Thailand's automotive industry, once a cornerstone of Southeast Asia's manufacturing strength, now faces a convergence of challenges that threaten its export-driven model.

From a 320,000-unit decline in light vehicle production in 2024 to the looming prospect of United States "reciprocal" tariffs projected at 36%, the sector is at a crossroads.

For investors, this crisis presents a dual narrative: weighing financial risks to key automakers and identifying undervalued opportunities in regional supply chains.

Tariffs, demand and electrification

Thailand's automotive sector contributes 10%-11% of GDP and indirectly employs over 1.5 million people. Yet, the industry's reliance on exports - 40% of its manufactured goods - has left it exposed to global headwinds.

The United States, Thailand's second-largest export market, now threatens tariffs that could reduce shipments by US$ 8 billion annually. Meanwhile, domestic demand has weakened, with light vehicle sales contracting 7% year-on-year in Q1 2025.

The shift to electric vehicles (EVs) adds further complexity. While EV sales surged 320% in 2023, growth has slowed due to high prices and declining incentives. The Thai government has responded with a US$ 212 million EV subsidy and tax cuts for plug-in hybrids, but these measures have not yet translated into sustained demand.

For automakers such as Mazda, BMW, and BYD, the risks are significant. Mazda's US$ 148 million joint venture with Ford, and BMW's US$ 45.6 million battery plant in Rayong, are strategic bets on regionalisation.

However, US tariffs could erode margins for companies reliant on the American market. BYD's 150,000-unit EV plant in Thailand, meanwhile, faces intensifying competition from Chinese rivals like GAC Aion, which are expanding their regional footprint.

Who is most vulnerable?

The US tariff threat will not affect all players equally. Automakers with direct US export exposure - such as AAPICO Hitech, which supplies auto parts to global OEMs - face immediate margin pressure.

AAPICO's CEO, Yeap Swee Chuan, noted that while US exports account for a small portion of its business, the complexity of routing shipments through third-party countries could inflate costs.

For OEMs such as Volvo and Nissan, the risk lies in potential production relocations. Thailand's Finance Minister has proposed reducing the US trade surplus by 70% over five years, but this may not be enough to avert a 36% tariff.

If implemented, such a rate could force companies to shift production to lower-cost ASEAN rivals like Vietnam or Indonesia, which already benefit from lower US tariffs (20% and 19%, respectively).

EV supply chain and regional partnerships

Amid these difficulties, opportunities are emerging for investors who can identify structural shifts. Thailand's ambition to become a regional EV hub - targeting 30% EV production by 2030 - has spurred investments in battery manufacturing and charging infrastructure. PTT Global Chemical, for instance, is supplying materials for EV batteries, while Advanced Info Service is expanding charging networks. These companies represent undervalued plays in a sector poised for growth.

Regional trade partnerships also present upside potential. The ASEAN-China Free Trade Area (ACFTA) and the Regional Comprehensive Economic Partnership (RCEP) are facilitating access to Asian markets, reducing reliance on the US Thai automakers are pivoting to high-value EV components, which are less exposed to tariffs.

Thailand's Eastern Economic Corridor (EEC), for example, has attracted US$ 1.44 billion in Chinese EV investments, creating a localised supply chain that could help insulate the industry from US trade volatility.

Balancing caution and opportunity

For investors, the challenge is balancing risk mitigation with long-term positioning. Short-term volatility from US tariffs and economic weakness in Thailand necessitates caution. However, the sector's structural shift toward electrification and regionalisation offers compelling opportunities.

Short-Term Plays: Focus on Thai automakers with diversified export markets and strong regional partnerships. AAPICO Hitech, with its emphasis on local Japanese OEMs, may be less exposed to US tariffs. Similarly, companies such as PTT Global Chemical, which supply critical EV components, could benefit from government incentives.

Long-Term Bets: Invest in regional EV infrastructure and supply chain players. Thailand's EEC and RCEP-driven trade flows position it as a key node in the ASEAN EV ecosystem. Companies such as Advanced Info Service, which are expanding charging networks, could see demand increase as EV adoption accelerates.

Hedging Against Tariffs: Diversify exposure to US trade risks by considering ASEAN-focused automakers. Vietnam and Indonesia, with their lower US tariff rates and expanding EV markets, provide alternative avenues for growth.

Conclusion

Thailand's automotive industry is at a pivotal juncture. While US tariffs and domestic economic headwinds pose significant risks, the sector's pivot toward electrification and regional integration creates fertile ground for opportunity.

For investors, the way forward lies in identifying undervalued players in the EV supply chain and leveraging regional trade dynamics to navigate the uncertainty.

As the industry recalibrates, those acting with both caution and foresight will be best positioned to capitalise on the next phase of Southeast Asia's automotive evolution.