Struggles facing Thailand's auto industry due to decreased demand, increased tariffs, and economic instability, yet investment possibilities bring optimism
Thailand, a nation heavily reliant on exports, particularly to the US and China, faces potential income threats due to potential US tariffs. The proposed tariff rate on Thai imports is 36%, one of the highest in the ASEAN region, which could affect Thailand's exports by about $8 billion, equating to around 2.3% of Thailand's total exports last year.
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. This trade imbalance has led to tension, with the US considering reciprocal tariffs that could further impact Thailand's economy.
However, the Thai automotive industry is not resting on its laurels. In response to the shifting market trends and the need for a more sustainable future, several OEMs are planning to establish EV battery factories in Thailand in 2025. BMW, Volvo, Hyundai, Kia, and Toyota are among the companies investing in Thailand's EV sector, capitalising on the country's strategic location and growing EV market.
BMW, for instance, has invested 1.6 billion baht ($45.6m) in the construction of a battery manufacturing facility in Thailand. Volvo has also invested 32.7 million dollars in a vehicle and parts distribution center outside Bangkok, as well as battery charging infrastructure. BYD has set up an EV plant in Rayong, Thailand, with an annual production capacity of 150,000 EVs and batteries.
The Thai government is also offering support to OEMs through initiatives such as the EV subsidy programme, which has a budget of $212m. This programme aims to encourage the production and sale of electric vehicles in Thailand, helping the country remain competitive within the ASEAN region.
Moreover, the Thai government has approved lower tax rates for plug-in hybrid EVs (PHEVs) to encourage consumer demand. The new regulation for PHEVs will establish a separate tax rate for PHEVs and eliminate fuel tank size as a factor in determining their tax rates, effective from January 1 next year.
Despite the challenges, the domestic car sales in the luxury vehicle segment are expected to decline in 2025. Inchcape, the distributor of JLR in Thailand, reported a 16% year-on-year drop in ultra-luxury car sales in the first quarter of 2025. To counteract this, Inchcape is planning to increase its sales volume in Thailand and the ASEAN region to balance any losses from exports to the US.
The automotive industry is also undergoing a recalibration of sales and production due to high inventory levels and a decoupling of the demand-production model. Auto Alliance Thailand, Mazda's joint venture with Ford, is investing 5 billion Thai baht ($148m) to strengthen its manufacturing base in Thailand.
With continued government support and OEM investment, Thailand looks set to remain competitive within the ASEAN region, navigating the challenges posed by global trade tensions and shifting market trends. The deputy finance minister Paopoom Rojanasakul said the new regulations will help promote the country as a manufacturing base for PHEVs for both domestic and international sales.
