Thailand, the ‘Detroit of Southeast Asia’, is at the forefront of China’s battle for the global auto market

In the past two years, Chinese automakers, including BYD, GAC Aion and Chery, have announced plans to build manufacturing facilities in Thailand. The BYD and GAC Aion factories began operations in July, and so far Chinese investment in Thai auto plants totals at least $1.4 billion.

The Narong electric vehicle is one of 80,000 battery-electric vehicles that the Electric Vehicle Association of Thailand expects to be registered this year. Last year, Thailand registered 76,739 battery electric vehicles, according to government data, 6.5 times the number in 2022.

Although the pace of electric vehicle adoption has slowed in Thailand this year, as in other parts of the world, it is part of a growing trend. Chinese automakers, led by BYD, are breaking into markets long dominated by automakers from Japan, the United States and Germany. Since around 2020, Chinese car brands, especially electric vehicle makers, have begun expanding globally in search of more revenue as fierce competition and oversupply at home have eroded their market share.

But with geopolitical barriers hampering the pursuit of car buyers in Europe and North America, Chinese automakers are aggressively entering middle-income markets such as Thailand, Indonesia, Brazil, Malaysia and Argentina, where there are often no local auto champions to protect them. Governments have at least a somewhat cordial relationship with Beijing.

In Thailand, Chinese electric car manufacturers are beginning to challenge Japanese brands that have long dominated the Thai car market. Chinese brands have purchased huge billboards on the highways between Suvarnabhumi Airport and Bangkok. In the city, more showrooms now house vehicles from China, while Chinese electric vehicle production facilities are located less than a two-hour drive from Bangkok. Once fully operational, these Chinese EV facilities could ramp up production together to build at least 320,000 vehicles per year.

“There are two things that make Thailand attractive,” says Eugene Hsiao, head of Chinese equity and Chinese auto strategy at Macquarie. “The first and most obvious is that Thailand as a country is relatively friendly to China. I think that’s very important. The second is that the automotive supply chain is already fairly developed. And that’s largely what the Japanese have done historically.”

A GAC Aion Thailand spokesperson said Thailand’s central location in the region makes the country a gateway to the broader Southeast Asian market, and Thailand itself has a large domestic automobile market compared to the rest of the region.

As happened in Thailand, Chinese automakers are making investments around the world. Led by established brands such as BYD, SAIC and Chery, they assemble cars within the country either for incentives or to avoid tariffs.

“Affordability is a universal value proposition.”

Bill Russo, founder and CEO of the automobile company

While Brazil has reimposed import taxes on electric cars regardless of their source, the government also has a program that incentivizes companies to decarbonize, and it is possible that car companies could qualify for tax breaks based on the energy efficiency of car models and the intensity of local production. Manufacturing in Hungary would potentially allow Chinese EVs to bypass EU tariffs, and in Malaysia, despite having local car brands, the government provides tax breaks for locally assembled EVs.

Hsiao says there is a clear strategy behind choosing the countries in which Chinese manufacturers open their stores. In this case, bigger doesn’t necessarily mean better.

“The best markets in terms of GDP per capita are the major developed markets, namely the United States, Europe and Japan,” he says. “These markets are the most closed, you could say,” but there are “other markets that are smaller but meaningful” for brands. Chinese cars.

Beijing has identified the electric vehicle sector as a strategic emerging industry worthy of state support more than a decade ago, providing subsidies to both manufacturers and consumers. There were as many as 500 electric vehicle companies in China at one point, but competition and the phasing out of subsidies prompted consolidation.

Traditional automakers from Europe and the United States are struggling to compete with or match Chinese EV offerings at lower price points. This has eroded their bottom line, with VW in late October announcing plans to cut wages and close factories. Japanese automakers have also been slower to shift toward electric vehicles, and Toyota, Japan’s largest automaker, believes the shift to electric vehicles will not happen as quickly as expected, placing its bet on hybrid cars. This strategy appears to be successful for Toyota so far, as it retained its title as the world’s largest automaker last year. Toyota’s data for the first nine months of this year showed that Toyota sold nearly 3 million hybrid vehicles, an increase of 19.8% year-on-year.

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Car manufacturing accounts for 10% of Thailand’s gross domestic product and contributes about 850,000 jobs, according to the International Labor Organization. Its history in the automobile industry dates back to the 1960s, when Japanese companies such as Toyota, Nissan, and Mitsubishi opened production facilities in the country. It wasn’t long before American and European brands followed suit.

From the beginning, Thailand relied heavily on incentives and tariffs to transform itself into a regional auto manufacturing hub. The policy of import substitution – replacing foreign imports with domestic production – for the automobile industry began in the 1960s, attracting foreign automakers to establish production facilities in the country.

Thailand’s trade agreement with the Association of Southeast Asian Nations (ASEAN) also means that automakers enjoy lower export duties when selling within the region. The Thai government’s high import tax of up to 80% on passenger cars and 30% on pickup trucks incentivizes automakers to continue production in Thailand.

Now the Thai government is betting that electric cars will allow it to maintain its status as the “Detroit of Southeast Asia.”

Bangkok has a “30@30” plan, aiming to convert 30% of cars produced into electric vehicles by 2030. In early 2022, Thailand approved a package of incentives to encourage the adoption of electric vehicles in the country, with the aim of eventually making Thailand a regional manufacturing hub. Electric cars.

Tangible investments in manufacturing by Chinese companies could influence the decision-making process of buyers like Narong, the retired government employee. Because these companies have set up assembly plants in Thailand, spare parts are more readily available and maintenance should be easier, helping to reassure him about the reliability of Chinese cars. A less divisive geopolitical relationship may also prompt buyers like him to be more open to giving Chinese cars a chance.

“They also produce a lot of electric cars to serve their own markets, and their government gives full support, and I think that leads to good experiences and reliability,” Narong says.

But while these Chinese electric cars are starting to make inroads in Thailand, they are still competitors and have yet to overtake incumbent automakers. Concern over car charging is still an issue that needs to be addressed, and for the most part, electric vehicle adoption is happening faster in Bangkok. In mountainous areas like Chiang Mai, a Toyota pickup may still be the preferred choice.

Toyota was still the No. 1 automaker in Thailand last year with 265,949 vehicles sold, according to data from its Thai subsidiary, followed by Isuzu, Honda and Ford. BYD came in sixth place with 30,432 cars sold, only 2,000 cars behind Mitsubishi, which ranked fifth. Collectively, Chinese brands, led by BYD, accounted for 11% of the new car market share, more than doubling the previous year, while Japanese car sales declined. Chinese brands accounted for about 80% of electric vehicle sales in Thailand last year.

GAC spokesman Aeon Thailand says Thailand’s tax cuts on electric vehicles make the country an attractive market. Other countries are also offering tax rebates on electric vehicles, which should increase demand.

“Affordability is a universal value proposition,” says Bill Russo, founder and CEO of Automobility, a Shanghai-based strategic and investment advisory firm in the auto industry.

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However, Russo believes that the threat that Chinese automakers pose to incumbent automakers is not just about electric vehicles.

Despite talk of Chinese electric vehicles breaking into overseas markets, China is also exporting huge numbers of conventional internal combustion engine (ICE) vehicles, he says. As consumers in China, the world’s largest auto market, are rapidly choosing electric vehicles over internal combustion engines, Russo explains, the country’s automakers are left with more internal combustion engine vehicles than the market can absorb. This means they are looking to offload millions of cars elsewhere. While China has not had much success selling gasoline-powered cars in Thailand, other markets still on the fence about electric vehicles are ready for them.

“Sell them to Russia, sell them to Mexico, sell them to Brazil. Sell them to wherever consumers don’t trust electric vehicles yet,” Russo says.

China exported 4.91 million cars last year, overtaking Japan as the world’s largest car exporter. Hybrids and battery electric vehicles accounted for about 25% of exports, meaning Chinese brands also sell a lot of gasoline vehicles.

Exports to Russia still dominate, but Chinese automakers have significantly expanded their market share in Mexico, Brazil, Turkey and the United Arab Emirates, according to data compiled by Automobility.

Russo says governments view Chinese automakers only through the lens of electric vehicles, so ICE cars are still being exported without many barriers. This gives Chinese automakers an opportunity.

“You can create your own distributor networks, create your brand, and have that beachhead,” Russo says. Once they establish themselves as trusted brands, automakers can start offering electric vehicles.

Automakers have used the same strategy in China, Russo says: “This is exactly what they will do internationally; They will go to every country they can get to and then focus on electric vehicles.

This article appears in the December 2024/January 2025 issue of Fortune under the title “Changing Paths.”