Narong Yuenyonghattaporn, a retired civil servant in Bangkok, bought an electric car made by GAC Aion earlier this year. He is part of a growing number of Thai drivers who are buying EVs sold by Chinese automakers but made in Thailand, which has become one of the front lines in the global battle for car market supremacy.
Over the past two years, Chinese automakers including BYD, GAC Aion and Chery have announced plans to build manufacturing facilities in Thailand. BYD and GAC Aion’s factories began operations in July, and Chinese investment in Thai car factories so far amounts to at least $1.4 billion.
Narong’s EV is one of 80,000 battery electric vehicles that the Electric Vehicle Association of Thailand expects to be registered this year. According to government data, Thailand registered 76,739 BEVs last year, 6.5 times more than in 2022.
The pace of EV adoption in Thailand has slowed this year, like many other parts of the world, but it is part of a growing trend. Chinese automakers, led by BYD, are entering markets long dominated by Japanese, American and German automakers. Since around 2020, Chinese car brands, especially EV manufacturers, have been expanding internationally in search of more revenue as fierce competition and domestic oversupply have eroded their market share.
However, with geopolitical barriers making it difficult for car buyers in Europe and North America to reach them, these Chinese automakers are aggressively entering middle-income markets such as Thailand, Indonesia, Brazil, Malaysia, and Argentina, where there are no domestic automotive champions to protect. . The government has at least somewhat friendly relations with Beijing.
In Thailand, Chinese electric vehicle manufacturers have begun to challenge the Japanese brands that have long dominated the Thai automobile market. Chinese brands have bought huge billboards on the highway between Suvarnabhumi Airport and Bangkok. More showrooms in the city now feature Chinese-made vehicles, and Chinese EV production facilities are less than a two-hour drive from Bangkok. Once fully operational, these Chinese EV facilities together could ramp up production to produce at least 320,000 vehicles per year.
“There are several factors that make Thailand attractive,” says Eugene Hsiao, Hong Kong-based head of China equity strategy and China auto. “The first and most obvious thing is that Thailand, as a country, is relatively friendly towards China. I think that’s very important. Second, the automotive supply chain is already fairly well developed. “Historically, the Japanese have mostly done it.”
Thailand’s central location in the region makes it a gateway to the wider Southeast Asian market, and Thailand itself has a large domestic automobile market compared to the rest of the region, a GAC Aion Thailand spokesperson said.
As in Thailand, Chinese automakers are investing globally. Led by big brands like BYD, SAIC and Chery, they are assembling their cars domestically to get incentives or avoid tariffs.
“Affordability is a universal value proposition.”
Bill Russo, Founder and CEO, AutoMobility
Brazil has resumed import taxes on electric vehicles regardless of their origin, but the government also has a program to encourage companies to decarbonize, with car companies able to receive tax rebates based on the energy efficiency of their car models and local production density. . Manufacturing in Hungary could potentially allow Chinese EVs to bypass EU tariffs, while in Malaysia, the government offers tax exemptions for locally assembled EVs despite the presence of local car brands.
Hsiao says Chinese manufacturers have a clear strategy in choosing which countries to set up shop in. In this case, bigger doesn’t necessarily mean better.
“The best markets in terms of GDP per capita would be the large developed markets, meaning the US, Europe and Japan. “You could argue that these markets are the most closed,” he says. But there are “other small but significant markets” for Chinese car brands.
Beijing identified the electric vehicle sector more than a decade ago as a strategic emerging industry in need of state support and provided subsidies to both manufacturers and consumers. At one time, there were as many as 500 EV companies in China, but competition and the gradual elimination of subsidies have led to consolidation.
Traditional automakers in Europe and the United States are struggling to compete or match Chinese EV products at lower price points. That eroded Volkswagen’s bottom line in late October, when it announced plans to cut wages and close plants. Japanese automakers are also making a slow transition to electric vehicles, and Toyota, Japan’s largest automaker, is betting on hybrids as it believes the EV transition will not happen as quickly as expected. This strategy appears to be working so far, as Toyota retained its title as the world’s largest automaker last year. In the first nine months of this year, Toyota sold about 3 million hybrid vehicles, up 19.8% from the previous year, according to Toyota’s data.
According to the International Labor Organization (ILO), automobile manufacturing accounts for 10% of Thailand’s GDP and contributes about 850,000 jobs. The history of automobile manufacturing dates back to the 1960s, when Japanese manufacturers such as Toyota, Nissan, and Mitsubishi opened production facilities in the country. American and European brands soon followed suit.
From the beginning, Thailand relied heavily on incentives and tariffs to transform itself into a regional auto manufacturing hub. Beginning in the 1960s, the automobile industry began an import substitution policy to replace foreign imports with domestic production, attracting foreign automobile manufacturers to establish domestic production facilities.
Thailand’s trade agreement with the Association of Southeast Asian Nations (ASEAN) means car manufacturers can enjoy lower export tariffs when selling within the region. The Thai government is imposing high import taxes of up to 80% on passenger cars and 30% on pickup trucks to encourage car manufacturers to continue producing in the country.
Now the Thai government is confident that electric vehicles will help the country maintain its position as the ‘Detroit of Southeast Asia’.
Bangkok has a “30@30” plan that aims to have 30% of cars produced be EVs by 2030. In early 2022, Thailand approved an incentive package to promote EV adoption in the country, with the goal of ultimately taking the country electric. Regional EV manufacturing hub.
Tangible investments in manufacturing by Chinese companies can influence the decisions of buyers like Narong, a retired civil servant. By setting up assembly plants in Thailand, these companies have ensured the reliability of Chinese cars by making parts more readily available and easier to maintain. Less demanding geopolitical relationships may also make such buyers more open to giving Chinese cars a chance.
“They are also producing a lot of electric vehicles to serve their own market and the government is giving full approval and we believe this brings good experience and reliability,” says Narong.
However, although these Chinese EVs are starting to enter Thailand, they are still challengers and have yet to catch up with established car manufacturers. Charging anxiety remains an issue that needs to be addressed, and EV adoption is progressing faster, mostly in Bangkok. In mountainous areas like Chiang Mai, Toyota pickups may continue to be the preferred choice.
Toyota remained the top automaker in Thailand last year, selling 265,949 vehicles, followed by Isuzu, Honda and Ford, according to data from its Thai subsidiary. BYD ranked sixth with 30,432 cars sold, just 2,000 units behind fifth-place Mitsubishi. Overall, Chinese brands led by BYD accounted for 11% of the new car market share, more than doubling compared to the same period last year, while Japanese car sales decreased. Last year, Chinese brands accounted for about 80% of electric vehicle sales in Thailand.
A GAC Aion Thai spokesperson said tax rebates for EVs in Thailand were making the country an attractive market. Other countries are also offering tax rebates for EVs, which will further increase demand.
“Affordability is a universal value proposition,” says Bill Russo, founder and CEO of Automobility, a Shanghai-based automotive industry strategy and investment advisory firm.
But Russo argues that the threat from Chinese automakers to established automakers goes beyond just EVs.
Despite talk of Chinese EVs entering overseas markets, the country is also exporting conventional internal combustion engine (ICE) vehicles in huge numbers, he said. Russo explains that because consumers in China, the world’s largest auto market, are rapidly choosing EVs over ICEs, Chinese automakers are left with more ICE vehicles than the market can absorb. This means they will try to unload millions of cars elsewhere. China hasn’t had much success selling gasoline-powered cars in Thailand, but other markets still on the fence about EVs are ripe.
“We sell to Russia, we sell to Mexico, we sell to Brazil. Sell to places where consumers don’t yet trust EVs,” says Russo.
China exported 4.91 million cars last year, surpassing Japan to become the world’s largest automobile exporter. Plug-in hybrids and battery electric vehicles account for about 25% of exports, meaning that Chinese brands are also selling a lot of gasoline vehicles.
Although exports to Russia remain dominant, Chinese automakers have significantly expanded their market share in Mexico, Brazil, Turkey and the UAE, according to data compiled by Automobility.
Because the government only views Chinese automakers through an EV lens, ICE vehicles are still being exported without many barriers, Russo says. This presents an opportunity for Chinese car manufacturers.
“You set up your dealer network, establish your brand, and establish a beachhead,” says Russo. Once established as a trusted brand, automakers can begin rolling out EVs.
Automakers have used the same strategy in China, Russo says. “That’s what they will do internationally. “They will go into every country they can and then switch to EVs.”
This article appears in the December 2024/January 2025 issue of Fortune under the title “Changing Lanes.”
