Thailand’s once-thriving $53 billion automobile industry, the largest in Southeast Asia, is now grappling with a dual crisis. Domestic consumers, burdened by high debt, are struggling to finance new car purchases, while the international market is swiftly moving away from the internal combustion engine (ICE) vehicles that Thailand’s carmakers have long produced. As electric vehicles (EVs) become more prominent, the traditional car market, which Thailand has relied on for decades, faces severe challenges, leading to cuts in production and jobs and prompting government intervention.

Domestic Consumer Debt: A Growing Problem

At the heart of Thailand’s automotive crisis is the massive domestic debt burden. As of March 2024, household debt reached $484 billion, equivalent to 90.8% of the country’s gross domestic product (GDP). This debt load is among the highest in Asia, severely limiting consumer spending power and putting a strain on auto sales. “It’s a crisis, quite a serious one, with no easy way out,” says Hajime Yamamoto, a principal at Nomura Research Institute in Thailand.

The numbers paint a grim picture. Domestic car sales are at their lowest in 14 years on a moving average basis. In the first eight months of 2024, car production dropped 17.69% compared to the same period a year earlier. Furthermore, sales of pickup trucks, which dominate Thailand’s automotive landscape, have plunged, with a nearly 21% drop in production and an 8.76% decrease in exports. Pickup trucks are a cornerstone of the Thai auto industry, comprising 70% of the domestic parts market and 67% of total vehicle exports in 2023. Thus, their decline is hitting local businesses hard, many of which rely on manufacturing parts for these vehicles.

Companies like Techno-Metal, which has been producing cast iron undercarriage parts for Japanese automakers like Toyota and Mitsubishi for over 30 years, are already feeling the effects. Deputy General Manager Nattaporn Chewapornpimon explains that production at their two factories in Chon Buri province is currently operating at just 40% capacity, leading to significant workforce reductions—from 1,200 workers to 900.

“We’ve also reduced working hours to 75% and cut overtime,” she adds, underlining the pressure the company faces as orders continue to dwindle.

Electric Vehicles: The New Frontier

As Thailand’s traditional automotive sector grapples with declining demand, the fast-growing electric vehicle (EV) sector presents both opportunities and challenges. Major investments in Thailand’s EV market—largely driven by Chinese manufacturers like BYD, which has already committed over $1.44 billion—show promise for future growth. However, the EV boom has yet to make a significant impact on Thailand’s auto parts industry, which consists of around 2,000 companies employing 700,000 workers.

“The Thai cost structure is 30% higher than the Chinese,” says Sompol Tanadumrongsak, president of the Thai Auto-Parts Manufacturers Association. This stark difference in production costs makes it difficult for local manufacturers to compete in the EV market, particularly when compared to China, where labor and production costs are lower. “Thai businesses can’t really do it,” Sompol acknowledges.

The issue goes beyond simple production costs. Many Thai firms find working with Chinese EV makers challenging due to differing pricing strategies. Nattaporn from Techno-Metal notes, “Even if we can [supply Chinese EVs], the profits are low. We still have to focus on OEM (original equipment manufacturing) for Japanese brands. If they have EV plans, that would be a blessing for us.”

Although Thai firms are struggling to gain a foothold in the EV space, there are broader efforts to integrate local businesses into this rapidly growing sector. Thailand’s government, through its Board of Investment, is working to attract foreign investors to form joint ventures with local companies, particularly in the auto parts industry. The aim is to transition the country from being a producer of ICE vehicles to a hub for EV manufacturing.

“This will change Chinese EVs into Thai EVs, which can then be exported,” says Suroj Sangsnit, head of Thailand’s EV association. He points to the tariffs on China-made cars imposed by the United States, the EU, and India, which could give Thailand an edge in the EV export market if it can successfully localize production.

Hybrid Vehicles: A Temporary Solution?

In the face of declining ICE vehicle sales, Thailand’s auto parts sector is pushing the government to provide more incentives for traditional and hybrid car manufacturers. “We want to be the last man standing in ICE, especially in pickup trucks and hybrid production,” says Sompol. The hybrid market offers a potential lifeline, as many Japanese automakers that have long dominated Thailand’s automotive sector are transitioning toward hybrid technology to stay competitive in a rapidly changing market.

“The Japanese have also adapted to hybrid technology to compete and still need parts,” notes Surapong Paisitpattanapong, a representative of the Federation of Thai Industry’s automotive division. With investment incentives and subsidies for hybrid manufacturing, the government hopes to keep traditional automakers engaged while also fostering a transition to more environmentally friendly vehicles.

A Government Response: Incentives and Investment

Recognizing the urgent need to stabilize the automotive sector, Thailand’s government has introduced several measures to alleviate the pressures faced by local businesses. These include investment incentives, particularly aimed at fostering hybrid and electric vehicle production, as well as subsidies to support the auto parts industry.

The government’s objective is clear: attract more foreign investment into the country’s automotive sector while also helping local businesses navigate the difficult transition from ICE vehicles to hybrids and EVs. Hybrid vehicles, in particular, offer a middle ground that could keep Thailand’s auto parts industry afloat in the short term.

However, the transition to EVs poses several challenges. As Sompol warns, “If auto parts SMEs close today, they are not coming back.” The risk is that without sufficient support, many of Thailand’s small and medium-sized enterprises (SMEs) that supply parts for traditional vehicles will not survive the shift to EVs and hybrids. The situation is so dire that Sompol argues it’s worse than the Asian financial crisis of the late 1990s or the COVID-19 pandemic, saying, “If it’s left this way, we’ll all die.”

The Road Ahead

Thailand’s automotive industry is at a critical juncture. On one hand, it faces severe challenges due to high domestic debt and declining demand for traditional vehicles, particularly pickup trucks. On the other hand, the rapid rise of the EV sector presents opportunities for growth—if the country can navigate the transition effectively.

The Thai government’s efforts to provide investment incentives and attract foreign partnerships are crucial steps toward revitalizing the industry. Yet, as Sompol and other industry leaders emphasize, more needs to be done to ensure that local businesses can survive and thrive in the new era of electric and hybrid vehicles. Without a coordinated strategy that balances immediate relief with long-term transformation, Thailand risks losing its position as Southeast Asia’s largest car production hub.

The coming years will be decisive for the country’s automotive industry, and its ability to adapt to these changing dynamics will determine whether it can remain a global player in the increasingly electrified world of transportation.

(Adapted from BeamStart.com)

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