Thailand's economic planning agency expects Toyota to retain its production base in the country, citing an automotive supply chain developed over more than three decades.

The government is also preparing changes to vehicle excise and import taxation as Thailand faces increasing competition from Indonesia and the global shift towards electric vehicles (EVs).

Danucha Pichayanan, secretary-general of the National Economic and Social Development Council (NESDC), was responding to Indonesia's efforts to attract investment from major carmakers, including Toyota, as it seeks to expand its automotive industry and compete with Thailand as a regional production hub. Although Toyota already invests in and manufactures certain models in Indonesia, Danucha said Thailand continued to benefit from longstanding economic ties with Japan, where carmakers have invested continuously and established an automotive supply chain over more than 30 years. Relocating production would therefore require another country to offer a manufacturing ecosystem comparable to Thailand's.

"We remain confident that Japanese carmakers continue to regard Thailand as a highly efficient production base with strong capabilities in every area," Danucha said.

Thailand plans lower taxes for locally produced vehicles

Thailand plans to restructure automotive excise taxes by applying lower rates to domestically produced vehicles and higher rates to fully built imports from companies without manufacturing investment in the country. Deputy Prime Minister and Finance Minister Ekniti Nitithanprapas instructed Finance Ministry permanent secretary Lavaron Sangsnit and Excise Department director-general Pornchai Theeravet to complete the new structure by September, with the revised rules targeted for implementation before the end of 2026.

The proposal follows Indonesian Finance Minister Purbaya Yudhi Sadewa's efforts to persuade Toyota to relocate production from Thailand to Indonesia by offering incentives and other requested conditions, following Hyundai's earlier investment in the country. Ekniti acknowledged concerns among carmakers operating in Thailand that tax disparities could encourage production to move to neighbouring countries, as vehicles imported from some free trade agreement (FTA) partners receive lower customs-duty rates, placing manufacturers with Thai production bases at a disadvantage.

"Some groups of countries benefit from lower customs duties under FTAs, and this has become a constraint for domestic industrial development," Ekniti said.

Thailand cannot simply increase customs duties on fully built vehicles from FTA partners to create a tariff barrier similar to measures used by the United States, so the Finance Ministry intends to use excise tax as the principal mechanism for addressing the disparity. The proposed structure would provide lower excise rates to established and new carmakers that invest in Thai production facilities, covering internal combustion engine (ICE) vehicles, plug-in hybrid electric vehicles (PHEVs) and battery electric vehicles (BEVs).

Carmakers would be required to make factory investments, use domestically produced raw materials or components and begin producing vehicles for export, while companies importing fully assembled vehicles without investing in Thai manufacturing facilities would face higher excise rates. The Finance Ministry is reviewing vehicle excise rates based on the location of manufacturing operations.

Ekniti said the restructuring could also increase government revenue because consumers choosing imported vehicles would pay higher taxes, while locally produced vehicles would retain lower rates.

"Anyone who wants to use an imported car will face a higher tax, while taxes on vehicles made domestically are already very low, this would support domestic production and employment," he said.

The changes would be introduced through a ministerial regulation specifying excise tariff rates under the Excise Tax Act, which could be issued and implemented within 2026 without parliamentary approval.

Import duties on components also under review

Separately, the Finance Ministry is preparing measures to reduce import duties on overseas-sourced components to help manufacturers with Thai production bases manage costs and compete with businesses importing fully assembled vehicles without establishing local production operations.

The proposed changes are intended to use the tax system to encourage investment and create more balanced competition between domestic manufacturers and importers. The NESDC has assessed concerns that lower component import duties could reduce government revenue and said the impact would be limited, as Thailand has FTAs with several countries and changes in global trade have already reduced import duties on many goods to relatively low levels.

The government is therefore placing greater emphasis on retaining and creating domestic jobs, increasing export capacity and generating more value within Thailand. Maintaining automotive production would support activity across the supply chain, including component manufacturers, smaller businesses, logistics providers and industrial workers. Danucha said these broader economic benefits would have a greater effect than focusing solely on import-duty revenue.

Automotive industry faces weaker exports

The measures come as Thailand's automotive industry faces pressure from the global transition towards new vehicle technologies. Passenger car exports contracted by 42.4% in the second quarter of 2026, partly because of declining demand for ICE vehicles as several trading partners introduced stricter environmental requirements, including tighter carbon standards and measures to reduce greenhouse-gas emissions.

The global vehicle market is also facing increased competition from EVs, which are taking market share from conventional passenger cars. Overall automotive production in Thailand fell by 7.2% in the second quarter, while capacity utilisation declined to 57.47%, as manufacturers adjust to EVs and stricter environmental standards.

The one-ton pick-up segment, however, expanded by 50%. Thailand is a major global production base for pick-up trucks, supported by a component-manufacturing network and industrial ecosystem developed over several decades. The segment remains part of Thailand's automotive manufacturing base as the country moves towards new automotive technologies.

EV incentives linked to local production

Thailand's EV promotion measures require companies receiving incentives to establish manufacturing facilities in the country to compensate for vehicles initially imported under the schemes. The mechanism is intended to ensure that support for EV imports during the early stages of market development results in domestic production capacity.

Thailand's efforts to retain its automotive manufacturing base therefore extend beyond existing ICE factories to developing an ecosystem covering EVs, batteries, electronics, emerging technologies and next-generation automotive components. The supply chain built over more than 30 years will need to adapt to changes in the global automotive industry while continuing to support domestic production.

Australia and New Zealand targeted for exports

Ekniti is scheduled to accompany Prime Minister Anutin Charnvirakul on an official visit to Australia and New Zealand beginning on August 17th. The government plans to use the visit to seek additional opportunities for Thai automotive exports and expand the benefits available under Thailand's FTAs with the two countries.

Ekniti said attracting investment on the supply side would not be sufficient to manage the transition from ICE vehicles to EVs and that Thailand must also strengthen demand by securing overseas markets for domestically produced vehicles.

Some EV manufacturers have already begun producing vehicles in Thailand for export to Australia and New Zealand, with further shipments expected as production expands.

The government is using tax reforms, incentives linked to local manufacturing, export-market development and investment in EV-related production as measures to address competition from neighbouring countries and changes in global vehicle demand.