Sluggish domestic car sales could have a negative impact on the country's fledging electric vehicle (EV) industry, despite an upward trend in EV usage.
EV manufacturers, particularly Chinese companies, are monitoring EV sales in Thailand, which are encountering several problems ranging from slow economic growth and high household debt to the EV price war.
Manufacturing EVs locally has high production costs, according to some producers, complaints the Thai government is listening to as it attempts to build a regional EV production hub.
SLOWDOWN IN REGISTRATIONS
The number of new EV registrations is expected to reach 80,000 this year, below the annual prediction, said Surapong Paisitpatanapong, vice-chairman of the Federation of Thai Industries (FTI) and spokesman for its Automotive Industry Club.
Earlier this year, the FTI set the target for new EV registrations at 100,000 units, up from 76,366 units in 2023.
As the automotive industry in Thailand remains torpid, it is unlikely the EV target will be achieved, said Mr Surapong.
From January to August, the number of new EV registrations was roughly 48,000, representing a year-on-year increase of 11%.
This slowdown indicates an unhealthy automotive industry, he said.
In July, the club cut its car manufacturing target for 2024 to 1.7 million units from 1.9 million.
The revised targets for car production and new EV registrations reflect months of sluggish car sales in Thailand, resulting from the high level of household debt that caused banks to tighten lending criteria when considering auto loans.
Banks want to avoid non-performing loans (NPLs) as household income stagnates amid slow economic growth, said Mr Surapong.
The club said the value of auto NPLs reached 254 billion baht in the second quarter of 2024, a year-on-year increase of 29.7%.
Earlier this year, the club set the car production target at 1.9 million units, a year-on-year increase of 3.15%, with 1.15 million for export and 750,000 for domestic sales.
But as car sales in the country sagged, leading to a drop in car manufacturing during the first half of 2024, the club downgraded its output target.
From January to June this year, Thailand's car manufacturing output fell by 17.3% year-on-year to 761,240 units, with 245,047 units produced for domestic sales and 516,183 units manufactured for export. This prompted the club to reduce the domestic target to 550,000 units, down from 750,000.
Mr Surapong said he expects car sales to improve during the remaining months of this year. He said the economy should revive, thanks in part to government budget spending.
Household debt is expected to decline in the final quarter this year as economic growth strengthens, said Mr Surapong.
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 projects GDP growth of 2.6% this year, increasing to 3% in 2025.
According to data from the central bank, total household debt tallied 16.3 trillion baht in the second quarter of 2024, representing 89.8% of GDP, down from 16.4 trillion or 90.8% of GDP in the first quarter.
PRICE WAR
Fierce competition among EV manufacturers led to a price war, which could decelerate sales further, even though lower prices are meant to attract buyers.
The price war is expected to continue, contributing to the decline in domestic car sales, said Mr Surapong. Many prospective buyers are reluctant to purchase a new EV because they want to wait for the prices of some EV brands to decrease, said industry executives.
Thai consumers benefit from the state's EV incentive packages, including tax cuts and subsidies, to fuel the growth of the industry. Competition to cut prices among some EV manufacturers, especially those from China, have further reduced the cost of purchasing an EV.
Chinese EV manufacturers can engage in a price war because they have a network of supply chains that can supply raw materials and components to EV assembly plants quickly, he said.
China produces roughly 70% of the world's EV batteries and more than half of the EVs, according to media reports.
The prices of lithium-ion batteries keep decreasing because the raw materials, including lithium cobalt oxide, lithium nickel oxide, lithium manganate and lithium iron phosphate, are becoming cheaper.
Last year the price of a battery pack fell by 10-14%, said the FTI.
"These factors play a key role in reducing EV prices, which are likely to become more affordable in the future," said Mr Surapong. "We don't know how much EV prices will decrease because it is dependent on the production plans of each company."
While lower prices is good news for buyers, it could have a negative impact on sellers if prices are reduced for a price war, according to manufacturers.
Chinese EV producer Changan Automobile said it opposes a price war. The tactic, used by certain Chinese EV manufacturers, only damages consumers' trust in car brands and can mar the image of Chinese EVs, said Shen Xinghua, managing director of Changan Auto Southeast Asia, a unit of the Chongqing-based firm.
Mercedes-Benz (Thailand) is also refusing to take part in the price war, with president and chief executive Martin Schwenk acknowledging the price war is a factor decelerating EV sales.
Price competition is not a serious concern for Mercedes-Benz because its target market differs from rival Chinese automakers, he said.
COST CONTROL
As total car sales in Thailand decline, EV manufacturers, particularly those from China, need to carefully manage their production costs, including expensive EV components and the high cost of energy bills in Thailand, said Mr Shen.
The prices of domestically sourced car parts for EV assembly are typically 10-15% higher than those produced in China, he said.
More expensive energy prices in Thailand than those in China and other Southeast Asian nations such as Vietnam have also driven up EV production costs, said Mr Shen.
Higher costs can cause foreign EV manufacturers to lose competitiveness over the long term, he said.
"However, Thailand has good infrastructure to support investment and its labour costs are cheaper than those in China," said Mr Shen.
Changan previously announced plans to allocate 10 billion baht for business expansion in Thailand from 2023 to 2025.
The company wants to produce 100,000 EVs a year and initially manufacture 30,000 to 50,000 sports utility vehicles (SUVs) at its factory in Rayong. SUVs are a popular segment in Thailand.
Changan plans to deal with high costs through economy of scale, he said.
The company wants to use Thailand as its manufacturing base to export both right-hand and left-hand drive vehicles.