Japanese scholar Seiya Sukegawa believes that due to the ASEAN-China Free Trade Agreement and the Thai government's active promotion policies, the Thai car market, and even the global car market, will soon be filled with Thai-made Chinese EV brands. It is pointed out that there is a possibility that
A seismic shift is occurring in Thailand's automobile market, which has long been considered Japan's stronghold. Of the 780,000 units in the Thai car market in 2023, Chinese cars will account for 87,000 units, accounting for a double-digit share of 11%.
The top three Chinese automakers are BYD, MG (SAIC-CP), and NETA (Zhejiang New Energy Automobile), of which only MG currently has a production base in Thailand. Benefiting from the ASEAN-China Free Trade Agreement (ACFTA), battery electric vehicles (BEVs) are increasingly entering the Thai market, indicating a major change in car imports.
BEV imports and increasing popularity
Apart from ACFTA, the rapid increase in sales of Chinese cars in Thailand is thought to be mainly due to the Thai government's active BEV promotion policy. The Thai government is actively encouraging investment by promising economic incentives such as subsidies and consumption tax cuts if imported BEV companies commit to start BEV assembly in Thailand by 2024 or 2025. I've done it.
Many Chinese companies have reacted to this, and from 2022 onwards, Chinese-made EVs are flowing into the Thai market ahead of the establishment of production bases.
As a result, BEV sales are expected to reach 74,000 units in 2023, and BEV's share of the Thai car market is expected to jump from 1.2% in the previous year to 9.5%. BEV production will remain at 164 units in 2023, and BEV imports are rapidly increasing.
According to the critical mass theory in marketing, the threshold for a product to explode in popularity is a market share of 16%, but BEV is below that level at 9.5%. However, this does not reflect the fact that almost all BEVs are passenger vehicles, as there are still many challenges in the adoption of BEVs into commercial vehicles.
Recalculating the BEV share in the passenger car segment amounts to 25.2%, well above the theoretical threshold. Furthermore, the overall share of next-generation vehicles, including BEVs, hybrid electric vehicles (HEVs), and plug-in hybrid electric vehicles (PHEVs), is 57.6%. A seismic shift is occurring in Thailand's passenger car market.
China's BEV market is dominated by state-owned enterprises and private companies of various sizes, but excessive competition has led to a decline in production capacity and has entered an era of “phasing out”. For these companies, a slight difference in the Thai market is a “ray of hope'' for survival.
Why Chinese automakers choose Thailand as their production base
With the exception of Tesla, companies that introduce Chinese BEVs to the Thai market will receive BEV subsidies from the Thai government. These companies are encouraged to start producing BEVs in Thailand by 2024 or 2025, in line with the Thai government's strategic incentives.
BEV production in Thailand is in the early stages, with Mercedes-Benz expected to start production in mid-2023, and Honda and MG in late 2023. Great Wall Motors will begin production of the “ORA” in January 2024, and BYD, NETA, and GAC will begin production of the “ORA” in January 2024. Autonomous New Energy (AION) will start local production in 2024, and Changan Automobile will start local production in 2025. In addition to supplying within Thailand, many of these companies are also considering exporting to the ASEAN region, Australia, New Zealand, and Europe.
Originally, ASEAN countries imposed high tariff barriers in order to develop their own automobile industries. In the case of Thailand, high tariffs of 80% are imposed under most-favored-nation treatment. However, as part of regional economic integration, the ASEAN Free Trade Area (AFTA) was established, eliminating tariffs only on products originating within ASEAN, creating a new dynamic in regional trade.
As a result, the functions of regional offices were reorganized. Thailand and Indonesia have developed as automobile production and export bases in the region, and a system has been established in which other countries support the ASEAN automobile industry through knock-down (KD) production and supply of key components.
Even though FTAs with countries within the region progressed in the 2000s, tariff barriers were basically maintained, except for countries with weak automobile industry bases. In other words, the elimination of automobile tariffs was almost exclusively the prerogative of ASEAN member states. However, the ACFTA with ASEAN's first foreign country, namely China, created a hole in Thailand's BEV tariff barrier, and BEV tariffs have been zero since 2010.
It is now possible to change “Made in China” EVs to “Made in Thailand”, which is a particular concern in Europe.
China's BEV market is dominated by state-owned enterprises and private companies of various sizes, but excessive competition has led to a decline in production capacity and has entered an era of “phasing out”. For these companies, a slight difference in the Thai market is a “ray of hope'' for survival.
Furthermore, if local production is supported by the Thai government's BEV promotion policy, it will be possible to actively utilize the FTA network that Thailand and ASEAN are building. In addition, it is now possible to change BEVs from “Made in China” to “Made in Thailand”, which is a concern mainly in Europe.
If a Chinese car meets the 40% local content requirement and is certified as originating from Thailand, it will be exported within and outside the ASEAN region through the ASEAN FTA network.
Possibility of acquiring the long-awaited title of “origin in Thailand”
Utilization of FTA is essential for Chinese EV companies to expand exports beyond Thailand's domestic market, and in order to do so, they must meet the requirement of “40% local content''. This is likely to depend on the degree of localization of battery production, which is estimated to account for one-third of car prices, and the extent to which Thailand's industrial cluster is utilized. However, in the early stages of production, most parts are imported from China, making it difficult to meet these requirements.
If the requirement of “40% local content'' cannot be met, the majority of BEVs produced in Thailand will remain in the domestic market. If there is an oversupply and discount sales become rampant, as in China, the entire market will be affected.
If a Chinese car meets the 40% local content requirement and is certified as originating from Thailand, it will be exported within and outside the ASEAN region through the ASEAN FTA network. This will lead to direct competition between car companies in the destination country and Chinese cars originating from Thailand. In any case, the Asian automobile industry is entering a period of major change.