already had a well-established ecosystem for conventional services such as body repairs, tyres and suspension.

But when it came to high-voltage systems, battery assessments and model-specific components, the work became more specialised, he said.

“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, which operates its own inspection centres and refurbishment facilities, is able to inspect EVs, but it cannot repair or replace individual battery modules and refers such cases to manufacturers, especially for cars still under warranty.

Technicians could build on their existing knowledge of vehicle systems and fault-finding by adding skills in electrical systems, high-voltage safety and EV diagnostics, Teoh said.

Yet access to such retraining depended partly on who bore the cost, he said, adding that employers, government and industry partnerships could help.

“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],” Teoh said.

“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.”