The stagnation in domestic car sales poses a significant threat to Thailand’s emerging electric vehicle (EV) industry, despite the growing adoption of EV technology.
Manufacturers, particularly from China, are closely observing the Thai EV market, which faces challenges such as economic sluggishness, high household debt levels, and a competitive price war among EV brands.
Local production of EVs remains costly, prompting the Thai government to explore the establishment of a regional EV manufacturing hub.
SLOWDOWN IN REGISTRATIONS
New EV registrations in Thailand are projected to hit 80,000 this year, falling short of earlier forecasts, according to industry leaders.
The initial aim for new EV registrations was set at 100,000 units, a marked increase from 76,366 in 2023.
Given the sluggishness within the automotive sector, achieving this EV registration target now seems unlikely.
Data from January to August indicates approximately 48,000 new EV registrations, reflecting an 11% rise from the previous year.
This trend indicates a concerning state for the automotive market, leaders assert.
In response to the ongoing downturn in sales, the industry has lowered its car manufacturing projection for 2024 to 1.7 million units, down from 1.9 million.
With high household debts limiting bank lending for auto loans, the automotive sector is grappling with challenges.
The value of non-performing auto loans soared to 254 billion baht in Q2 2024, up 29.7% year-on-year.
Earlier forecasts targeted a production level of 1.9 million vehicles, although recent sales declines necessitated adjustments to these goals.
From January to June, car manufacturing fell by 17.3% year-on-year to 761,240 units, prompting a reduction in domestic production targets.
Despite current challenges, industry leaders remain hopeful for improved sales in the coming months, aided by government budget initiatives.
Economic indicators suggest a gradual reduction in household debt by year-end, supporting a recovery in consumer spending.
Thai GDP growth stood at 1.5% in Q1, increasing to 2.3% in Q2, with projections reaching 2.6% for the year.
Total household debt reached 16.3 trillion baht in Q2 2024, comprising 89.8% of GDP, a slight decrease from earlier quarters.
PRICE WAR
The fierce competition among EV manufacturers is leading to a price war that threatens to further hamper sales, despite aims to incentivize buyers.
Industry officials note that many consumers are hesitating to buy new EVs, expecting price reductions from various brands.
Government incentives, including tax benefits and subsidies, are designed to stimulate market growth, indirectly fuelling ongoing price competition among EVmakers.
With Chinese manufacturers controlling a substantial segment of the EV market, they leverage efficient supply chains that lower production costs, enhancing their competitive edge.
As raw material prices drop, the cost of lithium-ion batteries decreased by 10-14% last year, reflecting a trend that could make EVs more accessible in the long run.
The implications of a price war are multifaceted; while reduced prices favor consumers, they may undermine brand integrity and profitability.
One leading manufacturer has expressed opposition to such competitive tactics, fearing damage to consumer trust.
Luxury automakers note a different market strategy that shields them from direct price war impacts.
COST CONTROL
As overall car sales diminish, EV manufacturers, especially from China, must focus on controlling production costs tied to expensive components and high energy expenses.
Locally sourced car parts can be significantly more expensive compared to those imported from China, further pressuring margins.
High energy prices in Thailand relative to neighboring countries also elevate production costs, threatening long-term competitiveness.
However, Thailand’s robust infrastructure and favorable labor costs present significant advantages for investment.
Plans have been announced for substantial investment in Thailand’s EV market to bolster production capabilities, with an aim of manufacturing 100,000 EVs annually.
By leveraging economies of scale, manufacturers aim to overcome high costs while also establishing Thailand as a key production hub for both domestic and export markets.
