Thailand's automotive industry grappling with decreased demand, escalating tariffs, and economic instability, yet investment may provide relief
Thailand's automotive industry is navigating through a period of significant changes, with both domestic and international factors playing a role.
In the first quarter of 2025, ultra-luxury car sales in Thailand saw a 16% year-on-year decline, according to Inchcape, the distributor of JLR in Thailand. This trend is expected to continue in the luxury vehicle segment this year.
However, there's a glimmer of hope as the Thai government has taken steps to encourage consumer demand for plug-in hybrid EVs (PHEVs). As of April 29, the government has approved lower tax rates for PHEVs. This move is part of a larger budget of $212m set aside for an EV subsidy programme for Original Equipment Manufacturers (OEMs).
One such OEM that has shown commitment to Thailand is BMW, which has invested $45.6m in the construction of a battery manufacturing facility in the country. BYD has also set up an EV plant in Rayong, Thailand, with an annual production capacity for 150,000 EVs and batteries. Volvo has joined the ranks with a $32.7m investment in a vehicle and parts distribution centre outside Bangkok, as well as battery charging infrastructure.
Auto Alliance Thailand, Mazda's joint venture with Ford, is also investing $148m in its manufacturing base in Thailand. This investment is a testament to the country's potential as a manufacturing hub, a sentiment echoed by Thailand's deputy finance minister Paopoom Rojanasakul, who believes the new regulations will help promote Thailand as a base for PHEV manufacturing for both domestic and international sales.
Thailand's reliance on exports, particularly to the US and China, has put it in a vulnerable position. The proposed US tariffs on imported goods could have a significant impact, with a 36% rate on Thai imports to the US. These tariffs, if implemented, could negatively affect Thailand's exports by about $8 billion, which equals around 2.3% of Thailand's total exports last year.
Foreign domestic investment, particularly from China, is also expected to take a hit from Trump's tariffs. This could further strain Thailand's economy, which has already experienced a significant drop in GDP growth, from 3.5% in 2019 to 1.9% in 2023.
The US makes up 18% of Thailand's global exports, and its trade deficit with Thailand was $45.6 billion last year, an 11.7% increase over 2023. Thailand's economy is heavily reliant on these two markets, making it susceptible to external shocks.
Uncertainty remains, but Thailand's automotive market could in fact benefit and become more competitive over the coming years with continued government support and OEM investment. However, challenges persist, with credit tightening in the ASEAN region, including Thailand, holding back automotive market growth, according to Henner Lehne, vice-president of global vehicle forecasting, automotive, S&P Global Mobility.
Despite these challenges, it is clear that Thailand is making strides in the electric vehicle sector, and with continued investment and support, it could emerge as a significant player in the global automotive market.
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