Sluggish domestic car sales may have a negative impact on Thailand's developing electric vehicle (EV) industry, despite the increasing adoption of EVs.

EV manufacturers, especially those from China, are closely observing the situation in Thailand, which is experiencing several challenges, including slow economic growth, high household debt, and the ongoing price war among EV producers.

Some manufacturers have expressed concerns about the high production costs associated with locally assembling EVs. The Thai government is actively addressing these issues as part of its efforts to position Thailand as a regional hub for EV production.

Slowdown in registrations

The number of new EV registrations in Thailand is expected to reach 80,000 in 2024, falling short of the initial target, said Surapong Paisitpatanapong, Vice-Chairman of the Federation of Thai Industries (FTI) and spokesman for its Automotive Industry Club.

Earlier in 2024, the FTI set a target of 100,000 new EV registrations, up from 76,366 units in 2023.

As the automotive industry in Thailand continues to stagnate, it is unlikely that the EV target will be met, said Surapong.

The revised targets for car production and new EV registrations reflect several months of sluggish car sales in Thailand. This downturn has been exacerbated by high household debt, which has led banks to tighten lending criteria for auto loans.

Banks are aiming to avoid non-performing loans (NPLs) as household income stagnates amidst slow economic growth, Surapong further added.

The club reported that the value of auto NPLs reached THB 254 billion (US$ 7.3 billion) in the second quarter of 2024, marking a year-on-year increase of 29.7%.

Earlier in 2024, the FTI had set a car production target of 1.9 million units, a 3.15% increase from the previous year, with 1.15 million units for export and 750,000 for domestic sales.

However, as car sales sagged, leading to a decline in car manufacturing during the first half of 2024, the club reduced its output target.

From January to June, Thailand's car manufacturing output fell by 17.3% year-on-year. This prompted the club to adjust the domestic target to 550,000 units, down from 750,000.

Surapong expressed optimism that car sales would improve in the remaining months of 2024, with the economy expected to recover, partly driven by government budget spending.

Household debt is projected to decline in the final quarter of 2024 as economic growth strengthens, he continued.

In the first quarter, GDP growth was 1.5%, rising to 2.3% in the second quarter, according to the National Economic and Social Development Council.

The Bank of Thailand forecasts GDP growth of 2.6% in 2024, with an increase to 3% in 2025.

Data from the central bank indicated that total household debt reached THB 16.3 trillion in the second quarter of 2024, or 89.8% of GDP, down from THB 16.4 trillion or 90.8% of GDP in the first quarter.

Price war

Intense competition among EV manufacturers has led to a price war, which could further slow sales, despite the intention to attract buyers through lower prices.

The price war is expected to persist, contributing to the decline in domestic car sales, said Surapong. Many potential buyers are hesitant to purchase new EVs, preferring to wait for prices to decrease, according to industry executives.

Thai consumers benefit from the government's EV incentive packages, which include tax cuts and subsidies, designed to support the growth of the industry. Competition, particularly among Chinese EV manufacturers, has further reduced the cost of purchasing an EV.

Chinese manufacturers can engage in a price war due to their extensive supply chain networks, which allow them to quickly supply raw materials and components to EV assembly plants, Mr Surapong explained.

China produces approximately 70% of the world's EV batteries and more than half of the EVs, according to media reports.

The cost of lithium-ion batteries continues to decrease as raw materials, including lithium cobalt oxide, lithium nickel oxide, lithium manganate, and lithium iron phosphate, become more affordable.

In 2023, the price of a battery pack fell by 10-14%, according to the FTI.

"These factors play a crucial role in reducing EV prices, making them likely more affordable in the future," said Surapong. "However, we cannot predict exactly how much EV prices will decrease, as it depends on the production plans of each company."

While lower prices benefit buyers, they could negatively impact sellers, especially if price reductions result from a price war, according to manufacturers.

Chinese EV producer Changan Automobile stated its opposition to the price war. The strategy, employed by some Chinese manufacturers, only erodes consumer trust in car brands and tarnishes the reputation of Chinese EVs, said Shen Xinghua, Managing Director of Changan Auto Southeast Asia, a division of the Chongqing-based firm.

Mercedes-Benz Thailand has also chosen not to participate in the price war, with President and CEO Martin Schwenk acknowledging that the price war is a factor hindering EV sales.

Price competition is not a significant concern for Mercedes-Benz, as its target market differs from that of rival Chinese automakers, he further added.

Cost control

As overall car sales in Thailand decline, EV manufacturers, especially those from China, must carefully manage their production costs, including the high cost of EV components and energy bills in Thailand, said Shen.

The prices of domestically sourced car parts for EV assembly are typically 10-15% higher than those produced in China, he noted.

Additionally, higher energy prices in Thailand compared to China and other Southeast Asian nations such as Vietnam have driven up EV production costs, Shen stated.

In the long term, these higher costs could cause foreign EV manufacturers to lose competitiveness, he added.

"However, Thailand benefits from strong infrastructure to support investment, and its labour costs are lower than those in China," said Mr Shen.

Changan previously announced plans to invest THB 10 billion in business expansion in Thailand from 2023 to 2025.

The company aims to produce 100,000 EVs annually, with an initial focus on manufacturing 30,000 to 50,000 sports utility vehicles (SUVs) at its factory in Rayong. SUVs are a popular segment in Thailand.

Changan intends to address high costs through economies of scale, he said.

The company plans to use Thailand as its manufacturing base to export both right-hand and left-hand drive vehicles.