The Thai automotive industry faces increasing competition from Chinese electric vehicles (EVs). Major Japanese carmakers, including Toyota and Honda, have criticised tax and tariff structures that they consider to favour EVs and called for measures to establish more balanced competitive conditions.

Competition to attract investment from Japanese carmakers is also increasing, particularly from countries with large domestic markets, such as Indonesia, with a population of 288 million, and Vietnam, with a population of 102 million. Indonesia's Finance Minister recently invited Toyota to relocate its supply chain from Thailand to Indonesia, while Toyota has announced an investment of more than US$ 283 million in Vietnam.

Thai policymakers are concerned that Japanese carmakers, some of which have operated in the country for more than three decades, could relocate their operations to other countries in the region. New registrations of Japanese-brand cars have declined or stagnated since 2023, following the introduction of government incentives to promote EVs.

This trend reflects a shift in demand from internal combustion engine vehicles (ICEVs) towards EVs, partly due to changes in relative prices. Most Japanese vehicles sold in Thailand are ICEVs or hybrid vehicles (HVs), whereas sales volumes and the market share of Chinese cars, consisting predominantly of imported EVs, have increased. Total domestic car production has also declined, mainly due to lower ICEV output despite increased HV production. Meanwhile, a greater proportion of domestically produced vehicles is being exported.

Lower production and sales have affected the economies of scale and commercial viability of Japanese carmakers in Thailand. Suzuki's decision to cease local manufacturing in 2024 suggests that annual sales of 10,000 units could represent a threshold for commercial viability. Several Japanese manufacturers are approaching this level. However, a complete withdrawal by major Japanese carmakers is considered unlikely because of the substantial sunk costs associated with their existing factories. Instead, they may gradually relocate parts of their supply chains to other countries in the region.

The Thai government must consider whether to reduce competitive disparities between ICEVs and EVs or increase efforts to attract foreign direct investment (FDI) in EVs while accepting the gradual relocation of Japanese carmakers' supply chains.

Since 2022, Thailand has provided incentives to promote domestic EV production and the manufacture of key parts and components. These include direct subsidies of US$ 3,030-4,545 per vehicle, an excise tax rate of 2 per cent and preferential tariffs. The incentives allowed manufacturers to import vehicles before their factories became fully operational. Consequently, imported EVs gained a cost advantage over domestically produced cars, particularly locally manufactured ICEVs, which were subject to excise tax rates of approximately 30-50 per cent.

The government's ability to ensure that EV manufacturers fulfil their commitments to reduce imports and increase investment in domestic production remains a concern. Senior Japanese automotive executives have questioned the scale and quality of EV investments, describing some operations as "screwdriver" assembly lines.

Thailand's Board of Investment (BOI) reported 180 EV supply chain projects, with a combined value of US$ 4 billion, as of July 3rd, 2026. Investment values vary by category, with average investments of US$ 17.5 million per project in batteries and energy storage systems and US$ 7.6 million per project in critical components.

EV supply chain investment

BOI investment pipeline, as of July 3rd, 2026

1. Battery EVs
- Investment value: US$ 1.2 billion
- Projects: 18
- Average investment per project: US$ 65.5 million
- Priority: Expand domestic production capacity, currently exceeding 370,000 vehicles annually.

2. Hybrid EVs and plug-in hybrid EVs
- Investment value: US$ 1.2 billion
- Projects: 14
- Average investment per project: US$ 84.3 million
- Priority: Utilise Japanese automakers' existing hybrid technologies.

3. Batteries and energy storage systems
- Investment value: US$ 1,000 million
- Projects: 57
- Average investment per project: US$ 17.5 million
- Priority: Expand domestic battery cell and pack manufacturing.

4. Critical components
- Investment value: US$ 373 million
- Projects: 49
- Average investment per project: US$ 7.6 million
- Priority: Develop high-value components, including drive motors, battery management systems (BMS) and power control units.

5. Charging infrastructure
- Investment value: US$ 292 million
- Projects: 42
- Average investment per project: US$ 6.9 million
- Priority: Fund more than 22,900 charging stations, including DC fast-charging facilities.

Policy implications

Thailand's automotive industry must manage the transition from established technologies to new ones while developing domestic supply chains and parts production. This requires addressing the tension between incentives favouring EV production and imports by Chinese automakers and the interests of an established ICEV industry dominated by Japanese manufacturers.

The government should continue supporting both ICEV and EV production while reducing disparities in excise tax rates and preferential tariffs. Policy measures should balance short-term economic growth with long-term environmental objectives rather than prioritising a particular powertrain technology. Thailand should also attract EV investments that contribute to domestic industrial development and monitor manufacturers' compliance with investment commitments through appropriate oversight and enforcement.