Time to Rebalance the Wheels in Thailand’s Green Automotive Policy

Two Japanese carmakers, Suzuki and Subaru, have announced their plans to cease production in Thailand. More firms might follow suit. Is this the beginning of the end for the Thai automotive industry, which accounts for 13% of manufacturing GDP and 12% of total exports?  Will the country witness a mass exit of industry incumbents who have made Thailand the “Detroit of Asia” or a rejuvenation of the country’s most important industry?

These developments have been driven by surging imports of Chinese electric vehicles (EVs) into Thailand brought about by a series of policy measures, including tariff cuts under the ASEAN-China Free Trade Area (ACFTA) and generous incentives for purchasing EVs introduced in 2022. Thailand imposes high import tariffs on completely built-up vehicles, at 80 per cent for passenger vehicles and 30 per cent for pickups. Generally, preferential tariffs offered by vehicle-producing countries as part of free trade agreements (FTAs) often place vehicles on the sensitive list. As a notable exception, Thailand has offered tariff-free preferences to Chinese EV makers since January 2012 under ACFTA. In contrast, the tariffs of EVs imposed on Japan and South Korea are much higher at 20 and 40 per cent, respectively. EU carmakers face even worse terms, based on the FTA with Thailand which is still under negotiation.   

The incentives introduced in 2022 are another explanation for the surge in EV imports from China. Until 2022, Thailand mildly intervened through pricing policy to promote environmentally friendly vehicles. Internal combustion engine vehicles (ICEVs) with less CO2 emission, more environmentally friendly fuels (e.g., those using biodiesel and ethanol fuel mixtures), and higher energy efficiency cars (known as eco-cars) are eligible for lower excise taxes. Battery and plug-in hybrid EVs and hybrid vehicles were all eligible for the lower excise taxes with slight differences in incentives.

From 2022 onwards, the Thai government’s policy stance markedly shifted when it picked battery EVs as a technology winner over other environmentally friendly vehicles. This policy, dubbed EV 3.0, emerged from the National Electric Vehicle Policy Committee’s fifth meeting chaired by the prime minister.

Two core components of the EV 3.0 policy provided locally manufactured EVs with significant price advantages. The first advantage came from the government’s cash subsidies for the purchase of locally manufactured battery EVs. There were two tiers: 70,000 baht per vehicle for EVs with battery capacity of 10–30 kWh, and 150,000 baht for battery capacity above 30 kWh. The subsidy was offered for vehicles with a recommended retail price below 2 million baht. Since many EVs sold in Thailand have more than 30 kWh battery capacity, buyers enjoyed a 150,000 baht subsidy or at least a 7.5 per cent discount on the recommended retail price.

The source of the second advantage is the preferential excise tax on EVs. The standard ICEVs are subject to a 30 per cent excise tax, whereas the taxes imposed on eco-cars and EVs are 12 and 8 per cent, respectively.  For eligible EVs under the EV 3.0 policy, the excise tax was cut further to 2 per cent.

To be eligible for EV 3.0 incentives, the EVs must meet the local component requirements scheduled by the government over a ten-year ease-in period. Local manufacturing facilities that were not yet ready by 2022 could fully import EVs during 2022-2023 and then follow a 1:1 ratio of imported to locally made EVs by the end of 2024. This locally made–per–imported ratio was subsequently raised to 1.5, with the deadline extended to the end of 2025.

The impact of the generous incentives offered to make the country a production hub of EVs remains uncertain. Given technological uncertainties in the EV industry, it might be too early for producers to set up new factories abroad.

Thailand’s import-first and produce-later scheme under EV3.0, together with the subsidies and excise tax revisions, provided Chinese EVs with significant price advantages. Moreover, Chinese EV models, which tend to be cheaper, are eligible for the incentives under EV 3.0, which apply to vehicles priced under 2 million baht (Figure 1).  Chinese EV makers are fiercely competing with the Japanese ICEV and eco-car manufacturers that dominate this market segment. The key challenge is whether Chinese EV makers can feasibly scale up imports and meet local manufacturing requirements content requirements, given the relatively small volume of EVs sold in Thailand.  

Figure 1. Retail Prices of EVs sold in Thailand in 2023 (baht)

The effect of preferential excise taxes on price advantage is apparent in Table 1, which shows how much EVs imported from Chinese under ACFTA and participating in EV 3.0 are cheaper than the competition. For example, all other things being equal, EVs enjoying EV 3.0 and ACFTA terms would have a 7.2 per cent price advantage over locally manufactured EVs not participating in EV 3.0. The price advantage increases to 28.7 per cent and 50.1 per cent compared with foreign-made EVs imported through trade preferences under the Japan-Thailand Economic Partnership Agreement (JTEPA) and ASEAN-Korea Free Trade Agreement (AKFTA), respectively.

Table 1. Price advantage of EVs under EV 3.0 incentives and ACFTA compared to other locally produced or imported EVs

Price advantages would explain the rapid surge in EV sales in Thailand and the poor performance of Japanese carmakers in the past four months (Figure 2), which has followed on stagnating or declining sales in recent years (Figure 3). This year, the EV 3.0 policy, now known as EV 3.5, was revised slightly — among other things, to reduce the subsidy to 100,000 baht per vehicle. 

Figure 2. Newly registered vehicles by selected brands, 2023 Jan-Apr and 2024 Jan-Apr

Figure 3. Newly registered vehicles by selected brands, 2016 – 2023

The government’s current EV policy will not completely push ICEV firms out of Thailand. Nonetheless, it could accelerate the decision to exit Thailand for those whose business performance has been poor. It could also deter new ICEV investments by incumbent firms and potentially turn Thailand into a production hub for plug-in or hybrid vehicles.  

The impact of the generous incentives offered to make the country a production hub of EVs remains uncertain. Given technological uncertainties in the EV industry, it might be too early for producers to set up new factories abroad. Meanwhile, the current policy disadvantages incumbent carmakers. These developments should be a wake-up call to the Thai government to reconsider how its push for an environmentally friendly automotive industry can incentivise consumer choice while fostering industrial transformation.

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