Asia First - Tue 1 Jul 2025
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CNA
an hour ago
- CNA
Commentary: Xiaomi made a cheap Ferrari EV. Who needs luxury carmakers?
BERLIN: Watching the launch last week of Xiaomi's luxury electric sport utility vehicle, the YU7, stirred up two strong emotions: wonder at its impressive technology, and deep foreboding for the future of Western automakers. The YU7 is the complete package – a stylish and tech-laden SUV with up to 835km of driving range, all for an affordable price. The entry-level version costs just 253,500 yuan (US$35,400). Xiaomi scores few points for design originality – the YU7 looks like a cross between a Ferrari Purosangue and a McLaren, while its first model, the sporty SU7 sedan, bears a striking resemblance to the Porsche Taycan. Even so, these are astonishing achievements for a smartphone company that entered the automotive industry just four years ago. I was not in the least surprised the YU7 received almost 300,000 orders within one hour. While the YU7 directly competes with Tesla's Model Y in China and isn't available in the United States or Europe for now, Western premium and luxury automakers with far higher sticker prices should fear the increasingly sophisticated EVs China is churning out. 'A FAKE V8 ENGINE NOISE' How will they compete once the growling combustion engines that define their brands disappear? Investors appear confident Ferrari will retain its cache. Indeed, it's fortunate that China accounts for less than 10 per cent of the Prancing Horse's global sales, because the V12 Purosangue starts at around US$430,000 and once customised costs far more. Porsche and Germany's other premium automakers don't appear as resilient. Offering a fake V8 engine noise as Mercedes-Benz does on the electric hypercar concept it teased last week won't suffice. Electrification, automated driving and digital connectivity are turning autos into mobile phones on wheels. Hence consumer electrics companies like Xiaomi and Huawei are pushing into the EV market and thereby offering seamless digital ecosystems, making Apple's failure to develop a car appear like an even bigger omission. The danger for luxury automakers is their products become commoditised. Rapid acceleration, a chief selling point of Western sportscar brands, is now commonplace in EVs: Xiaomi's cars have achieved some blistering lap times at the Nurburgring (the industry's benchmark). Meanwhile, China's faster innovation and product development cycles threaten to make manufacturers that can't iterate as quickly appear old hat. HOW MUCH CONSUMERS ARE WILLING TO FORK OUT Consumer perceptions are also changing. In China at least, luxury is increasingly about offering advanced software, voice recognition and artificial intelligence. However, customers aren't necessarily willing to fork out a lot for these features. 'An Apple Watch can do everything better: It can do a thousand more things; it's a lot more precise; it can measure your heart rate. But nobody would pay US$200,000 for an Apple Watch,' Bugatti-Rimac CEO Mate Rimac said last year, explaining why sales of the more than US$2 million electric Nevera hypercar have been disappointing and why Bugatti's new US$4.5 million hypercar, the Tourbillon, offers analogue instruments and a hybrid powertrain to retain exclusivity. Although EV sales are booming in China, the very top segment of the market remains comparatively small, in part because consumers can get good quality tech and interior comforts at much lower price points. (Geely's high-end EV brand Lotus has been forced to pivot to hybrids rather than remain in its small niche, while Nio has moved downmarket with its Firefly and Onvo sub-brands.) I've been impressed by some of BMW's EVs, and it's expected to build on that foundation with its upcoming Neue Klasse technology. But other Western manufacturers' products often aren't good enough considering how much they cost. Mercedes-Benz is reportedly struggling to sell the US$160,000 electric version of its iconic G-Class SUV, the G580, due in part to the 3085-kg vehicle's limited range and towing capacity; this has added to the German manufacturer's lengthening roster of EV flops. Eye-watering depreciation of luxury EVs like the Porsche Taycan is also deterring customers. No wonder Lamborghini doesn't plan to launch its first EV until the end of the decade, while Ferrari is reportedly delaying its second EV until at least 2028 (the first will go on sale next year after a protracted launch). ONLY ONE WAY TO DEFEND PREMIUM PRICING But there are risks in feet-dragging: Imagine what Xiaomi, Aito, Maextro, BYD's Yangwang and their ilk will be capable of in five years? Porsche CEO Oliver Blume has said he doesn't consider Xiaomi to be a competitor and claims to be 'very relaxed' about its achievements on the racetrack. 'Customers who love the sportiness, the driving dynamics of Porsche stick to the brand,' he told analysts in March. Nevertheless, the Stuttgart-based automaker seems to have accepted its best days in China are over. Rather than cut prices, it's closing around one-third of its local dealers after the comparatively expensive electric Taycan and Macan failed to sell well. And Blume isn't ruling out giving up on selling EVs in China entirely. For now, the US is essentially off-limits to Chinese EVs due to a combination of import duties and cybersecurity rules. And while European tariffs aren't as high, Chinese luxury brands have made only limited inroads here so far. Consumer loyalty to long-established brands, the slower pace of electrification, and the difficulties of establishing sales and service networks offer Western automakers some protection at home. But in emerging markets – which Chinese automakers are now aggressively targeting – it's a different story. Ultimately, the only way for luxury automakers to sustainably defend their premium pricing in the era of electric and software-defined vehicles is to show they can exceed the best that China can offer. From what I saw last week, that'll be a very tall order.
CNA
an hour ago
- CNA
Commentary: As tariff deadline looms, can Southeast Asia strike a deal with the US?
SINGAPORE: The global economy will enter yet another cycle of volatility as the deadline to negotiate a trade deal with the United States approaches in a week. The stakes for Southeast Asia couldn't be higher. The Trump administration will fall short of its ambitious target of making 90 deals in 90 days, after it paused its rollout of the 'Liberation Day' tariffs. For now, only two framework agreements – which codify parts of an eventual deal including trade and non-trade measures – have been signed with the United Kingdom and China. On Friday (Jun 27), US Secretary of Commerce Howard Lutnick claimed another 10 deals with major trading partners will be announced 'soon' and many more will be concluded by Labour Day on Sep 1. Separately, President Donald Trump remarked that the Jul 9 deadline to conclude negotiations won't be extended. Instead, Washington will inform countries of the final tariffs rates they will pay to have access to the US$28 trillion economy. Given that mixed messaging is a tactic Washington has used quite successfully, it is best to watch financial markets for signs which of these pronouncements will be the actual outcome. TRICKY NEGOTIATIONS Washington imposed a baseline 10 per cent tariffs on all countries and territories, including Singapore, which buys more from the US than it sells. This will undoubtedly affect but not derail the local economy. But for some – particularly Cambodia (49 per cent), Vietnam (46 per cent), and Malaysia (24 per cent) – the additional tariffs could permanently damage their trade-driven economies and leave millions unemployed. Trade negotiations are notoriously difficult and time consuming. Negotiators haggle over tariffs on individual goods, they negotiate non-tariff barriers, and they ask for time for local industries to adjust to concessions. All these are at play in the Liberation Day tariff negotiations. Almost every Southeast Asian country has offered lower-to-zero tariffs for American goods of importance to the US such as agriculture products, commodities and automobiles. Vietnam, Cambodia and Malaysia have also offered more stringent rules about counterfeits and customs controls, so their territories are not misused by other countries trying to avoid higher tariffs. Two factors make these negotiations tricker. One, the region is competing with the rest of the world – and with itself – to get the best possible deal in a near-impossible time frame. For the US, the biggest bang for the buck will be concessions from its largest trading partners - and then the rest of the world. From the region, only Vietnam is in the list of top trading partners, and it is competing for concessions with the likes of Japan and Canada. Compared with the rest, Vietnam has significantly less leverage with the US, and it is unlikely to end up with the 10 per cent baseline tariff rate. Countries also have to keep an eye on regional competition. Cambodia, for example, needs to ensure that whatever tariff rate it ends up with, its low-margin, labour-intensive textile and apparel industries don't become less competitive against companies from Vietnam and others with whom they compete. CHINA LOOMS LARGE As a key trading partner and investor in the region, China looms large in the negotiations. Southeast Asian countries will want to ensure that whatever deals they strike are not worse that what Beijing extracts from Washington. China is also significant for the entire region in other ways. Washington is very keen to use tariffs as a leverage to disentangle the global supply chain from China. Achieving that goal completely is both wishful thinking and virtually impossible. But countries will need to ensure that in industries critical to the US, reliance on Chinese parts is reduced over time. Furthermore, like Vietnam has done, countries will need to be stricter so that country of origin rules are not misused by Chinese companies. With just a week to go, a deal – even an imperfect one – will be an ideal outcome. For the Trump administration, an initial agreement is as good as a final one to satisfy its political base and reinforce Mr Trump's image as a master dealmaker. For those countries who fail to strike a deal, an extension to the deadline will be the second-best outcome. For the millions whose livelihoods depend on trade with the US, anything less will be a disaster.
CNA
an hour ago
- CNA
IN FOCUS: Should Southeast Asian countries ramp up defence spending?
SINGAPORE: In President Donald Trump's second term, the United States has called on allies and partners in Europe and Asia to hike defence expenditures to 5 per cent of their gross domestic product (GDP). Vigorous debate on the merits of such a target has ensued, among top-ranking government officials and faceless social media commenters alike. Those in favour point to countries embroiled in long-running tensions in their neighbourhood, such as South Korea; and cite Western countries spending close to the 5 per cent figure during the Cold War. In the opposing camp, some note the US itself spending 3.4 per cent of GDP on defence last year, even if it was the top spender globally in absolute terms. One particularly well-received online remark stated: "Why should someone tell you how and how much to spend for (your) defence?" Asia was drawn into the conversation at this year's Shangri-La Dialogue, when US Defense Secretary Pete Hegseth said Indo-Pacific allies in particular should spend more on their defence needs to deter the likes of China and North Korea. The Pentagon chief said China was a real and imminent threat seeking to "fundamentally alter the region's status quo". He said it did not make sense for key Asian allies to spend less than European and American countries in the North Atlantic Treaty Organization (NATO), whom he claimed were pledging to spend 5 per cent of their GDP on defence - a figure first floated by Mr Trump in January. In the president's first term, he said NATO members should raise their defence spending to 4 per cent of GDP. The need to match Europe's pace and level of defence spending was brought up again by the US Defense Department in June. Last week, NATO agreed to more than double its defence spending benchmark from 2 per cent to 5 per cent of GDP by 2035 - with the exception of some countries like Spain. The historic decision by the 32-member alliance comes amid a war in their backyard - the deadliest since World War II - prompted by Russia's invasion of Ukraine in 2022. But it is a different picture in Asia despite Korean tensions, the China-Taiwan issue, friction between India and Pakistan as well as Thai-Cambodian clashes along a shared border. And in Southeast Asia, the posture of most countries towards China is markedly different from the US' assessment of Beijing as a threat, experts say. BALANCING OR LEANING? To be sure, Southeast Asian ties with China are not entirely without strain. Most prominently, Vietnam, the Philippines, Brunei and Malaysia have overlapping claims with Beijing in the South China Sea. Issues over the vital waterway for global trade topped a list of geopolitical concerns in the region according to a study by Singapore's ISEAS-Yusof Ishak Institute (ISEAS) think-tank. The Association of Southeast Asian Nations (ASEAN) and China have long been in the process of negotiating a code of conduct to keep peace and security in the South China Sea. The ISEAS survey, published in April, polled over 2,000 thought leaders across the region. Asked who they would side with if forced to, 52.3 per cent picked the US while 47.7 per cent chose China. The narrow margin reflects the "delicate balancing act" ASEAN must maintain between the two superpowers, with economic dependence on China and security interests with the US, ISEAS noted in its report. The think-tank concluded that China remains perceived as the most influential economic and political-strategic power in Southeast Asia, outpacing the US by "significant margins". In a Jun 24 piece for American magazine Foreign Affairs, veteran Singapore scholars Khong Yuen Foong and Joseph Chinyong Liow observed that Southeast Asia was "clearly leaning towards" Beijing. This was based on their assessment of interactions between ASEAN countries and China and the US, though they also added that "alignment patterns are not set in stone". REGIONAL CONSIDERATIONS In 2024, the defence budgets of Southeast Asian countries ranged between 0.78 per cent (Indonesia) and 4.09 per cent (Myanmar) of their respective GDP. The US is concerned that Southeast Asian states are not contributing sufficiently to deterring or dissuading Beijing from using force to settle political disputes, said Mr Drew Thompson, a senior fellow at the S Rajaratnam School of International Studies (RSIS) at Nanyang Technological University. Defence spending is one measure of political will to contribute to deterring China, but in the absence of will to confront China's aggression, the US still seeks capable allies who can independently and competently contribute to maintaining peace and stability regionally, he added. This would require adequate spending on military procurement as well as training, to build up the capability to jointly address threats beyond individual state borders. The problem with the US casting China as a threat to be deterred is that few Southeast Asian states see Beijing in purely adversarial terms or consider it a singular factor underlying their defence considerations, ISEAS senior fellows Hoang Thi Ha and William Choong wrote in an analysis. "Southeast Asian claimant states in the South China Sea - particularly the Philippines and Vietnam - may stand out for a sharper sense of threat arising from Chinese maritime encroachments, yet even they do not define China solely as a threat," they said. Shangri-La Dialogue senior fellow Evan Laksmana also pointed out that in Southeast Asia, threats to security are "a lot more diverse", from illegal fishing to transnational crime. Even if there was an increase in the defence spending, it may not be directed towards conventional capability development the way the US would like, said Dr Laksmana, who is also the editor of the Asia-Pacific Regional Security Assessment at the International Institute for Strategic Studies (IISS). He also cautioned against conflating what the US expects for its allies versus its non-allies. The US is a strategic partner of ASEAN, but only two in the bloc - the Philippines and Thailand - are treaty allies. It may be more "pressing" for them to have an answer to the US' questions on defence spending, said Dr Laksmana, who leads IISS' Southeast Asian security and defence research programme. After Mr Hegseth's speech at the Shangri-La Dialogue, visiting senior fellow Zack Cooper at the RSIS think-tank observed in a commentary that American engagement was overly focused on military cooperation, when what Southeast Asian countries really want was economic cooperation. Moreover, US leaders often view the region through the lens of its own competition with China, rather than recognising Southeast Asian countries as important and valuable in their own right, he added. GUNS VS BUTTER Putting aside the need to, just how feasible is the 5 per cent target? In NATO's case, it agreed that at least 3.5 per cent should be spent on pure defence, up from the current guideline of 2 per cent. The remainder would go to security- and defence-related critical infrastructure such as roads, bridges, ports and airfields. Emeritus professor of politics at the University of New South Wales' Carl Thayer noted, however, that a key difference was in Southeast Asia having no military alliance structure comparable to NATO. ASEAN has a Political-Security Community Blueprint which has not indicated what percentage of each member's GDP should be spent on defence, he added. The blueprint aims to provide a roadmap for member states to live in peace with one another and the world at large. Branding the 5 per cent figure "pie in the sky" for Southeast Asia, Prof Thayer said countries in the region could in fact undermine their own security if they shifted excessive resources to military spending. This, at a time when the global and regional economy has retracted and supply chains have been disrupted by tariffs imposed by the US. "A more prudent course of action would be incremental increases in defence expenditure to modernise their armed forces to keep pace with technological change," he added. Experts said Southeast Asian countries have typically grappled with the classic "guns versus butter" trade-off between allocating money to military or civilian goods. Tariffs aside, majority of the region is still trying to recover economically from the COVID-19 pandemic, said IISS' Dr Laksmana, concluding it would not be realistic to expect Southeast Asian states to increase defence spending over the next few years or so, whatever timeframe the US has in mind. It also should not be forgotten that the region has its own dynamics, he added. For instance, if Indonesia were to suddenly raise its defence budget by five times, it would spark concern among Singapore, Malaysia and the Philippines. "The bordering countries will also start to ask questions why my neighbour is suddenly increasing defence spending," he said. "(Those) kinds of conversations are very subject to local, historical context and all of the challenges of having neighbours in the region." THE SINGAPORE CASE Both Singapore's Defence Minister Chan Chun Sing and Foreign Minister Vivian Balakrishnan have described the country's approach to geopolitical rivalries as not taking sides, but upholding principles such as a global order underpinned by law and sovereignty. China was the first country outside of Southeast Asia which Prime Minister Lawrence Wong visited, after assuming the role in May last year. During his trip in late June, he met Chinese President Xi Jinping and spoke of the "close and steadfast" partnership between both countries. With the US, though not a formal treaty ally, experts said Singapore is considered a "solid" security partner. Defence spending for the country has stayed within the range of 3 per cent of GDP over the past decade. During its Ministry of Defence's (MINDEF) Budget debate earlier this year, former defence minister Ng Eng Hen said he expected growth in defence expenditure to "taper down" from the 2026 financial year, and to keep within the 3 per cent range over the next decade. This is, of course, barring major conflicts or severe economic uncertainty. Given rapid changes in the external environment, if the need arises, Singapore "must be prepared to invest more to further strengthen our capabilities", Dr Ng told parliament then. UNSW's Prof Thayer said that if Singapore were to up its defence spending to meet the US' target, it would raise the possibility of "entrapment" in the event of any armed conflict between the superpowers. Singapore's interests lie in "mitigating the vulnerability of its small size rather than expeditionary warfare", he added. Dr Laksmana said: "If there is some artificial benchmark in terms of the growth in defence spending, it will be on Singapore's own terms, not the US. "It will be on Singapore's own calculations and interest." SPENDING ON THE FUTURE Above and beyond what appears to be an arbitrary 5 per cent metric is a more fundamental logic, as RSIS military studies senior fellow Bernard Loo put in a commentary: "It is not how much a country spends on defence that truly matters, but what that spending actually procures for the country's defence needs." Several militaries in Southeast Asia have been refreshing their assets of late. Indonesia in 2022 purchased 42 French-made Rafale jets for US$8.1 billion, with deliveries starting next year. It is also mulling over China's offer of J-10 jets, which were battle-tested in Pakistan's clashes with India. In the Philippines, a US$35 billion, decades-long modernisation initiative is underway, with Manila looking to buy advanced fighter jets, submarines and missile systems amid periodic face-offs in the busy South China Sea waterway. As for Singapore, it announced earlier this year that two more Invincible-class submarines will be added to the navy's current fleet of four; while the air force looks to replace its maritime patrol aircraft and the army upgrades its long-range High Mobility Artillery Rocket System (HIMARS) launcher, among other moves. Ongoing conflicts around the world have also reshaped thinking around the future of warfare, in particular highlighting how unconventional tactics can challenge stronger and more traditional opponents. In early June, more than 100 Ukrainian drones struck air bases deep inside Russia in a surprise attack known as Operation Spider's Web. In an analysis for the Center for Strategic and International Studies, researcher Kateryna Bondar said the operation was proof that low-cost, open-source drones can effectively destroy high-value military platforms. Spider's Web also reflected the growing use of artificial intelligence (AI) in battlefields. For the operation, AI systems were trained using decommissioned Soviet aircraft displayed in museums, which enabled Ukraine's drones to strike with surgical precision, wrote Ms Bondar, a fellow with the American think-tank's Wadhwani AI Center. The attack also demonstrated the need for dedicated countermeasures against threats from unmanned aerial systems - something which Singapore, for one, is already planning for. All of these recent trends point to a future where technological agility, not just industrial scale, determines strategic advantage, said Ms Bondar.
