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Trade & investment, explained.
Assembling an Isuzu Motors D-Max ute at the company's Samrong plant in Thailand (Andre Malerba/Bloomberg via Getty Images)
Thailand’s car sector was weakening before Chinese EVs arrived – and the incentives meant to fix it have yet to build anything local.
Thailand’s auto industry has a bigger problem than ChinaThailand’s auto industry has a bigger problem than China
About the author
Ahmed Albayrak
Ahmed Albayrak is a Research Associate in the Lowy Institute’s Indo-Pacific Development Centre.
Cheap Chinese electric vehicles have disturbed carmakers in Europe and Japan, but the effect on regional production hubs like Thailand is often overlooked.
Once called the “Detroit of Asia”, Thailand’s automotive sector is facing a similar decline to the city that was once the beating heart of US car manufacturing. Production of vehicles in Thailand dropped by 20% (Opens in new window) in 2024 according to CEIC Data and remains sluggish. Sales of locally made vehicles are also well down.
China’s automotive exports to Thailand began rising in 2022, and by 2023 China had overtaken Japan as the country’s leading import source for vehicles and parts.
Domestic policy helped accelerate China’s rise. Thai policymakers offered short-term concessions to Chinese firms with the hope of securing long-term investment. Under the first incentive package, the “EV 3.0” scheme, manufacturers received excise tax cuts and temporary import-duty reductions on fully built EVs in exchange for commitments to local production. The scheme drew major EV brands into the market and channelled shrinking demand towards electric vehicles.
By December 2025, EV registrations (Opens in new window) in Thailand were 2.5 times higher than a year earlier. Chinese brands have cemented their position, now controlling more than (Opens in new window) 70% of Thailand’s battery EV market.
But focusing on import competition alone risks overlooking deeper problems facing Thailand’s car makers – namely weak domestic demand and EV investment that has yet to build a local supplier base.
A stronger domestic market would give Thailand the leverage to enforce deeper localisation, rather than using tax incentives.
Although overall production has fallen (Opens in new window), a growing share of Thai-made vehicles are now destined for overseas markets, with exports in 2025 running at 27% above (Opens in new window) their 2020 level. Stronger exports reflect Thailand’s strength in utility vehicles, which have been less affected by EV adoption than other segments, and steady demand from Australia, ASEAN countries, and the United States.
Domestic demand, however, had been weakening well before Chinese EVs entered the market. In 2011, the government introduced a first-car buyer scheme, which boosted sales by offering tax rebates on new domestically produced vehicles. But when the scheme ended, many households were left with large debts. The pandemic and commodity price shocks compounded the damage. Household debt stands at nearly (Opens in new window) 90% of GDP, eroding the middle class that underpins consumption.
The EV incentives have yet to deliver. Thailand has attracted major EV and battery investment, including the first wholly-owned overseas factory of Chinese giant BYD, but links to local suppliers, R&D and Thai jobs remain weak. EVs assembled in Thailand still fall short of the 40% local content target. Many local suppliers have no place (Opens in new window) in EV production. Chinese firms import most components and assemble them locally.
Thai auto groups have responded by calling (Opens in new window) for a 32% tariff on EV imports. Tariffs are an impulsive response and will not revive Thailand’s auto industry. The strongest case for them is that they could push Chinese manufacturers to expand local production.
But Thailand’s domestic market is shrinking. It is more likely that the firms would keep assembling imported components locally or shift investment elsewhere. Indonesia and Vietnam are already competing for the same deals. Higher tariffs would only strengthen the case for moving production to alternative locations.
The government’s biggest challenge is to ease household debt, which is holding back consumption. Debt servicing costs and tighter lending are discouraging big purchases like cars. Consumption stimulus has produced small gains in GDP at a higher (Opens in new window) fiscal cost. A stronger domestic market would give Thailand the leverage to enforce deeper localisation, rather than using tax incentives.
Thailand’s case also offers a lesson for other countries competing for Chinese EV investment. The broader questions – whether generous short-term concessions can ever be converted into long-term industrial capability, or whether most of the value-added production will remain in China – should be central to policy discussions. Otherwise, the countries competing hardest for Chinese investment may find their existing industries shrink without new ones taking their place.
