Thailand's automotive industry has raised concerns over the scheduled expiry of the government's EV3.5 incentive scheme next year, warning that it could lead to a surge in Chinese electric vehicle (EV) imports and adversely affect domestic vehicle production and the local automotive supply chain.

The EV3.5 scheme provides tax reductions and subsidies to companies investing in battery electric vehicle (BEV) assembly plants in Thailand.

While the programme has attracted investment and increased domestic EV production, industry leaders stated that its expiry could leave Thailand vulnerable if Chinese manufacturers reduce local production and instead rely on imports, benefiting from zero tariffs under the ASEAN-China Free Trade Agreement.

Suwat Supakandechakul, Chairman of the Automotive Industry Club under the Federation of Thai Industries (FTI), said that an influx of imported EVs could undermine Thailand's vehicle production and place pressure on local manufacturers. He further added that auto parts manufacturers could also be affected through reduced purchase orders as imported Chinese EVs gain market share.

Push for new measures

The concerns have prompted industry associations to call for additional measures to support domestic production. Earlier this year, the EV Association of Thailand and nine other associations urged the government to introduce stronger policies to support local manufacturing.

Among the proposals are requirements for manufacturers to increase the use of locally sourced BEV components, as well as revisions to excise tax rates to create a greater pricing advantage for locally produced EVs over imported models.

The objective is to encourage greater domestic production and reduce dependence on imports. Industry representatives have also called on the government to introduce further measures to increase the use of locally manufactured EV components.

Suwat said that Chinese automakers should be required to increase local content in their vehicles to support the domestic automotive industry and contribute to Thailand's objective of becoming a regional EV production hub.

Under current regulations, BEV manufacturers receiving Board of Investment incentives must ensure that locally produced EV components account for at least 40% of total component costs. For plug-in hybrid electric vehicle (PHEV) manufacturers, the requirement increases to 45%.

Industry representatives argued that stronger enforcement of local content requirements is necessary to maintain Thailand's competitiveness. Suwat also urged policymakers to reconsider the proposed vehicle trade-in scheme, which was intended to encourage consumers to replace older vehicles with new EVs or hybrid models.

However, a Finance Ministry source stated that the trade-in scheme may be shelved due to unresolved issues, including determining vehicle age eligibility, assessing used vehicle values and deciding how traded-in vehicles would be disposed of or exported.

Chinese manufacturers comment on localisation

Chinese automakers stated that they remain committed to long-term investment in Thailand. Chris Wu, Vice-President of Changan Auto Sales Thailand, said that the company views localisation as an opportunity rather than a challenge.

"Changan respects the role that local automotive and auto parts associations play in Thailand's automotive sector, we view these proposals as part of the transition towards increased localisation," said Wu.

Changan has transitioned from importing completely built-up vehicles to local manufacturing at its Rayong plant. The company plans to increase the proportion of locally sourced EV components to 70% by 2027 and 80% by 2030, exceeding current regulatory requirements.

Vehicles produced at the THB 10 billion (US$ 299 million) Rayong facility are already being exported to right-hand-drive markets, including the United Kingdom. Wu said that the company is establishing a local battery manufacturing facility to enable battery packs to be sourced within Thailand.

"We are here to continue our operations and investment in Thailand," he said.

Changan stated that its investment forms part of its global "Vast Ocean" strategy, under which Thailand serves as its primary export hub outside China. The company is expanding production capacity at its Rayong plant to 200,000 units annually to support its future product portfolio. Wu further added that the company's strategy, described as "Thailand, for Thailand", includes integrating Thai Tier 1 suppliers into its supply chain to increase local sourcing.

Uncertain outlook

Despite these commitments, industry representatives remain cautious about the outlook.

The FTI has set a 2026 production target of 1.5 million vehicles, comprising 950,000 units for export and 550,000 units for the domestic market.

However, Surapong Paisitpatanapong, Advisor and Spokesman for the FTI's Automotive Industry Club, warned that the export target could be affected by geopolitical tensions, particularly conflicts in the Middle East.

The domestic market also continues to face challenges, with pickup truck sales having declined in recent years. Suwat said that additional government support is needed to stimulate demand for pickup trucks, which would also benefit the approximately 1,500 auto parts manufacturers represented by the FTI.

"The pickup segment used to generate significant economic value, but sales have been weak for a long time, without new measures, both manufacturers and suppliers will suffer," he said.