It’s unclear whether the production of domestically manufactured electric vehicles (EVs) has increased year-over-year, as local automobile sales have declined since the beginning of the year.
Producers of both internal combustion engine (ICE) cars and electric vehicles (EVs), particularly Chinese companies that have invested in Thailand to tap into the expanding EV sector, are modifying their manufacturing strategies due to the slow-moving automotive industry in the region.
As demand from car assembly plants decreases, local auto parts manufacturers are facing the biggest impact.
The Explainer examines the strategies employed by electric vehicle firms and automotive component suppliers in response to the downturn, which continues unabated due to Thailand’s struggles with elevated household debt and feeble consumer spending power.
A: In what ways have electric vehicle makers reacted to the pessimistic market conditions?
Electric vehicle firms involved in the country’s incentive program known as EV3.0 have requested the administration to relax regulations for manufacturing these cars in Thailand.
As per EV3.0, aimed at boosting the adoption and manufacturing of battery electric vehicles (BEVs) during 2022-2023, EV firms received reduced excise taxes and import tariffs along with financial incentives to boost sales. In return, these companies agreed to manufacture BEVs domestically starting in 2024.
The authorities offered subsidies of up to 150,000 baht for battery electric vehicles (BEVs) costing under 2 million baht, and up to 18,000 baht for electric motorcycles with prices below 150,000 baht.
Companies beginning to produce BEVs in 2024 are committed to a 1:1 ratio target, meaning they must produce one BEV domestically for every EV they import.
The proportion rises to 1.5 domestically manufactured BEVs for every imported BEV if production starts in 2025.
Nevertheless, due to the sluggish automobile market, the National EV Policy Committee decided last year to ease these requirements following requests from automotive firms.
Manufacturers do not have to fulfill the BEV production goals for 2024 or 2025. However, starting from 2026, they may produce vehicles at a ratio of 1:2, which will change to 1:3 in 2027. Nonetheless, these manufacturers won’t receive any subsidies unless they reach their respective production quotas, as stated by Narit Therdsteerasukdi, who serves as the secretary to the panel led by the prime minister.
The ratios of 1:2 and 1:3 are established within an electric vehicle incentive program called EV3.5, designed to boost the expansion of the electric vehicle sector from 2024 through 2027.
Mr. Narit mentioned that the committee permitted carmakers to modify their output levels as a response to slow domestic automobile sales. This adjustment has the potential to result in an oversupply situation, further intensifying the price competition initiated by certain electric vehicle producers.
Twenty-six manufacturers united under the two electric vehicle programs, with most obligated to manufacture a total of 114,000 battery electric vehicles domestically in 2024 as per the EV3.0 program requirements.
“However, they were able to manufacture just 16,000 units last year,” stated Suphot Sukphisarn, who serves as the chairman of the Auto Parts Industry Club at the Federation of Thai Industries (FTI).
The reduced production was linked to a significant drop in domestic automobile sales, which fell by 26% year-over-year to reach 572,675 units in 2024—the lowest figure since 2010. This decline can be attributed to potential purchasers struggling to secure auto loans due to elevated levels of household debt.
Banks and automobile finance firms have become more hesitant when issuing loans, worried about increased bad debts within the auto industry due to slowing economic expansion.
“Estimating the production volume of BEVs for this year is challenging as it heavily relies on economic conditions, which currently aren’t favorable,” stated Mr Suphot.
In the initial two months of this year, car sales dropped by 9.5% compared to last year due to rejected loans, totaling 97,395 units sold. Battery Electric Vehicle (BEV) sales also fell slightly by 0.12%, reaching 14,558 vehicles, which made up 14.9% of all vehicle sales, as reported by the FTI’s Automotive Industry Club.
Overall automobile production dropped sharply by 19.2% year-over-year to 222,590 units; however, battery electric vehicle (BEV) production surged by 175% to reach 3,907 units, compared with 1,421 units in the previous year.
A: What strategies will auto part manufacturers use to stay afloat?
Struggling parts manufacturers, facing both technological upheavals and an unchanging market, are advised to enhance their abilities or explore branching out into different sectors.
Mr Suphot stated that merely excelling at producing components for internal combustion engine vehicles is no longer enough to stay competitive. He emphasized that these businesses must acquire knowledge in electric vehicle technology to manufacture and marketEV parts, as well.
Mr. Suphot mentioned that the Auto Parts Industry Club is in discussions with seven Chinese electric vehicle manufacturers regarding their intentions to purchase 17 distinct domestically produced EV parts.
Included among these electric vehicle manufacturers is Changan Automobile from Chongqing, which declared last year that it would commence production using 60% locally sourced components, with plans to ramp this up to 90% in the coming years.
The company stated its intention to acquire electric vehicle components including high-voltage wiring looms, outside door handles, cast cross-car beams, smart thermal management systems, and side view mirrors.
Mr Suphot mentioned that numerous businesses have the capability to manufacture components for air conditioners, electrical circuit breakers, and inverters. However, these firms might require one to two years to acquire the necessary expertise to produce parts tailored explicitly for electric vehicles.
He stated, ‘We collaborated with Chinese electric vehicle firms to assist local component manufacturers in improving their technical expertise for serving the electric vehicle sector.’
Manufacturers of auto components are encouraged to explore fresh prospects by venturing into industries beyond automobiles.
The Thailand Automotive Institute (TAI) has entered into an agreement with the Rail Technology Research and Development Agency, a governmental body, to collaborate on initiatives aimed at supporting railway and mass transit projects within the country.
The TAI anticipates that this collaboration will facilitate adjustments in production processes among component manufacturers to better support railway expansion.
Kriengsak Wongpromrat, the president of the TAI, stated that authorities will back automotive component manufacturers that wish to venture into this new sector.
Previously, the FTI recommended motivating component manufacturers to explore opportunities within the medical device sector.
The federation highlighted that many individuals can utilize their expertise to create medical supplies, which encompass disposable equipment like diagnostic test kits for diseases as well as long-lasting items such as wheelchairs and hospital beds.
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