Narong Yuenyonghattaporn, a retired civil servant in Bangkok, bought an electric car from GAC Aion earlier this year. He is part of a growing number of Thai drivers buying electric vehicles sold by Chinese car companies but made in Thailand, a country that has become one of the front lines in the global battle for car market supremacy.
In the past two years, Chinese automakers including BYD, GAC Aion and Chery have announced plans to build production facilities in Thailand. The factories of BYD and GAC Aion started operating in July, and so far Chinese investments in Thai car factories amount to at least 1.4 billion dollars.
Narong’s electric vehicle is one of 80,000 battery-electric vehicles that the Electric Vehicle Association of Thailand predicts will be registered this year. Last year, Thailand registered 76,739 BEVs, according to government data, 6.5 times the number in 2022.
Although the pace of electric vehicle adoption in Thailand has slowed this year, as in many other parts of the world, it is part of a growing trend. Chinese car companies, led by BYD, are making inroads into markets long dominated by automakers from Japan, the US and Germany. Since around 2020, Chinese auto brands, especially EV makers, have been expanding internationally in search of more revenue as stiff competition and oversupply at home eat away at their market share.
But with geopolitical obstacles hampering the search for car buyers in Europe and North America, these Chinese automakers are aggressively entering middle-income markets such as Thailand, Indonesia, Brazil, Malaysia and Argentina, where there are often no domestic auto champions to protect, and governments have at least a somewhat cordial relationship with Beijing.
In Thailand, Chinese electric vehicle manufacturers are beginning to challenge the Japanese brands that have long dominated the Thai car market. Chinese brands have bought huge billboards on the highways between Suvarnabhumi Airport and Bangkok. In the city, several showrooms now feature vehicles from China, while China’s electric vehicle production facilities are less than two hours’ drive from Bangkok. Once fully operational, these Chinese EV plants could collectively ramp up production to build at least 320,000 vehicles a year.
“There are several things that make Thailand attractive,” says Eugene Hsiao, Hong Kong-based head of China equity strategy and China autos at Macquarie. “The first and most obvious is that Thailand as a country is relatively friendly towards China. I think that is very important. Another is that the automotive supply chain is already quite well developed. That’s mostly what the Japanese have done throughout history.”
Thailand’s central location in the region makes the country a gateway to the wider Southeast Asian market, and Thailand itself has a large domestic car market compared to the rest of the region, said a GAC Aion Thailand spokesperson.
As in Thailand, Chinese carmakers are investing around the world. Led by established brands such as BYD, SAIC and Chery, they assemble cars in the country to get incentives or avoid tariffs.
“Affordability is a universal value.”
Bill Russo, Founder and CEO, Automobility
While Brazil has reintroduced taxes on electric vehicle imports regardless of origin, the government also has a program to encourage companies to decarbonize, and car companies can qualify for tax rebates based on the car model’s energy efficiency and local production density. Production in Hungary could potentially allow Chinese electric vehicles to bypass EU tariffs, and in Malaysia, despite local car brands, the government allows tax exemptions for locally assembled electric vehicles.
There is a clear strategy behind the choice of nations where Chinese manufacturers have set up shop, Hsiao says. In this case, bigger does not necessarily mean better.
“The best markets in terms of GDP per capita would be the large developed markets, meaning the US, Europe and Japan. One could argue that those markets are the most closed,” he says, but there are “other markets that are smaller but significant” for Chinese car brands.
Beijing identified the EV sector as a strategic emerging industry worthy of government support more than a decade ago, handing out subsidies to both manufacturers and consumers. At one point there were as many as 500 EV companies in China, but competition and the gradual abolition of subsidies led to consolidation.
Traditional carmakers from Europe and the US are struggling to compete with or match China’s offering of lower-priced electric vehicles. This eroded their bottom line, and in late October Volkswagen announced plans to cut wages and close factories. Japanese automakers have also been slower to transition to electric vehicles, and Japan’s largest automaker, Toyota, thinks the transition to electric vehicles won’t happen as quickly as expected, betting on hybrids. That strategy seems to be working for Toyota so far, as it retained the title of the world’s largest automaker last year. Toyota’s data for the first nine months of this year show that Toyota sold almost 3 million hybrid vehicles, which is an increase of 19.8% compared to the previous year.
Car manufacturing accounts for 10% of Thailand’s GDP and contributes about 850,000 jobs, according to the International Labor Organization. Its history with car manufacturing dates back to the 1960s, when Japanese manufacturers such as Toyota, Nissan and Mitsubishi opened production facilities in the country. Not long after, American and European brands followed.
From the beginning, Thailand has relied heavily on incentives and tariffs to transform itself into a regional auto manufacturing hub. It initiated a policy of import substitution—replacing foreign imports with domestic production—for the automobile industry in the 1960s, attracting foreign automakers to set up production facilities in the country.
Thailand’s trade agreement with the Association of Southeast Asian Nations, or ASEAN, also means carmakers enjoy lower export tariffs when selling within the region. The Thai government’s high import tax of up to 80% for cars and 30% for trucks further encourages automakers to continue manufacturing in Thailand.
Now the Thai government is betting that electric vehicles will allow it to maintain its position as the “Detroit of Southeast Asia.”
Bangkok has a “30@30” plan, aiming for 30% of cars produced to be electric vehicles by 2030. In early 2022, Thailand approved an incentive package to promote the adoption of electric vehicles in the country, with the goal of eventually making Thailand a regional hub for electric vehicle manufacturing.
Tangible manufacturing investments by Chinese companies can influence the decision-making of buyers like Narong, a retired civil servant. Since those companies have set up assembly plants in Thailand, parts are more readily available and maintenance should be easier, helping him to be confident in the reliability of Chinese cars. A less corrupt geopolitical relationship could also cause buyers like him to be more open to giving Chinese cars a chance.
“They also produce a lot of electric vehicles to serve their own market, and their government gives full support, and I believe that results in good experiences and reliability,” says Narong.
But even though these Chinese electric vehicles are starting to make inroads in Thailand, they are still challengers and have yet to overtake the incumbent automakers. Concerns about charging remain an issue to be addressed, and the adoption of electric vehicles is generally faster in Bangkok. In mountainous regions like Chiang Mai, the Toyota pickup may still be the preferred choice.
Toyota continued to be the number one car company in Thailand last year with 265,949 vehicles sold, according to its Thai subsidiary, followed by Isuzu, Honda and Ford. BYD was sixth with 30,432 cars sold, just 2,000 vehicles less than fifth-placed Mitsubishi. Together, Chinese brands, led by BYD, accounted for 11% of the new car market share, more than double the year before, while sales of Japanese vehicles fell. Chinese brands accounted for about 80% of electric vehicle sales in Thailand last year.
Thailand’s tax rebates for electric vehicles make the country an attractive market, says GAC Aion Thailand spokesman. Other countries are also offering tax breaks for electric vehicles, which should further boost demand.
“Affordability is a universal value,” says Bill Russo, founder and CEO of Automobility, a Shanghai-based automotive strategy and investment advisory firm.
However, Russo argues, the threat from Chinese automakers to established automakers is about more than electric vehicles.
Despite talk of Chinese electric vehicles penetrating overseas markets, China also exports a huge number of conventional internal combustion engine (ICE) vehicles, he says. Russo explains that as consumers in China, the world’s largest auto market, are increasingly choosing EVs over ICEs, the country’s automakers have more ICE vehicles than the market can absorb. That means they want to offload millions of cars elsewhere. While China hasn’t had much success selling gasoline-powered cars in Thailand, other markets that aren’t yet considering EVs are ripe for them.
“Sell them to Russia, sell them to Mexico, sell them to Brazil. Sell them where consumers don’t yet trust electric vehicles,” says Russo.
China exported 4.91 million vehicles last year, overtaking Japan as the world’s largest car exporter. Plug-in hybrids and battery electric vehicles accounted for around 25% of exports, meaning Chinese brands are also selling plenty of petrol vehicles.
Exports to Russia continue to dominate, but Chinese automakers have greatly increased their market share in Mexico, Brazil, Turkey and the UAE, according to data compiled by Automobility.
Governments view Chinese automakers only through the lens of electric vehicles, so electric vehicles continue to be exported without any barriers, Russo says. This opens the door for Chinese car manufacturers.
“Set up your sales networks, establish your brand, you’ve got that place,” says Russo. After establishing themselves as trusted brands, car manufacturers can start introducing electric vehicles.
Automakers have applied the same strategy in China, says Russo: “That’s exactly what they’re going to do internationally; they will go to every country they can and then turn to electric vehicles.”
This article appears in December 2024/January 2025: Asia issue of Fortune magazine entitled “Changing Lanes”.
