Besides the American Independence Day, July 4th marked another celebratory occasion on the other side of the globe as BYD opened its first electric vehicle (EV) factory in Southeast Asia, located in Rayong province, Thailand. The $486 million factory boasts an impressive manufacturing capacity of 150,000 vehicles per year, dwarfing competitors by more than ten times. To many, this grand unveiling by BYD marks a major leap as the region’s largest automotive industry transitions toward EVs, but perhaps it is just marching in place.
Incubated in the 1960s, the Thai automotive industry has become the country’s leading sector. In 2023, Thailand exported over $28 billion worth of cars and automobile parts, ranking tenth-largest in the world. By 2030, Thailand aims to transform 30% of its annual production of 2.5 million vehicles into EVs. Last year, sales of electric cars in Thailand accounted for half of the total sales regionally, with the majority being BYD cars. The Srettha administration announced consumer subsidies to boost EV purchases. They also provided tax incentives for EV manufacturing and lowered trade barriers for importing manufactured parts and vehicles for subsequent local assembly.
On one hand, the Government’s initiative should be celebrated, as innovative policies are rare in Thailand. However, behind the impressive growth figures lies a hollow strategy that follows the same policy playbook implemented over the last four decades. The Thai automobile industry heavily relies on Foreign Direct Investment (FDI), with the majority of operations limited to last-stage assembly of car parts that are mostly produced by foreign-owned manufacturers. So far, the Government’s reduction of import tariffs of EV parts mirrors this trajectory, facilitating the dominance of foreign-owned manufacturers in the EV supply chain. Despite the new branding, the major policy change is essentially a shift of focus from internal combustion engine (ICE) vehicles to EV and from Japanese to Chinese companies.
Additionally, the focus on downstream EV manufacturing may cannibalise the local manufacturing sector. With Thai car factories primarily producing ICE vehicles, auto production figures plunged 19% last February as competition from cheap imported EVs from China increased. Japanese companies that dominate the Thai automobile industry are facing fierce competition, with Suzuki and Subaru announcing halved production in Thailand in the coming year due to declining revenue.
More importantly, Thailand has historically neglected the development of local producers’ technological capacity, focusing instead on supporting Multinational Companies (MNCs). Thailand has prioritised incentives for foreign suppliers, decreasing tariffs year by year, while sustained industrial policies for domestic suppliers have remained on the backburner. Although foreign companies have initiated programs to enhance the manufacturing capabilities of Thai workers, the empowerment of local suppliers has proved limited, as foreign-owned suppliers continue to dominate the supply chain.
Decades of negligence have limited prospects of the local manufacturing sector participating in the EV supply chain. The production of the Li-ion battery, one of the most critical components of the vehicle, is a telling indicator. Thailand lacks both the processing industry to produce industry-grade raw materials and the technological capacity to produce active materials for electrodes. Consequently, Thailand’s involvement would be limited to the final assembly stage of modules and packs from imported cells.
The Government still lacks a clear commitment to boost the local EV battery ecosystem. While new EV policies offer tax breaks to incentivize carmakers to set up R&D centres in the country and provide cash subsidies to EV battery manufacturers, they also offer subsidies on imported parts that cannot be manufactured within Thailand. Ultimately, the government is sending the signal that it is trying but can always resort to the easier option as it has in the past.
Perhaps Thailand could try to emulate industry leaders like South Korea. In the 1990s, Korean car manufacturers began localising formerly imported parts and supplies and continued to utilise locally sourced parts even when they set up factories abroad for wage competitiveness. This practice allowed part manufacturers to upgrade their technological capabilities alongside car producers. The secret behind South Korea’s success story is the resolute commitment to sourcing locally.
A direct comparison between Thailand and South Korea is not entirely fair due to their different entrepreneurial ecosystems and the current free trade regime, which limits the extent to which governments can enact industrial policies. Nevertheless, as Thailand hopes to join the league of high-income countries, enhancing technology and generating local value-added is crucial. Instead of setting a target to increase the proportion of EVs in total automobile production, Thailand should aim to increase the proportion of components manufactured domestically. For other ASEAN countries similarly looking to capture expanding investment opportunities in the region and escape the middle-income trap, Thailand’s EV case serves as an excellent reminder that old tricks no longer suffice.
Written by Pariyakorn (Mai) Kasemsawade,
An intern under the Democracy and Governance unit at IDEAS
