IndustryIssue 03 - 2023MAGAZINE
GBO_ China's 'Plan EV'

China’s ‘Plan EV’ for Thailand

China has been the key player behind Thailand's latest economic recovery

Thailand’s investment applications between January and June 2023 jumped 70% from the corresponding period in 2022, driven by foreign investors’ projects in the electronics, food, and auto sectors, the Southeast Asian country’s government stated recently.

In the first six months of 2023, applications totalled 364.4 billion baht (USD 10.37 billion) and Foreign Direct Investment (FDI) surged 141% on-year to 304 billion baht, the Board of Investment (BOI) said.

China was the biggest investor, with projects worth 61.5 billion baht, while Singapore and Japan followed with 59 billion baht and 35.3 billion baht, respectively, the BOI remarked further.

Understanding the ‘China’ picture

China has been the key player behind Thailand’s latest economic recovery. As per the BOI, Thailand’s higher first-half pledges were helped by the automotive and related parts industry, which saw 80 investment projects worth 19.6 billion baht.

Thailand has emerged as a major regional auto manufacturing hub, especially in the arena of electric vehicles (EVs). China’s BYD and Great Wall Motor have already invested in the Southeast Asia country. Among others ready to shift their manufacturing base in the country, you have Changan Automobile and GAC AION New Energy Automobile, both from China. As per the BOI, these two companies are expected to file investment applications in the second half of the 2023-24 financial year.

Great Wall Motor made its entry into the Thai market in 2020 by acquiring a factory from General Motors. The facility will witness a capital spending of 22.6 billion baht (USD 647.38 million), in order to become a regional production centre for EV and hybrid cars.

The Chinese automaker will also start producing its popular compact ‘Ora Good Cat EV’ in Thailand from 2024 onwards, apart from bringing in its subsidiaries MIND Electronics, HYCET and Nobo Auto into the Southeast Asian country.

Great Wall’s rival venture SAIC Motor, another Chinese company, which owns MG Motor and has a partnership with Thai conglomerate Charoen Pokphand Group, will be investing 500 million baht to expand its existing plant for EV parts and battery manufacturing. SAIC Motor entered the Thai market in 2019.

Talking about BYD, the Chinese EV giant has already invested 17.9 billion baht to set up a new facility in Thailand that will start producing 150,000 passenger cars per year in 2024. These cars will also be exported to Southeast Asia and Europe.

Lastly, China’s Hozon New Energy Automobile is also working with Thailand’s Bangchan General Assembly to locally produce the electric NETA V model from 2024 onwards.

In short, Chinese automakers have flooded the Thai market, but why? We will discuss it next.

What draws Chinese businesses to Thailand?

China’s domestic car market has matured and a post-COVID GDP growth slowdown, has made carmakers’ cost of acquiring new Chinese customers “just so high”, said Tu Le of Detroit-based consultancy Sino Auto Insights, while speaking with The Economist.

Also, since 2023 beginning, a price war has broken out in China between EV marques, a competition which has even seen Elon Musk’s Tesla reducing its car prices. However, the Chinese automobile businesses are now seeing foreign expansion as a potential growth avenue. China exported USD 21 billion worth of cars in the first quarter of 2023, 82% more than in the same period in 2022.

Right now, technology has become the new battlefield for Beijing and the United States-led West, with each imposing export restrictions on the other. Add the geopolitics in the mix, you have a situation which will be deemed as ‘risky’ for Chinese businesses, including automakers.

At the same point in time, given the growth stagnation in the domestic market, these vehicle makers are mulling the global expansion route to keep their venture profitable. Thailand, despite being an American ally, has emerged as the neutral ground for these carmakers. The Southeast Asian country is also a member of the Regional Comprehensive Economic Partnership, with limited restrictions on trade in intermediate goods.

Also, Thailand becomes a strategic investment destination for Chinese automakers as the economy is growing in Southeast Asia at a steady pace. Car sales in the region rose by 23% in 2022, to 3.4 million.

“But the carmakers also have designs on the lucrative Western markets. Research by Allianz, a German insurer, finds that Chinese firms accounted for about 4% of battery-EV sales in Germany between January and March, three times the share a year earlier. Some, including BYD, are even attempting to conquer the American market, as Japanese firms had done before them (though sour relations between the two governments and America’s protectionist subsidy regime for EVs complicate this effort),” comments the Economist report.

In this scenario, Thailand becomes the crucial piece of the puzzle for these Chinese automakers, both in terms of dominating the Asian supply chains and fast tracking their expansions throughout the world.

In 2022, Thailand received USD 3.4 billion in foreign direct investment from companies in China, more than the amount it received from America or Japan.

Benifits aplenty

In February 2023, the Southeast Asian country unveiled a list of registered vehicles, dominated by Chinese companies. BYD with its Atto 3 claimed the first spot, followed by Hozon’s Neta V. Tesla’s Model Y was the only American car maker featured in the list.

SAIC Group was the first Chinese company to enter the Thai market. In 2012, it established a joint venture with the CP Group, and its MG brand entered the Southeast Asian country in 2014. The debut was a superhit one, as some 31,005 MG models were sold in the country that year, thus helping MG to enter the list of top ten car brands in the Thai market.

In 2021, Great Wall Motor entered the Thai market and its ORA models became popular in a very short span of time. From January to September 2022, Great Wall Motor sold over 8,000 EVs in Thailand, thus becoming the new energy vehicle brand with the highest sales volume in the Southeast Asian country. Since then, Great Wall Motor has launched several models in the Thai market, including the likes of Haval H6 HEV, JOLION HEV, and ORA. Most of these products have proved to be market hits.

As per the China-based EV research institution ‘EV100 PLUS’, Chinese car manufacturers value Thailand’s large market, welfare measures, and favourable policies.

“Thailand’s automobile market relies on brands from other countries, and most of the cars in the country are produced by foreign car manufacturers that have established local factories. As the largest automobile producer and second-largest automobile sales market among ASEAN member states, Thailand is the third-largest automobile exporter in Asia, second only to Japan and South Korea, with over half of automobiles produced in the country being exported,” said a KrASIA article, based on a feature written by Chebai Think Tank.

As per the Federation of Thai Industries, some 1.88 million vehicle models were produced in Thailand in 2022, of which 840,000 units were sold domestically and one million were exported. The ‘Vision Thai Research Center’ also predicted that the overall domestic market size for EVs will reach 50,000 models by 2023 end, a year-on-year increase of 270% compared to 13,454 models in 2022.

Manufacturers operating in Thailand can source car parts from the local market. This significantly reduces logistics costs, apart from speeding up the production rates.

To become Southeast Asia’s EV manufacturing and export hub, Thailand has formulated the “30@30” policy, which calls for the replacement rate of domestic EVs and the production capacity of new energy vehicles to be above 30% by 2030.

The Thai Board of Investment (BoI) is also providing tax exemptions for EV suppliers for up to eight years. The National Electric Vehicle Policy Committee of Thailand has also released a plan to transition to zero emissions in support of the plan. The Thai Ministry of Finance has invested THB 2.9 billion (USD 85.5 million) as part of its car purchase subsidy.

And last but not the least, there are currently 18 projects underway in Thailand that involve battery production, module production, and module assembly, all associated with the EV supply chain.

As per 2021 stats, there were over 2,000 charging stations across Thailand, a figure which the government is trying to increase to 12000 by 2030.

Japan under pressure

China’s neighbour Japan, with whom Beijing also shares contentious geopolitical ties, is now facing the heat in the Thailand market. Japan entered the Thai market in 1962, when Nissan tied up with Siam Motors, resulting in a profitable, decades-long relationship.

The same Siam Motors is now in talks with several Chinese automakers about potential partnerships, particularly for high-end electric vehicles, as per reports.

The Chinese companies are making the best use of Thailand’s EV industry policies, thus reshaping the local market there and forcing Thai firms to have ties with Japanese companies to seek new partnerships.

China surpassed Japan as Thailand’s top foreign investor in 2022. The same market, which used to be dominated by Tokyo-based automakers, is now seeing a successful influx of Chinese EV ventures, thus contributing directly to the Southeast Asian country’s ambitious dream of becoming an EV manufacturing and export hub by 2030.

Of the nearly 850,000 new cars registered in Thailand in 2022, only around 1% were EVs, according to government data. However, between January and April 2023 the same proportion rose to over 6%.

BYD is now the market leader, followed by China’s SAIC and Hozon, and American automaker Tesla, a development which will definitely bother Tokyo.

Only 11 newly registered EVs in 2023 came from Toyota, Thailand’s dominant brand that along with its partner Isuzu and Honda, sold nearly 70% of overall new cars and trucks in the Southeast Asian country in 2022.

Toyota, which alongside its group companies has already invested nearly USD 7 billion in Thailand, along with employing 275,000 staffers, told Reuters that it was considering EV production in the country. The Japanese automaker is putting the bait on its electric bZ4X and an upcoming electric pick-up truck to change the tides.

The road ahead

Deloitte stated in its report, “The Second Growth Curve for Chinese OEMs that Chinese car manufacturers have made a transition over the past decade from an approach focused on “product export” to “value chain globalization.”

It is in this context that Chinese car manufacturers are exploring overseas markets through full value chains, such as R&D, manufacturing, logistics and transportation, and automotive finance. In doing so, they are paving the way for the comprehensive export of Chinese automobile brands and products.”

President of Geely Holding Group and CEO of ZEEKR Intelligent Technology told the media in 2023 that China’s EV industry has become globally competitive due to the decade-long government effort. The official also suggested the industry, in general, undertake a large-scale exploration of overseas markets to further boost innovation and growth.

While Europe has emerged as a major hotspot for EV sales, Southeast Asia, given its steady economic growth and climate goals, can very well become the next lucrative hub of such vehicles.

In Thailand, Japanese cars used to account for roughly 90% of that market as gasoline generation peaked. However, the country is now looking to up the production capacity of new energy vehicles to above 30% by 2030.

As the Thai government is offering incentives for the EV makers to project the Southeast country as the upcoming EV hub, Chinese businesses have grabbed the opportunity with both hands, resulting in an early market lead.

Chinese manufacturers have the golden chance to accelerate their production rates and help Thailand to improve its sluggish EV conversion rate. However, experts believe that these businesses must offer competitive pricing to lure away traditional fuel-powered vehicle drivers. An increased R&D investment will help things further.

“In addition to core technologies, localized solutions should be tailored to meet local requirements, and different product strategies should be developed and adjusted to fit different markets according to the specific models. Finally, Chinese manufacturers need to accelerate construction for improved charging infrastructure. Until this bottleneck is addressed, the ROI for EVs will be extremely low,” stated the Chebai Think Tank.

“As they continue to explore overseas markets through a comprehensive approach to globalization, Chinese manufacturers are poised to make further inroads in Thailand and other Southeast Asian countries. The success of the pivot away from Europe to Southeast Asian markets will depend on Chinese car manufacturers’ ability to meet the needs of local consumers and maintain a lead over Japanese EV manufacturers,” KrASIA concluded.

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