Chinese automakers have become guests of honor in the Thai auto industry. On July 4, at the completion ceremony of the Thai factory held by BYD, Thai Minister of Industry Pimpala Wichaikun and Secretary General of the Thai Board of Investment Narit Tsatirasak attended. Pimpala Wichaikun said: "BYD came to Thailand to invest and brought cars with advanced production technology, which will promote the development of the new energy vehicle industry in Thailand and even ASEAN."
In 2022, BYD achieved sales of more than 10,000 vehicles in Thailand in 42 days. Now it has taken another 16 months to turn a piece of wasteland in Rayong Province, a major automobile town in Thailand, into a brand new new energy vehicle production plant. BYD's rapid development in Thailand has become a microcosm of Chinese automakers' in-depth layout of the Thai auto market. More and more Chinese automakers are pouring into Thailand's "hot land" with supporting industrial chains.
"Chinese auto industry chain companies have built factories in Thailand for both internal and external factors. 'No base, no overseas, no overseas, no internationalization' has become a consensus, but going to Europe is subject to tariff barriers," Wu Songquan, chief engineer of the China Automotive Strategy and Policy Research Center of the China Automotive Research Center, told the Economic Observer. Chinese automakers can enter ASEAN duty-free and enter the European market at a lower tariff.
In Thailand and Southeast Asia, Japanese cars have a strong presence. Chinese cars, which have just arrived, are bound to face off against Japanese cars in Thailand. Zheng Yun, global senior partner and head of automotive business in Greater China at Roland Berger, said that in terms of styling and quality, Chinese new energy vehicles can be said to crush Japanese models, but it is too early to "strike Japanese brands with dimensionality reduction" as the domestic media said.
Many relevant persons in charge of Chinese auto companies in Thailand said that this year is not as good as last year. On the one hand, Chinese brands are involuntarily and frequently cut prices; on the other hand, Japanese companies have a great influence on the Thai political and business circles. At present, Chinese new energy vehicles have encountered great obstacles in terms of insurance and financial loans for power batteries, which has led to a decrease in Thai consumers' enthusiasm for new energy vehicles.
Thailand's electric car boom
On the highway to Bangkok, Thailand, huge billboards of Chinese new energy vehicle brands can be seen everywhere.
Thailand's enthusiasm for new energy vehicles has attracted seven Chinese automakers, including BYD, SAIC MG, Great Wall, Nezha, Changan, GAC Aion and Chery, to build factories there. Among them, BYD has already started production, GAC Aion plans to start production in the third quarter of this year, and Changan Automobile will start production in early 2025.
Thailand's promotion of new energy vehicle development is part of its grand strategy to promote a low-carbon economy. Thailand plans to achieve carbon neutrality by 2050, and has introduced the "30·30" policy for this purpose, proposing that by 2030, 30% of domestically produced cars will be ZEVs (zero-emission vehicles), and by 2035, ZEVs will increase to 1.35 million.
Between 2023 and 2025, the Thai government allocated 35 billion baht for electric vehicle companies to purchase land, build factories and develop electric vehicle charging facilities. This is equivalent to a direct cash subsidy to electric vehicle companies that build factories in Thailand.
There are also favorable policies on the consumer side. In the fourth quarter of 2023, Thailand issued incentives for electric vehicles, providing consumers who purchase electric vehicles from 2024 to 2027 with a purchase subsidy of up to 100,000 baht per vehicle.
"The development of electric vehicles is more driven by large enterprises such as the Thai National Petroleum Corporation and Charoen Pokphand Group," Zheng Yun believes that some state-owned enterprises and investment companies in Thailand are very forward-looking. They have transformation needs, and they are actively looking for and urging the government to attract Chinese electric vehicle companies to settle in Thailand.
Thailand's large state-owned enterprises are pushing for the transformation of their own automobiles to electrify, which is also related to the importance of the automobile industry in the country. As the second largest economy in Southeast Asia, Thailand is the world's top 10, Asia's fifth, and ASEAN's largest automobile production base.
According to data from the Thailand Automotive Institute (TAI), the total value of Thailand's automobile market in 2023 will exceed 3 trillion baht, accounting for 18% of GDP, providing nearly 1 million jobs for Thailand.
The Kaitai Research Center once estimated that if Thailand does not promote the development of electric vehicles, the cumulative output value loss of Thailand's fuel vehicle industry chain will reach 600 billion baht from 2023 to 2032. On the contrary, the output value loss of the fuel vehicle supply chain can be reduced to 210 billion baht, equivalent to 1.2% of nominal GDP.
"Among ASEAN countries, Malaysia is rich in oil and does not have a strong sense of urgency for electrification; Indonesia and the Philippines account for 37% and 14% of the global nickel ore production respectively, which can attract power battery companies to settle down," Zheng Yun said. Thailand's mineral resources are relatively not rich. In 2019, the epidemic caused the pillar industry tourism industry to suffer a blow and the economy to go down. If Thailand wants to continue to export cars and stabilize GDP and employment, it must develop electric vehicles.
"Thailand's subsidy policy refers to China, and Malaysia and Indonesia refer to Thailand, so Thailand has the greatest investment promotion efforts," said Peng Cheng, a director of a global management consulting company. If Thailand does not seize this window period to accelerate the transformation to electrification, then Thailand may lose its strong automotive industry advantages in the wave of electrification.
"Tax avoidance" safe zone
Seizing the window period is also mutual. Thailand needs China's new energy vehicles, and China's new energy vehicles also need Thailand. One of the main reasons is that when Europe and the United States raise import tariffs on Chinese electric vehicles, Thailand is a safe market.
At present, the United States, the European Union, Turkey, etc. have announced that they will impose tariffs on Chinese electric vehicles, and Canada also has such plans. The high tariffs in these overseas markets have undoubtedly set up obstacles for the global development of Chinese electric vehicles.
A report from the Kiel Institute for the World Economy pointed out that the number of electric vehicles imported from China this year will drop by 25%, which is equivalent to about 125,000 vehicles worth nearly $4 billion based on the import of nearly 500,000 vehicles in 2023. The simulation of the Kiel Institute shows that if the tariff is increased uniformly by 20%, the value of electric vehicles exported by China to the European Union will decrease by about $3.8 billion. "If we build a factory in Thailand and then export to ASEAN, there will be 0 tariffs, and the export to the EU is only 10% of the normal rate. Therefore, Chinese automakers regard Thailand as a bridgehead for going overseas and internationalization to break through the EU's tariff barriers on Chinese electric vehicles," Wu Songquan said. Complete vehicles and parts exported from China to Thailand are also duty-free.
According to the ASEAN Trade in Goods Agreement (ATIGA), complete vehicles imported from ASEAN member countries are exempt from tariffs as long as the localization rate exceeds 40%. "This localization rate is calculated based on the ratio of the value of parts and services to the value of the whole vehicle. Only one power battery can meet this requirement," Shu Gangzhi, vice president of Nezha Automobile's overseas business department and general manager of the Thai subsidiary, explained to reporters.
Since 2018, Thailand has implemented zero tariffs on electric vehicles imported from China. Thailand currently has 14 free trade agreements covering 18 countries. In the next few years, Thailand may have 20 free trade agreements covering 53 countries. This is the core factor for Chinese automakers to use Thailand as a "bridgehead" for internationalization.
In addition, the reason why Chinese car companies choose Thailand is also due to Thailand's strong industrial foundation, shipping strength and stable political environment. "Thailand's politics is relatively stable, policy transparency is high, cost is not high, and it is relatively friendly to China. The proportion of Chinese in Thailand has reached 14%, and the market capacity can also support the development of Chinese auto brands," said Shu Gangzhi. If Chinese brands cannot succeed in Thailand, the possibility of success overseas will not be very large.
The whole industry chain enters Thailand
Not only vehicle companies go to Thailand, but also the whole industry chain of new energy vehicles such as power batteries, tires and wheels, semiconductors, and circuit boards.
In July last year, the Thai subsidiary of Honeycomb Energy Technology and BanpuNEXT, a subsidiary of international energy giant Banpu, established a joint venture factory to build a module Pack with an annual production capacity of 60,000 sets in Chonburi Province. EVE Energy signed a memorandum of understanding with Energy Absolute Public Company Limited to jointly establish a joint venture company to build a battery production base with an annual production capacity of at least 6GWh.
Printed circuit board (PCB) companies are moving faster. Mainland-funded manufacturers such as Shanghai Electric, Oscon, Zhongjing Electronics, Sihui Fushi, Zhongfu Circuit, Mingyang Circuit, Shenghong Technology, Aohong Electronics, and Nanya New Materials have announced that they will establish production bases in Thailand, and most of them will be put into production in the second half of this year.
As Thailand vigorously develops electric vehicles, charging pile companies have also smelled business opportunities. In May this year, GAC Energy Technology (Thailand) Co., Ltd., which focuses on new energy vehicle charging business, was established in Bangkok. Zhida Technology's factory in Thailand has a designed production capacity of 216,000 charging piles per year. Wancheng Wanchong has established an after-sales installation service team in Thailand.
In addition, parts companies such as Qijing Machinery, which focuses on precision machining, Hengshuai Co., Ltd., which specializes in automotive micromotors, and Hongtong Technology, which specializes in vehicle display hardware such as central control screens and entertainment screens, will also be built and put into production in the second half of this year.
If after 2014, Chinese rubber tire companies went to Thailand to build factories to avoid European and American sanctions on Chinese tires and to take a fancy to Thailand's rich rubber resources, then in the past one or two years, tire companies went to Thailand to build factories or increase investment and expand production in Thailand, which is more of a proactive behavior, hoping to provide support for Chinese auto companies.
In January this year, Donghao Tire said it would accelerate the construction of the "Aibeisi" production base in Thailand. Last year, Prinx Chengshan and General Rubber said they would expand their Thai factories. In recent years, upstream tire companies such as Shenma Co., Ltd., Junfan Industrial Co., Ltd., Haomai Group, and Xingda Steel Cord have also invested in Thailand to expand production. Jinfei Keda's Thai subsidiary plans to invest 557 million yuan to invest in a "new energy vehicle aluminum alloy wheel construction project with an annual output of 2 million pieces" in Rayong.
Chinese and Japanese auto companies confront each other
After Chinese auto companies came to Thailand, the head-on battle with Japanese auto companies also began.
The Nikkei Shimbun once reported that due to the popularity of Chinese electric vehicles, the market position of Japanese auto companies in Thailand has been weakened. China's share of the new car market in Thailand doubled to 11% in 2023, while the market share of Japanese automakers in Thailand fell by about 8%.
Peng Cheng believes that Chinese electric vehicles are better than Japanese ones in terms of appearance, interior luxury, and quality. After all, the Thai market's requirements for automobile products are far less than those in Europe and the United States.
Several relevant persons in charge of Chinese automakers in Thailand said that the strategy of Japanese brands in Thailand to cope with market changes is to add configurations without reducing prices and stabilize terminal prices, but in January this year, Japanese brands began to reduce prices, and the prices of first-line brands such as Toyota Yaris and Honda City also began to adjust.
"If you look at the entire industry, it's not the case at all. Chinese automakers have only seized a few points of market share from Japanese brands, and MG's market share in Thailand is only 4%," said Yang Lei, general manager of Yanfeng Thailand. "If you compare parts companies, the number and proportion of Chinese companies in Thailand are not large, and Chinese automakers do not have much advantage in cost."
Yang Lei believes that although Japanese automakers are relatively slow in electric vehicles, Toyota, Nissan and other companies are also preparing to launch pure electric models in the Thai market, and Japanese automakers are not in a hurry. After all, China has developed for so many years, and the ratio of cars to charging piles has only reached 2.5:1. The current ratio of cars to charging piles in Thailand is 20:1, and Japanese cars still have huge room for development.
It cannot be ignored that Japanese automakers also have strong political and business strength. "Japanese trading companies have a great influence in Thailand. Whether it is automobile industry policy or infrastructure, there are shadows of Japanese companies. This is an unquestionable reality," said Peng Cheng. In these aspects, Chinese automakers are not as united as Japanese companies, and their strength and influence are much worse than Japanese companies.
The head of the Thai business of a Chinese automaker told reporters that the development of Chinese new energy vehicles in Thailand also faces high requirements in insurance and finance.
For example, in the insurance industry, the OIC (Office of Insurance Commission) stipulates that the compensation rate for electric vehicle batteries decreases every year, and the compensation ratios from the first to the fourth year are 100%, 80%, 70%, and 60%. In this way, if there is a problem with the customer's battery after one year, he or she will have to pay 20% of the funds himself, which will shake the user's idea of choosing an electric car.
The Federation of Thai Industries said in early May that due to strict bank loan approval and delays in government budget spending, Thailand's car sales in April fell 21.5% year-on-year to 46,738 units, the lowest level since August 2021.
From domestic volume to foreign countries?
The decline in the overall sales of new energy vehicles in Thailand may be related to the frequent price cuts of Chinese auto brands in the Thai market. "BYD's ATTO3 used to sell for 1.2 million baht, then sold for 1.09 million baht, 1.04 million baht, and then 940,000 baht, a reduction of nearly 200,000 baht. Dolphin also reduced its price again in March and now sells for 659,000 baht. The price of Aion AIONY Plus was not high when it was launched in September last year, and it was reduced twice in October and December last year, and once again in March this year." Shu Gangzhi said that it is understandable for companies to reduce prices for their own interests and goals, but the negative impact of frequent price cuts should not be underestimated.
First of all, users do not know when car companies will reduce prices and what the bottom line of price reduction is, which indirectly affects the user's selection cycle and difficulty.
At the same time, this is also a reason for the Bank of Thailand to strictly control the lending of electric vehicles. The Bank of Thailand believes that the price war of Chinese brands is too fierce. After paying back the loan for a long time, customers find that the amount they have paid back is not as much as the price reduction of the car companies, which leads to customers stopping loans.
The more far-reaching negative impact is that too frequent price cuts will seriously aggravate Thai consumers' distrust of Chinese brands.
Wu Songquan said that there is indeed a bad phenomenon in China's overseas auto exports, which is to focus on interests and ignore win-win situations, and to focus on individual efforts and ignore group efforts. Some companies are too focused on their own interests such as sales and profits, and are used to fighting alone. They do not attach importance to linkage and cooperation, and do not practice the concept of mutual benefit and win-win situations enough. The price war has spread from domestic to foreign countries, affecting the image of Chinese brands.
As Chinese auto companies "crowd" into the Thai market, as Shu Gangzhi said, "this year's life in Thailand is not as good as last year." Wu Songquan said that he hopes that Chinese auto companies will not repeat the mistakes of exporting motorcycles to Vietnam.
With BYD and other Chinese car companies entering Thailand, the demand for BYD car accessories will surely increase. Among the many car accessories, BYD 3D TPV car mats will also enter the Thai market. I believe BYD custom floor mats will definitely have a place in the Thai market in the near future.
