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

Over the past two years, Chinese automakers including BYD, GAC Aion and Chery have announced plans to build production facilities in Thailand. BYD and GAC Aion factories began operations in July and to date, total Chinese investment in Thai auto factories has reached at least $1.4 billion.

Narong’s electric vehicle is one of 80,000 battery-powered vehicles that the Thai Electric Vehicle Association expects to register 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 automakers, led by BYD, are entering markets long dominated by automakers from Japan, the United States and Germany. Since around 2020, Chinese auto brands, especially electric vehicle makers, have been expanding into international markets in search of more revenue as competition stiffens and oversupply in Water has eroded their market share.

But with geopolitical barriers hindering their pursuit of car buyers in Europe and North America, these Chinese automakers are aggressively entering middle-income markets such as Thailand, Indonesia, Brazil, Malaysia and Argentina, which often have no domestic automakers to defend, and whose governments have at least a cordial relationship with Beijing.

In Thailand, Chinese electric vehicle manufacturers are starting to challenge the Japanese brands that have long dominated the Thai auto market. Chinese brands have bought giant billboards on the highway between Suvarnabhumi Airport and Bangkok. In the city, more and more showrooms are displaying vehicles from China, while Chinese electric vehicle manufacturing facilities are less than two hours’ drive from Bangkok. Once fully operational, these Chinese electric vehicle facilities could collectively ramp up production to produce at least 320,000 vehicles per year.

“There are a number of things that make Thailand attractive,” said Eugene Hsiao, Hong Kong-based head of China equity and China auto strategy at Macquarie. “The first and most obvious thing is that Thailand is a relatively friendly country towards China. I think that’s very important. Second, the automotive supply chain has developed quite well. That has been done quite a bit by the Japanese throughout history.”

A spokesperson for GAC Aion Thailand said Thailand’s central location in the region makes it a gateway to the wider Southeast Asian market and that Thailand itself has a domestic auto market. large compared to the rest of the region.

As they did in Thailand, Chinese automakers are investing globally. Led by established brands such as BYD, SAIC and Chery, they are assembling cars domestically to receive incentives or avoid taxes.

While Brazil has reinstated import taxes on electric vehicles regardless of origin, the government also has a program to encourage companies to decarbonize, and auto companies can qualify for tax breaks based on energy efficiency of car models and local production density. Manufacturing in Hungary could allow Chinese electric vehicles to bypass EU tariffs, and in Malaysia, although there are local auto brands, the government still exempts domestically assembled electric vehicles from tariffs.

Hsiao said there is a clear strategy behind choosing the country where Chinese manufacturers are based. In this case, bigger doesn’t necessarily mean better.

“The best markets in terms of GDP per capita will be the large developed markets, meaning the US, Europe and Japan. You could argue that those are the most closed markets,” he said—but there are “other, smaller but significant markets” for Chinese auto brands.

Beijing 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. At one point there were as many as 500 electric vehicle companies in China, but competition and the phasing out of subsidies has fueled consolidation.

Traditional automakers from Europe and the US are struggling to compete or match Chinese electric vehicle products at lower prices. That has hit its profits, with Volkswagen in late October announcing plans to cut wages and close factories. Japanese automakers have also been slower to transition to electric vehicles, and Japan’s largest automaker, Toyota, believes the transition to electric vehicles will not happen as quickly as predicted, they bet on hybrid cars. That strategy appears to be working for Toyota so far, as it retained its title as the world’s largest automaker last year. Data from Toyota in the first 9 months of this year shows that Toyota sold nearly 3 million hybrid cars, an increase of 19.8% over the same period last year.

According to the International Labor Organization, Automobile manufacturing accounts for 10% of Thailand’s GDP and contributes about 850,000 jobs. Its auto manufacturing history 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 suit.

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

Thailand’s trade agreement with the Association of Southeast Asian Nations, or ASEAN, also means automakers enjoy lower export taxes when selling in the region. The Thai Government’s high import taxes of up to 80% for passenger cars and 30% for pickup trucks further encourage automakers to continue production in Thailand.

Now, the Thai government is betting on electric vehicles that will allow the country to maintain its status as the “Detroit of Southeast Asia.”

Bangkok has a “30@30” plan, with a target of 30% of cars produced being electric vehicles by 2030. In early 2022, Thailand passed an incentive package to promote the adoption of electric vehicles in the country, with the ultimate goal of making Thailand a regional electric vehicle manufacturing hub.

These tangible investments in manufacturing from Chinese companies can influence the decision-making of buyers like Narong, a retired civil servant. Because these companies have established assembly plants in Thailand, replacement parts are readily available and maintenance is easier, giving him peace of mind about the reliability of Chinese cars. A less tense geopolitical relationship could also make buyers like him more open to creating opportunities for Chinese cars.

“They also produce a lot of electric vehicles to serve their own market and their government fully endorses and I believe these provide a good experience and reliability,” Narong said.

But while these Chinese electric cars are starting to make inroads in Thailand, they are still challengers and have not overtaken incumbent automakers. Charging concerns are still an issue that needs to be addressed, and overall, electric vehicle adoption is happening faster in Bangkok. In mountainous regions like Chiang Mai, Toyota pickup trucks may continue to be a popular choice.

Toyota remained 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 ranked sixth with 30,432 vehicles sold, only 2,000 vehicles behind fifth place Mitsubishi. In total, Chinese brands, led by BYD, accounted for 11% of the new car market, more than doubling from the previous year, while Japanese car sales fell. Chinese brands accounted for about 80% of electric vehicle sales in Thailand last year.

A spokesperson for GAC Aion Thailand said tax breaks for electric vehicles make the country an attractive market. Other countries are also offering tax breaks for electric vehicles, which will boost demand further.

“Affordability is a universal value proposition,” said Bill Russo, founder and CEO of Automobileity, a Shanghai-based strategy and investment consulting firm for the auto industry. shouted”.

However, Russo argues, the threat of Chinese automakers to established automakers is not just about electric vehicles.

Despite the talk of Chinese electric vehicles entering foreign markets, China is also exporting a large number of conventional internal combustion engine (ICE) vehicles, he said. Russo explained that because consumers in China, the world’s largest auto market, are rapidly choosing electric vehicles over ICE, the country’s automakers are left with more ICE vehicles than they can handle. the market can absorb. That means they are looking to unload millions of cars elsewhere. While China hasn’t had much success selling gasoline-powered cars in Thailand, other markets are still on the fence about electric vehicles that are ripe for them.

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

China exported 4.91 million vehicles last year and overtook Japan to become the world’s largest auto exporter. Hybrid and battery-powered vehicles account for about 25% of exports, which means Chinese brands are also selling a lot of gasoline-powered vehicles.

According to data compiled by Automobileity, exports to Russia still dominate, but Chinese automakers have significantly expanded their market share in Mexico, Brazil, Türkiye and the UAE.

Governments only view Chinese automakers through the lens of electric vehicles, Russo said, so ICE vehicles are still exported without many barriers. That presents opportunities for Chinese automakers.

“You establish your dealer network, you establish your brand, you have a leadership position,” says Russo. Once established as a trusted brand, automakers can start introducing electric vehicles.

Automakers have adopted a similar strategy in China, Russo said: “That’s exactly what they will do internationally; They will go into every country possible and then switch to electric vehicles.”

This article appears in the December 2024/January 2025 issue of Fortune magazine with the headline “Changing Lanes.”