Thailand’s Car Industry in Transition: Balancing Old and New Technologies

The Thai automotive industry is at a critical crossroads. Facing intense competition from Chinese electric vehicles (EVs), major Japanese carmakers in Thailand, such as Toyota and Honda, have publicly criticised what they see as unfair taxes and tariff structures that favour EVs. These Japanese carmakers have called for reforms that will enable them to compete on a more level playing field. Regional competition for new investments from Japanese carmakers is mounting, especially from countries with large domestic markets such as Indonesia (population of 288 million) and Vietnam (population of 102 million). Recently, Indonesia’s Finance Minister has publicly invited Toyota to relocate its supply chain from Thailand to Indonesia. Toyota has also announced that it will invest more than USD283 million in Vietnam. 

Thai policymakers are concerned that Japanese carmakers, some of which have operated in the country for more than three decades, will relocate to other countries in the region. One reason for this concern is the recent dismal sales performance of Japanese-brand cars in Thailand. New registrations of Japanese-brand cars have contracted or stagnated since 2023, soon after the government introduced incentive packages to promote electric vehicles (Figure 1).

Figure 1. Number of Newly Registered Japanese-brand Vehicles in Thailand, 2021–26 (Units)

The decline in Japanese car sales in Thailand has been driven by shifting market demand from internal combustion engine vehicles (ICEVs) to EVs, largely due to changing relative prices. Most of the Japanese vehicles sold in Thailand are either ICEVs or hybrid vehicles (HVs). By contrast, the sales volume and market share of Chinese cars, mostly imported EVs, have risen (Figure 2). These trends also explain the recent decline in total domestic car production, largely due to lower ICEV production despite rising HV production, and the higher share of this production being exported (Figure 3). 

The decline in the Japanese car manufacturers’ production and sales in Thailand has negatively impacted their scale economies and commercial viability. Suzuki’s decision to cease local manufacturing in 2024 suggests that annual sales of 10,000 units could be the trigger point for exit. Several Japanese carmakers in the country are now approaching that threshold. However, a full exit of major Japanese carmakers in Thailand is unlikely due to the substantial sunk costs of their existing factories. They would be more inclined to gradually relocate segments of their supply chains to other countries in the region.

Figure 2. Number of Newly registered Chinese-brand Vehicles and Market Share in Thailand from 2021 to January–July 2026 (Units)

Figure 3. Vehicle Production and Exports in Thailand from 2000 to 2025

How should the Thai government respond to the challenges faced by Japanese carmakers in the country? Should it create a more level playing field between ICEVs and EVs or should it court foreign direct investment (FDI) in EVs more aggressively and accept the gradual relocation of the supply chains of the Japanese carmakers?

The Thai government has actively tried to promote local production of EVs and their key parts and components. Generous incentives have been given to EV carmakers since 2022, including direct subsidies (USD3,030–4,545 per vehicle), low excise tax (2 per cent), and preferential tariffs. These incentives were implemented in a way that allowed EV carmakers to import vehicles before their factories became fully operational. As a result, the EV carmakers’ imports had a cost advantage over domestically produced cars, especially locally manufactured ICEVs that were subjected to higher excise taxes of around 30–50 per cent. Another concern is whether the Thai government is able to effectively ensure that EV carmakers will fulfil their commitments to lower imports and deepen their production investments in the future. Senior Japanese automotive executives have questioned the quantity and quality of these EV investments, describing them as “screwdriver” assembly lines.

…the country needs to reconcile the existing incentive structure that heavily favours EV production and imports by Chinese automakers with the interests of an established ICEV industry dominated by Japanese players.

Government statistics appear to support these criticisms. Data from Thailand’s Board of Investment (BOI) show that, as of 3 July 2026, there were 180 projects worth USD4 billion related to EV supply chains. However, zooming in on the projects reveals small average value of these projects, especially for battery and energy storage systems, and critical components, where the average value of investments was only USD17.5 million and USD7.6 million, respectively (Table 1).

Table 1. EV Chain Investment (BOI Investment Pipelines, as of 3 July 2026)

Policy implications

Technological transitions pose challenges of phasing out the old and ushering in the new, at a suitable pace and in a coordinated manner. Thailand’s auto industry faces a particularly complex transition. In pursuing its industrial policy goal of forging more automotive supply chains and domestic parts production, the country needs to reconcile the existing incentive structure that heavily favours EV production and imports by Chinese automakers with the interests of an established ICEV industry dominated by Japanese players.

The Thai government should continue actively supporting both ICEV and EV production. This would require addressing the problem of uneven playing field between ICEV and EV, by keeping disparities in excise taxes and preferential tariffs to a minimum and striking a balance of short-term economic growth and long-term environmental gains, instead of going all-in with specific powertrain technologies. Thailand should strive to court high-quality EV investments and stringently ensure that EV automakers uphold their investment commitments.

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