The development of Thailand's automotive industry, which is a major contributor to the economy, is at a crossroads.
The industry must decide between promoting the production of battery electric vehicles (BEVs) or supporting adaptation of the internal combustion engine (ICE) industry to electric vehicles (EVs).
The National EV Policy Committee chaired by the prime minister decided the ICE industry needs to be supported for up to seven years, reducing the excise tax on hybrid vehicles to enable a gradual transition towards EV production.
Visitors browse new models at the Bangkok EV Expo. Pattarapong Chatpattarasill
POTENTIAL SIDE EFFECT
A source from the Finance Ministry who requested anonymity said reducing the excise tax on hybrid vehicles to levels close to those for EVs or plug-in hybrid EVs (PHEVs) is tantamount to putting the brakes on EV development in Thailand, even though the government has aggressively promoted EVs through subsidies for buyers.
The source said Japanese car manufacturers that have used Thailand as a base for ICE production for decades -- particularly Honda and Toyota -- are not ready to transition to EVs.
The tax measures to support hybrids and mild hybrids are seen as a way to help these manufacturers adapt during the transition period without relocating their production bases out of Thailand, the source said.
On Dec 1, 2024, the National EV Policy Committee approved measures to support the transition to EVs.
These measures include reducing the excise tax rates for domestically produced hybrid EVs (HEVs) and mild hybrids (MHEVs) that seat 10 people or fewer, seeking to facilitate the transition.
Thailand has an inadequate EV charging infrastructure, with upgrades needed if the country is to fully embrace electric mobility. Pattarapong Chatpattarasill
Key conditions
The excise tax for HEVs is fixed for the new regime of seven years (2026 to 2032) with several conditions.
Vehicles cannot emit more than 120 grammes per kilometre of carbon dioxide (CO2). For CO2 emissions of 100 g/km or less, the excise tax is 6%. For CO2 emissions of between 101-120 g/km, the rate is 9%.
In addition, greater investment in Thailand is required, with manufacturers and their affiliates investing at least 3 billion baht between 2024 and 2027.
Key components must be manufactured or assembled domestically. Batteries produced in Thailand must be used starting in 2026, and other critical components must be incorporated from 2028.
These requirements are divided into two groups. For additional investment of 3 billion to 4.99 billion baht, only three high-value components must be produced or assembled locally: the traction motor, reduction gear, and inverter.
For additional investment of 5 billion baht or more, manufacturers can choose to use high-value components in combination with medium-value components, such as the battery management system, drive control unit, and regenerative braking system.
At least four of the six advanced driver assistance systems must be installed comprising: advanced emergency braking system, forward collision warning system, lane-keeping assistance system, lane departure or lane change warning system, blind-spot detection system, and adaptive cruise control system.
Mild hybrids
MHEVs, which use a combination of fuel and electric power with a driving voltage of less than 60 volts, rely primarily on ICEs. They are another potential segment Thailand could target as a global production hub.
The EV Board set excise tax rates for MHEVs for 2026 to 2032, with specific rates and investment conditions.
CO2 emissions must not exceed 120 g/km. For CO2 emissions of 100 g/km or less, the excise tax is 10%. For CO2 emissions of between 101-120 g/km, the rate is 12%.
Additional investment in Thailand is required, with automotive manufacturers and their affiliates investing at least 1 billion baht from 2024 to 2026, and at least 5 billion from 2024 to 2028.
Key components produced or assembled in the country must be used, with domestically produced batteries used starting in 2026. The traction motor or parts that enhance propulsion must be used from 2028.
At least four of the six advanced driver assistance systems must be installed, similar to the conditions for HEVs.
The previous measures for hybrid vehicles called for a gradual increase of the excise tax rate by two percentage points per year after 2026.
According to the Finance Ministry source, the seven-year adjustment period for Japanese car manufacturers may be too long, potentially hindering the development of technology. The excise tax for HEVs is only slightly different from that of EVs, offering an advantage to HEVs, said the source.
However, it is unknown whether hybrid technology will be more appealing than EV technology in the future, noted the source.
"The decision on which type of vehicle to support depends on the type of energy the country opts to use. If Thailand chooses electric energy, then continuing to support hybrids raises a contradiction. Electric energy in hybrids is only used for powering air conditioning or the radio," said the source.
"Meanwhile, mild hybrids cannot evolve into EVs or high-performance engines. The EV Board's decision to support such vehicles is attributed to a request by a Japanese automaker unprepared to transition to hybrids or EVs. This decision could be perceived as unfair to other automakers, as mild hybrids require less investment than hybrids, but are subject to similar excise tax rates."
EV sales in Thailand number around 100,000 units annually, with an annual growth rate of 12-13%. The cumulative total is nearly 200,000 units.
IMPACT ON CHINESE EVs
Sompop Manarungsan, president of the Panyapiwat Institute of Management and a specialist on the Chinese and US economies, said the government likely needs to cater to Japanese automakers to maintain their production base in Thailand.
He said the impact of the measures on Chinese EV manufacturers is expected to be minimal, as these firms have a policy called New EV (NEV) that promotes not only EVs, but also vehicles categorised as PHEVs and hybrids.
"Chinese producers do not focus on EVs, but rather NEVs. Last year, Chinese manufacturers were forecast to produce around 13 million NEVs. In the first 11 months of 2024, 11 million units were produced," said Mr Sompop.
He said Japan has invested in Thailand for a long time and is undergoing a challenging transition.
JAPANESE STUMBLE
If Japanese automakers do not grasp the hybrid segment as a bridge, the industry will be hard hit, said Mr Sompop.
"Hybrid cars are a link between ICE vehicles and EVs because many people still don't fully trust 100% EVs. They feel a hybrid could pave the way towards EV adoption," he said.
"Meanwhile, EV infrastructure in Thailand is still in a fledgling state. There are few charging stations and the expansion of infrastructure is needed before a full transition can happen. Hybrids are essential during this transition period, helping to sustain the automotive industry in Thailand, including Tier 1, 2 and 3 suppliers. A rapid shift could impact the supply chain of the ICE industry."
Mr Sompop said although Thailand is a production hub for Chinese EVs, the scale is still small, with roughly 100,000 units produced annually, compared with 13 million units per year in China. Thailand is a smaller base for Chinese EV production than in Hungary or Spain.
"China views Thailand positively thanks to its supply chain infrastructure based on existing ICE vehicle production. Chinese firms do not want to import every component from China, which would violate Board of Investment conditions, as some local content is required," he said.
"Thailand is well-equipped in terms of supply-side capabilities, with factories producing various components, as well as demand-side support from government measures, such as subsidies for EVs. Thailand is more prepared than any other country in Asean for automotive production. If China aims to capture the automotive market in Southeast Asia, it must first establish a production base in Thailand."