Electric vehicle (EV) adoption across Asia-Pacific is set to broaden beyond China into India, Thailand, Indonesia, Malaysia and Vietnam, even as weaker demand in Mainland China weighs on overall regional vehicle sales in 2026, BMI Country Risk and Industry Research said on Monday.
The research firm said in a report that it expects total vehicle sales across Asia-Pacific to contract 0.5 percent in 2026 before recovering 1.2 percent in 2027, with China’s 1.7 percent decline having an outsized impact on the regional market because of its scale.
The EV market, however, will continue to expand faster than the broader vehicle market, supported by policy incentives, local manufacturing requirements and expanding charging infrastructure across several emerging Asian markets.
“Asia-Pacific will remain the global center of gravity for electric vehicle adoption, led by China’s large domestic market, extensive battery supply chain and strong local EV manufacturing base,” BMI said.
However, the research firm expects China’s EV market to move from subsidy-led expansion towards a more competitive and margin-sensitive phase as policy support changes and competition intensifies.
This is likely to sustain high model availability and price competition, but could put pressure on smaller and foreign automakers that have less capacity to absorb discounting or localize their supply chains.
Beyond China, affordability will remain the main constraint on EV adoption across much of the region, BMI said.
This is expected to support demand for lower-cost battery electric vehicles (BEVs), plug-in hybrid electric vehicles (PHEVs) and range-extended models, particularly where charging infrastructure remains uneven.
The pace of the EV transition will therefore increasingly depend on the ability of automakers to offer competitively priced vehicles suited to emerging-market consumers, alongside greater localization and charging infrastructure development.
China remains EV anchor
China will remain the dominant EV market in the region, supported by its large domestic market and established battery and vehicle manufacturing ecosystem.
At the same time, the wider Asian EV market is becoming more geographically diverse. India, Thailand, Indonesia, Malaysia and Vietnam are emerging as increasingly important markets as governments introduce incentives, encourage local assembly and expand charging networks.
BMI said this would allow EV adoption to continue advancing even as overall vehicle demand remains subdued.
The divergence between the broader vehicle market and EV sales is particularly important as consumers and governments increasingly shift towards lower-emission vehicles.
In Australia, for example, tighter emissions regulations are expected to push automakers towards broader EV line-ups.
The country’s New Vehicle Efficiency Standard (NVES) is becoming a stronger driver of EV adoption as emissions targets tighten.
For passenger vehicles, the carbon dioxide (CO2) threshold will fall from 141g/km in 2025 to 58g/km in 2029, while the threshold for light commercial vehicles will decline from 210g/km to 110g/km over the same period.
Automakers whose fleet emissions exceed annual targets will need to buy credits from lower-emission competitors, pay penalties or reduce their exposure to higher-emission vehicles by selling more EVs, PHEVs and lower-emission hybrids.
BMI said this is turning the NVES from a compliance issue into a commercial factor affecting vehicle pricing, model allocation and sales incentives.
Chinese automakers are particularly well positioned under the system. BYD held 6.3 million emissions credits, compared with 2.9 million for Toyota and 2.2 million for Tesla.
Chinese-branded vehicles accounted for about 92.2 percent of BEV sales priced below A$40,000 ($27,879) in the first half of 2026, highlighting their competitive position in the more affordable segment.
By contrast, several Japanese automakers face sizeable emissions-credit deficits, including Mazda, Nissan and Subaru.
BMI said gradual hybridisation alone may not be sufficient for automakers with relatively high-emission fleets because the compliance benefit from hybrids will weaken as emissions thresholds decline faster than average hybrid emissions.
As a result, automakers are likely to increase the availability of BEVs and PHEVs.
The market is already shifting in this direction. Petrol and diesel light-vehicle sales in Australia fell 23.9 percent and 14.2 percent respectively year on year in the first half of 2026, while BEV and PHEV sales more than doubled.
Malaysia EV market faces policy shift
Malaysia is expected to record overall vehicle sales growth of 1.7 percent in 2026 to about 835,000 units, up from a record 820,752 units in 2025, according to BMI.
The research firm expects demand to moderate after two years of strong sales, with national brands such as Perodua and Proton continuing to support the market.
However, intensifying competition from Chinese automakers and other new-energy vehicle entrants is expected to sustain competition and encourage wider discounting.
Malaysia’s EV market is entering a different policy environment following the expiry of tax incentives for completely built-up (CBU) EVs.
Fully imported EVs previously benefited from a time-limited exemption from import and excise duties under the policy framework introduced in 2022.
From Jan 1, 2026, CBU BEVs reverted to a tax regime that includes import and excise duties, in addition to the existing 10 percent sales and service tax.
Industry reports indicate import duties of 30 percent and excise duties ranging from 10 percent to 30 perecnt for CBU BEVs, although BMI noted that the excise-duty framework was not fully finalized, creating some uncertainty over landed prices for certain models.
In contrast, incentives for locally assembled EVs remain in place through the end of 2027.
BMI said these incentives are the key policy lever supporting Malaysia’s electrification push in the near term, with duty and tax exemptions for completely knocked-down and locally assembled EVs.
The policy shift could therefore encourage greater localisation of EV production and make locally assembled models more competitive against imported vehicles.
Affordability and localisation key
Across Asia-Pacific, BMI expects the EV transition to be shaped increasingly by affordability rather than simply by government targets.
Lower-cost BEVs, PHEVs and range-extended vehicles could gain traction in markets where consumers remain sensitive to upfront vehicle prices and charging networks are still developing.
Localisation will also become increasingly important as governments seek to develop domestic automotive and battery supply chains.
For automakers, this could mean greater investment in local assembly, component sourcing and battery manufacturing to reduce costs and meet regulatory requirements.
For consumers, meanwhile, the availability of more affordable models could determine how quickly EVs move beyond early-adopter segments.
Overall vehicle market remains weak
The broader Asia-Pacific vehicle market is expected to remain under pressure in 2026.
Passenger vehicle sales are forecast to fall 0.6 percent, while commercial vehicle sales are expected to edge up 0.1 percent.
BMI forecasts a stronger recovery in 2027, with passenger vehicle sales rising 1 percent and commercial vehicle sales increasing 2.4 percent.
China’s 1.7 percent contraction will be the biggest drag on the regional market, reflecting softer domestic demand, reduced policy support for lower-cost and electrified vehicles and intense competition among manufacturers.
Elsewhere, vehicle sales are expected to remain uneven. Vietnam is forecast to be among the stronger performers in 2026, with sales growth of 15 percent, while Indonesia is expected to see a 6.6 percent decline as weaker purchasing power and the widening gap between vehicle prices and income growth weigh on demand.
BMI expects Malaysia to outperform the broader regional market with 1.7 percent sales growth, although the pace will be considerably slower than in the previous two years.
Despite weaker overall vehicle demand, BMI expects EV adoption to continue expanding across the region.
The research firm said Asia-Pacific’s EV transition would continue to advance faster than the total vehicle market, with China remaining the anchor while adoption broadens across emerging markets.
The next phase of growth, however, will depend increasingly on affordability, localization and charging infrastructure rather than policy incentives alone.
ASEAN emerges as key market, manufacturing hub for EVs – BMI