Challenges Facing Thailand’s Automobile Industry

By Chayut Setboonsarng and Thanadech Staporncharnchai

Overview

BANGKOK (Reuters) – Thailand’s $53 billion automobile industry is confronting significant challenges as high consumer debt hampers purchases and shifts toward electric vehicles (EVs) decrease demand for traditional cars.

Current Situation

The crisis affecting Southeast Asia’s largest car production hub has led to reductions in output and jobs, prompting government intervention in an attempt to restore the industry’s health.

Companies like Techno-Metal, which manufactures cast iron undercarriage parts for well-known brands such as Toyota and Mitsubishi, are feeling the effects. The company reports that production in its Chon Buri factories has dropped to 40% of peak capacity, reducing its workforce from 1,200 to 900 workers and cutting working hours to 75%.

In 2024, production in the automobile sector is projected to fall to 1.7 million vehicles, down from 1.9 million in 2023. Domestic sales have hit a 14-year low, with the automotive market grappling with increased export competition and stagnant local demand.

Electric Vehicle Sector Challenges

While the EV sector is growing, investments from Chinese manufacturers like BYD totaling over $1.44 billion cannot compensate for the local auto parts industry’s losses. This sector has about 2,000 companies employing around 700,000 people but faces significant operational cost disadvantages compared to Chinese manufacturers.

Focus on Pick-Up Trucks

The pick-up truck segment is particularly vital, making up nearly half of all vehicle sales in Thailand last year. However, exports have declined 8.76% in 2024, leading to reduced production and a predicted 12% decrease in auto parts sales.

The household debt level in Thailand, which reached $484 billion or 90.8% of GDP by March 2024, further restricts car sales, with a significant decline in loan approvals for pick-up purchases compared to previous years.

Seeking Solutions

To counteract these issues, industry groups are urging the government to provide incentives for foreign manufacturers specializing in traditional internal combustion engine (ICE) and hybrid vehicles. The government aims to offer support in the form of investment incentives and subsidies, particularly to stimulate hybrid manufacturing.

Importantly, the Thai Board of Investment is looking to entice foreign investors to collaborate with local companies, especially to pivot towards manufacturing Thai-branded EVs that can bypass tariffs on imports from China.

However, Thai firms face challenges in partnering with Chinese EV manufacturers primarily due to lower profit margins.

Conclusion

The Thai auto industry is in a precarious state, with urgent actions needed to revive its fortunes amidst competing pressures of consumer debt and shifting market demands towards electric vehicles.

($1 = 33.1100 baht)