Thai auto industry struggles with falling demand, EV imports

Faced with sluggish demand in their home market and increasing trade frictions in Europe and North America, Chinese automakers have stepped up their expansion into southeast Asia and other regional markets this year.

In southeast Asia, where governments are competing fiercely to attract inward investment as they look to establish international production hubs for next-generation technologies, Chinese automakers have ramped up their investments and are beginning to shake-up an industry that has for many decades been dominated by the Japanese.

Thailand has been especially keen to attract new automotive sector investment, as it looks to consolidate its position as the region’s largest vehicle producer by leading its transition to zero-emission vehicles. It looks to be pulling ahead of Indonesia in its efforts to attract electric vehicle (EV) sector investments, with three new Chinese EV assembly facilities having come on stream since the beginning of the year.

But this has come at a price, with established vehicle producers and their supply chains struggling with sharply lower business volumes.

Thailand’s domestic vehicle market has weakened significantly in the last eighteen months after an initial rebound from the Covid pandemic, with the country’s highly indebted consumers struggling with higher interest rate and tighter lending by local financial institutions. Overall vehicle sales fell by almost 9% to 775,780 units last year, according to data released by the Federation of Thai Industries (FTI), reflecting sharply lower demand for internal combustion engine (ICE) vehicles. The data excludes some key brands such as BMW and Mercedes-Benz.

The all-important pickup truck segment has been hit particularly hard, with sales last year plunging by 32% to 264,738 units, while pickup-based passenger vehicle (PPV) volumes dropped by over 9% to 60,286 units. Overall sales of ICE passenger vehicles were down by almost 14% at 238,570 units, while sales of other types of commercial vehicles fell by over 7% to 43,176 units.

By contrast BEV sales surged sevenfold to 73,540 units last year according to separate industry data, driven mainly by imports from China, to account for over 10% of Thailand’s overall vehicle market and around 16% of total light passenger vehicle sales.

The decline in Thailand’s domestic vehicle market accelerated in the first five months of 2024, with overall sales falling by almost 24% to 260,365 units – driven lower by a further 41% plunge in pickup truck sales to 75,510 units while PPV sales dropped by 42% to 16,255 units. FTI spokesperson Surapong Paisitpatanapong last month confirmed “the situation is getting worse as a result of banks’ strict criteria in granting auto loans”.

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Vehicle exports have also weakened significantly this year, which has put additional pressure on the country’s component sector. Overall vehicle output fell by 17% year-on-year to 644,951 units in the first five months of 2024. Local analysts expect vehicle production to fall by at least 10% to around 1.65 million units this year, from 1.84 million units in 2023.

Meanwhile, sales of battery electric vehicles (BEVs) continued to grow – by a further 32% to 43,921 units so far this year, with the segment continuing to enjoy generous sales incentives as the Thai government looks to drive up investments in local production and new supply chains. Under its EV3.0 policy introduced at the beginning of the year, BEV imports are currently exempt from tariffs and other subsidies are available to attract investment into the sector, albeit linked with minimum export quotas further down thew line.

At the end of last year Chinese automaker Hozon began assembling the Neta V BEV in the country, followed by Great Wall Motors with local assembly of its Ora 03 BEV in January at its plant in Rayong, which also makes ICE and plug-in hybrid vehicles. This month two other Chinese automakers, BYD Auto and GAC Aion, opened new EV assembly plants in the country – with annual production capacities of 150,000 and 50,000 vehicles receptively. Other new Chinese-owned BEV assembly facilities are scheduled to come on stream in the next twelve months, including by China’s SAIC Motor, Changan and Chery Auto, as well as Taiwan’s Foxconn.

Earlier this year the Thai government claimed it has secured total BEV sector investments worth US$1.44bn so far, for a production capacity of some 600,000 BEVs per year, with the government aiming for zero-emission vehicles to account for around 30% of total vehicle output by 2030.

Inevitably, established Japanese automakers are coming under increased pressure from this rising competition from the Chinese. Earlier this year Suzuki and Subaru announced they planned to cease operations at their underperforming vehicle assembly plants in the country.

In July, Honda Motor announced it will cease vehicle production at its Ayutthaya plant in 2025 due to rising overcapacity, with plans to consolidate vehicle production at its Prachinburi plant to help improve efficiency. The company said it will use the Ayutthaya plant to produce components instead, at least in the short term.

Other Japanese automakers understood to be reviewing their production capacity requirements in Thailand include Mazda and Nissan.

The FTI’s Surpong Paisitpatanapong told local reporters last month “the government urgently needs to introduce measures to stimulate vehicle purchases, particularly internal combustion engine (ICE) vehicles such as pickup truck trucks – which use over 90% locally-produced parts”.

With new BEV supply chains still under development, newly established assembly plants still rely heavily on imported parts. Existing Thai suppliers are struggling with lower business volumes. Suphot Sukphisarn, chairman of the FTI’s Automotive Parts and Accessories Industry Group, has called on the Thai government to provide support to help existing suppliers reskill and expand into new market segments.

“Thai auto industry struggles with falling demand, EV imports” was originally created and published by Just Auto, a GlobalData owned brand.

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