China EV drive into Thailand galvanised by smog and subsidies

CHOKING smog is rising to the top of Thailand’s political agenda. With vehicle exhaust contributing much of the kingdom’s air pollution, the crisis has emerged as an opportunity for Chinese electric vehicle (EV) firms.

Tackling the smog that is sickening citizens, threatening the crucial tourism market and costing GDP growth has emerged as a key goal of Thailand’s pro-business Prime Minister Srettha Thavisin, who was sworn into office last September.

Thai policymakers see vehicle electrification as a big part of the solution and the government has made it clear from key legislation unveiled in recent months. A package approved by the Thai Cabinet on Dec 19 reduced the size of existing EV subsidies, but nevertheless locked in the payments until 2027.

The latest subsidy package is about more than just clean air. Thailand has long been a production hub for big-name Japanese vehicle firms, and policymakers are seizing on a chance to upgrade local EV capacity and knowhow by stoking joint venture (JV) activity, and pegging subsidies to local production of cars.

That’s bringing a rush of activity from Chinese carmakers as their home market grows saturated. Arms’ length production could also help them skirt a growing raft of restrictions on the export of Chinese technology to the US and Europe.

To really break ground, they will have to compete with the more established Japanese brands that dominate South-east Asia’s second-largest vehicle market. The fact that these Japanese companies tend to produce more car parts locally than Chinese firms could give them an advantage in a price war.

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Chinese EV firms will also need to carve out turf in an auto economy dominated by the production of fossil fuel powered cars, many of which are exported to developing nations.

Srettha has implied that his administration will continue to support the production of such vehicles, and that he wants Thailand to be a “last centre” of production for gas guzzlers.

Air quality agenda

Thailand’s air quality is a complex picture. Factory pollution is a major factor, while illegal crop burning, particularly in the kingdom’s agricultural north, contributes a seasonal rhythm to the smog.

In Bangkok, 72.5 per cent of PM2.5 air pollution is contributed by vehicle tailpipe emissions, according to the Thai Pollution Control Department, with a combined 56 per cent coming from trucks, pickups and buses.

Health problems linked to PM2.5 exposure cost Thailand about US$32.8 billion in 2019 – roughly 6 per cent of its GDP, according to a World Bank report in December.

In an indication of how politically charged the issue has become, the Thai parliament voted almost unanimously on Jan 17 to accept seven different draft versions of a Clean Air Bill proposed by various stakeholders.

A parliamentary committee will now determine what is in and out of a unified draft bill as those stakeholders jostle with a range of subsidies, bans and incentives on the table. If all goes to plan, clean air legislation is expected to pass sometime this year.

Chinese NEV imports rev up

Thailand rose to become the world’s second-largest importer of Chinese-made NEVs, or new-energy vehicles, last year. The category includes pure electric, plug-in hybrid and fuel-cell vehicles.

In 2023, China exported 160,389 passenger NEVs to Thailand, more than double the prior year, overtaking the UK and trailing Belgium, said Cui Dongshu, secretary-general of the China Passenger Car Association.

Around 19 of every 20 vehicles Thailand imported from China last year were NEVs, according to his data.

The Thai EV market boomed in 2022, when a dramatic hike in oil prices following the Russia-Ukraine war led to an increased interest in battery-powered cars, according to a person who worked at the JV between Chinese state-owned carmaker SAIC Motor and Bangkok-based conglomerate Charoen Pokphand Group.

“Thailand is actually an ideal place for the popularisation of EVs because of its high temperatures throughout the year and its relatively small land area, which can help alleviate consumers’ concerns about the reduced range of an electric car if it runs under cold-weather conditions,” the person said.

Incentive policies 

That growing consumer interest was supported by industrial planning. In 2021, Thailand unveiled a development roadmap for its EV industry, aiming for zero-emission vehicles to grow to 30 per cent of the cars and motorcycles produced in the country by 2030. Thailand’s twin carbon goals are more sluggish than China’s, with a pledge to achieve carbon neutrality by 2050 and net-zero emissions by 2065.

In June 2022, Thailand launched the EV3.0 scheme offering varying cash subsidies for imported passenger EVs based on their battery specification and retail price.

As part of the policy, imported passenger car models sold before the end of 2023 were exempt from a portion of import and excise duties, though in order to be eligible for subsidies, EV-makers have to make one car in Thailand for each they have imported by the end of 2024.

In November, the country announced the new EV3.5 scheme to further boost local investment and manufacturing, under which the cash subsidies are scaled down and local production ratios beefed up. Carmakers will need to produce two EVs locally for each they import by 2026, and the ratio will grow to three-to-one in 2027. The scheme began on Jan 2.

Four Chinese carmakers – SAIC, BYD, Great Wall Motor and Neta Auto – were among the earliest participants in the EV3.0 scheme, said Bao Zhuangfei, general manager of Neta Auto’s Thailand operations. Neta Auto is the EV brand of Chinese carmaker Hozon New Energy Automobile.

On Jan 17, Chongqing Changan Automobile became the first carmaker to take part in the EV3.5 scheme, after signing a memorandum of understanding with the Excise Department of Thailand’s Ministry of Finance.

In 2023, a total of 76,314 electric cars were registered in Thailand, nearly 85 per cent of which were Chinese brands, according to Autolife Thailand, a local automotive website. Chinese-brands took four spots out of the five best-selling EVs in the country, according to the website.

Localisation efforts

Thailand’s strengthened requirement for local production has prompted numerous Chinese carmakers to unveil plans to establish car assembly plants in the country.

On Nov 4, the first batch of the fully electric MG4 rolled off the production line at a factory in Thailand operated by the SAIC-Charoen Pokphand JV. Those cars were the first pure EVs assembled in Thailand, SAIC said at the time.

On Nov 30, Neta Auto kicked off production at its first overseas EV plant in Thailand after it entered the market in August 2022 selling a budget electric subcompact crossover assembled in China. Large-scale production at the facility designed to have an annual production capacity of 20,000 cars is scheduled to begin in the first quarter of this year.

Guangzhou Automobile Group’s EV marque Aion, Changan Auto and BYD have also announced plans to build a manufacturing presence in Thailand.

Aion, which already exports EVs to Thailand, is preparing for a plant in the country with a designed annual production capacity of 50,000 cars. Construction will be divided into two phases, with the first expected to be completed in July 2024.

Changan Auto chairman Zhu Huarong said at a company event last November that its Thailand-based manufacturing facility designed to have an annual capacity of 200,000 vehicles, will be put into operation in the first quarter of 2025.

Last March, BYD broke ground on its first overseas plant in Thailand, which is set to start operating in 2024 with a planned annual production capacity of 150,000 EVs.

The flurry of activity has raised concerns of a glut, particularly given that only about 850,000 vehicles including EVs were sold in Thailand in 2022 – half of them were pickup trucks.

In addition, Chinese carmakers with a manufacturing presence in Thailand will for the time being have around a 20 per cent higher production cost than in China as the majority of components used in their locally assembled EVs are still transported from China, according to the person who worked at the SAIC-Charoen Pokphand JV.

There is, however, room to grow. According to the estimate of Chen Wan, the head of Aion’s international business division, the penetration rate of NEVs in Thailand is only about 5 per cent.

Chinese EV firms operating in the country are also likely to be insulated from the kind of geopolitical risks they are increasingly facing elsewhere, like in the European Union.

During his first official visits to the US in September and China in October, Srettha courted investors and automotive industry captains. Observers say his administration appears keen to balance relations between the superpowers – particularly in the light of Thailand’s reliance on inbound Chinese tourism – which could make the destination more attractive for Chinese firms amid acrimony and industrial sanctions further afield.

Challenging deep Japanese ties

Chinese car producers doing business in Thailand are also facing challenges from their Japanese counterparts which have for decades dominated the market, where fossil fuel-powered cars remain the preferred choice for most car buyers.

In a Nov 9 statement issued after his meeting with Toyota Motor executives, Srettha said his administration plans to work with the Japanese car giant to develop its EV industry, with the Thailand Board of Investment (BOI) and the Ministry of Finance providing tax assistance.

About 80 per cent of components used in Thailand-assembled Toyota cars are locally manufactured, leaving the company significant room to lower prices if a price war with Chinese companies happens. That compares favourably to the localisation rate for the SAIC-Charoen Pokphand JV which stands at about 45 per cent.

The Thai government seems pleased with the emergence of a diversified EV market. The BOI said that Thailand is “welcoming investment from all countries” and aims to be “the largest production base in all segments” of the car industry in South-east Asia, in a statement to Caixin on Nov 3.

The BOI also expressed its willingness to support internal combustion engine car manufacturers including those from Japan in its pursuit of new green technologies to reduce carbon emissions as the country tries to promote the development of a whole industry ecosystem that includes EVs, batteries and charging stations.

Earlier this month, Toyota, alongside Honda, Isuzu and Mitsubishi pledged to invest US$4.3 billion over the next five years to retrofit their plants in Thailand to manufacture EVs.

Local authorities are likely to continue stoking competition between Chinese and Japanese carmakers as Thailand upgrades its vehicle industry, an insider said. CAIXIN GLOBAL