The government is stepping up efforts to adjust the conditions of electric vehicle (EV) promotion measures to address a potential oversupply.
Government subsidies provided to EV manufacturers who import and sell EVs domestically, which are passed on to buyers, require manufacturers to establish local EV production facilities to compensate for imports.
For instance, under the EV 3.5 scheme, by 2026 manufacturers must produce twice the number of EVs domestically to offset imports, and by 2027, this requirement increases to three times the imported amount.
If these conditions are not met, the subsidies received must be returned to the government.
However, in setting the requirement for domestic production to offset imports, the government did not anticipate competition in the EV industry would intensify, flooding the market with EVs and precipitating a price war.
According to a source from the Finance Ministry who requested anonymity, the ministry discussed with the Board of Investment (BoI) the issue of domestic production to offset imports, exploring ways to adjust the measures to ease the EV oversupply, the resulting price war and the negative impact the EV industry.
One method is to tweak the formula used to calculate the quantity of production to compensate for imports.
According to the source, the EV price war has been especially fierce in China, the world's largest EV producer.
Manufacturers there have slashed prices so aggressively that many smaller or weaker producers have gone bankrupt.
One pricing strategy used turns new EVs into "used cars" by registering them and then reselling them as used vehicles, despite having zero or near-zero mileage, noted the source.
These vehicles are sold at prices much lower than new cars, allowing manufacturers to claim sales volumes while gaining immediate liquidity.
INVESTMENT PROMOTION
The BoI, which is responsible for promoting investment in the EV manufacturing sector, views the automotive industry as a driver of Thailand's economy.
The industry includes more than 2,000 parts suppliers in the supply chain and employs over 900,000 people.
From 2022 to 2024, the popularity of battery EVs, plug-in hybrid EVs and hybrid EVs surged.
Registrations jumped from 84,500 units in 2022 to 206,000 units in 2024. During this period, there were 644 investment promotion requests for EV and parts manufacturing projects, totalling more than 280 billion baht.
However, the BoI is concerned the local EV market risks developing a glut, leading to continued price wars and negatively affecting the domestic auto industry.
At the end of last year, the EV Board resolved to revise the EV 3 conditions, which initially required compensatory local production at a 1:1 ratio (one unit imported for one unit produced locally by 2024), or 1:1.5 by 2025.
Manufacturers are allowed to extend the compensation production timeline under the EV 3.0 measure and instead follow the conditions of the EV 3.5 measure (producing two times the amount of imports by 2026 or three times by 2027).
However, EVs granted this extension are not eligible for subsidies.
Likewise, EVs imported or produced under the EV 3.5 scheme are ineligible for subsidies until the local production requirement is fully met for the amount granted under the extension.
In addition, completely built-up units imported under the EV 3.0 measure that remain unsold may be exported abroad, and such exports will not count towards the compensation production quota.