In April 2024, Thai government officials visited the Chinese provinces of Fujian and Guangdong with the objective of encouraging leading Chinese electric vehicle (EV) battery manufacturers to invest in Thailand.

Two months later, China's Contemporary Amperex Technology Limited (CATL), a global leader in EV battery production, announced an initial investment exceeding US$ 100 million to establish an assembly plant in collaboration with a local Thai state-owned company.

This development is a result of Thailand's efforts to enhance its domestic capacity and position itself as a regional hub for both midstream and downstream EV supply chains in Southeast Asia.

As Chinese EV manufacturers and battery producers face restrictions in the United States and parts of Europe, Thailand and other Southeast Asian nations have introduced measures, including tax incentives, cash grants, and subsidies, to attract investment.

In recent years, major Chinese EV manufacturers such as BYD, MG, SAIC Motor, and Great Wall Motor have made significant investments in Thailand, focusing on localisation.

The localisation of EV supply chains in Southeast Asia presents a model in which Chinese companies contribute to industrial capacity building, value-added supply chains, and job creation.

This approach supports the region's long-term objectives of sustainable economic growth and environmental sustainability. However, challenges remain, such as sluggish short-term local demand and the impact of EV promotion on the existing internal combustion engine vehicle (ICEV) industry.

China's role in Thailand's EV market

Before the rise of the China-led EV industry, Thailand's automotive market was dominated by Japanese manufacturers, which have accounted for almost 90% of the market share since the 1970s. Thailand became a major regional hub, exporting over 70% of its locally produced vehicles.

Chinese EV manufacturers are now challenging this dominance, establishing a significant presence in Thailand's automotive market and laying the foundation for a parallel EV supply chain.

Recognising the potential of Chinese leadership in this sector, the Thai government introduced several initiatives in 2022, including cash subsidies, corporate tax exemptions, import tariff reductions, and streamlined approval processes.

These measures have driven investments that support Thailand's 30@30 plan, which aims for EVs to account for 30% of domestic vehicle production by 2030.

As a result of these policies, Chinese EV manufacturers have pledged investments exceeding USD 1.4 billion in Thailand's EV market, contributing to rapid sales growth.

Dr. Sineenat Sermcheep, Director of Research Affairs at the ASEAN Studies Centre at Chulalongkorn University, noted that Thailand's prior experience in assembling internal combustion vehicles provides an advantage in EV manufacturing. She stressed the importance of adapting to new technologies to maintain competitiveness.

In addition to vehicle assembly, the Thai government is encouraging investment in the midstream segment of battery cell production. Chinese companies such as CATL, Gotion High-Tech, and SVOLT are establishing battery plants in Thailand.

Authorities are also encouraging Chinese automakers to source components locally and are negotiating technology transfer agreements to build technical expertise within the country.

Thailand's increasing EV production has positioned the country as a regional hub and a growing exporter.

In 2023, Thailand saw a 300% increase in EV exports, with Singapore, Laos, and Cambodia as its primary markets. Although Thailand's share of global EV exports remains small, its potential for growth is significant, driven by Chinese investments.

Lessons from EV capacity-building efforts

The collaboration between Chinese and Thai stakeholders in developing EV supply chains provides valuable insights for investment in Southeast Asia's clean energy sectors.

Developing countries aim to foster domestic capacity, participate in the energy transition, and establish value-added industries to promote low-carbon growth. Thailand's focus on localising parts of the EV supply chain reflects this trend.

Dr. Sermcheep highlighted the importance of securing technology transfer and skill development to effectively build EV capacity. She noted that careful government planning is crucial to ensure long-term benefits, such as the emergence of local component manufacturers as key players in the EV supply chain.

Chinese companies have shown willingness to transition from assembling vehicles to full manufacturing in countries like Thailand. This shift aligns with their business strategies as they face market constraints in the US and Europe due to overcapacity allegations and national security concerns. Southeast Asia has become a key growth market, with EV sales increasing by 894% in 2023. Thailand is expected to serve as a central market catering to regional EV demand.

Building local capacity in developing countries such as Thailand supports economic development, decarbonisation, and supply chain diversification.

However, uncertainties remain regarding future EV demand at both local and global levels. In 2024, EV registrations in Thailand fell short of official expectations due to rising household debt and intense price competition among Chinese manufacturers.

Moreover, the transition to EVs is negatively affecting Thailand's ICEV industry, which is valued at USD 53 billion. Overall production has declined by 20%, and sales have reached their lowest point in 14 years.

Dr Sermcheep suggested that the government consider revising the 30@30 target to mitigate these challenges and focus on supporting workers by upgrading their skills for the EV industry. A balanced approach to the transition could help alleviate the negative effects on the existing automotive ecosystem.

Although the shift to EVs is inevitable, the transition phase is marked by short-term challenges. To ensure a smooth transition, the establishment of new supply chains must outpace the decline of the ICEV ecosystem. With continued government support, Chinese EV and battery manufacturers are expected to play a significant role in this transformation.