Considered as the “Detroit of Southeast Asia,” due to its importance not just as a regional, but global manufacturing base for major carmakers, Thailand’s largely unchecked electrification push has had unintended consequence. This comes from a report from Nikkei Asia.

To lure Chinese automakers, Thailand started throwing subsidies at Chinese EV makers starting in 2022 under the ASEAN-China Free Trade Agreement. Intending to make the cars more affordable, Thai government offered Chinese manufacturers grants of up to 150,000 baht (P 245,000) per vehicle.

The agreement also eliminated tariffs on imported Chinese EVs to be sold in Thailand on the condition that the Chinese companies make the same number of EVs in Thailand that they have imported into the country since 2022. Manufacturing had to begin this year, and the subsidized vehicles could be sold domestically or exported.

However, a perfect confluence of a weakening domestic market and an oversupply of Chinese EVs have let to a price war that’s now spread into the combustion engine vehicle segment. This has strained not just Thailand’s auto manufacturing backbone, but the entire supply chain as well.

According to the country’s excise department, 185,029 EVs have been brought in to Thailand since 2022 when it began its EV subsidy program. However, land transport department data shows that EV registrations in Thailand amount to only 86,043 units, suggesting that at least 90,000 vehicles remain unsold.

The Thai economy has been lukewarm of late as more people are scaling back on expensive purchases. Only 260,365 vehicles were sold in the first five months of the year, down 23 percent from the same period last year, and the lowest total in a decade.

By comparison, the Philippines managed to sell 226,277 units in the same six-month period.

For traditional automakers, this has resulted to production cuts and plant closures.

Sales of gas- and diesel-powered vehicles started falling after the EV subsidies began bringing prices down. Japanese automakers were mostly affected as they make some 90 percent of these vehicles domestically in Thailand.

Earlier this month, Honda said it will halt vehicle production at its factory in Ayutthaya by 2025 and consolidate operations at its plant in Prachinburi province. The moves are part of a plan to cut annual production in Thailand to 120,000 units per year, down from 270,000 units.

Other Japanese manufacturers are halting all production completely, with Subaru having announced that it will stop car assembly operations in Thailand and Malaysia by the end of this year. Suzuki is set to follow suit in 2025.

The drop in local production has drastically affected parts makers with orders plunging 40 percent so far this year.

As a response, most Thai parts makers cut their operations to only three days a week as demand fell. About a dozen or so have been forced out of business as well. The parts industry is expected to further contract in a “rough transition” to EVs.

Even the lured EV players like BYD, which has just opened its manufacturing plant in Thailand, had to be aggressive with their price cuts to stay competitive. It slashed the price of its Atto 3 SUV model by as much as 340,000 baht (P 555,000), a 37 percent drop from its launch price.

And while the Thai government has celebrated the BYD plant opening, it will not necessarily buoy up the local manufacturing sector. As noted by the Thailand Auto Parts Manufacturers Association, only about a dozen of the 660 Thai parts makers can supply Chinese EV makers, which either rely on imports from China or on their own lower-cost supply chains, which is the usual operating process for them.

As a stark reminder, the Thai automotive sector employs more than 750,000 workers and accounts for about 11 percent of the annual Gross Domestic Product. It’s the fourth largest contributor to Thailand’s economy directly.

By comparison, the Philippine auto industry (including auto-supporting industries) employs 340,000 people and accounts for 18.6 percent of the GDP.

Sadly, despite the ominous signs, the Thai government is showing no sign of changing policy direction. This is despite the pressure on the traditional automakers and their parts suppliers.

Thailand’s messy transition to EVs could be a lesson learned for the Philippines which has just started to hone and implement its own EV roadmap.

Instead of offering government subsidies to EV or electrified vehicle buyers, the Philippine government temporarily reduced the tariffs of BEVs to zero until 2028. After 2028, import duties on electrified vehicles will go up between 5 to 30 percent.

Under the TRAIN Law, BEVs already enjoy zero excise tax.

Just this year, the National Economic and Development Authority (NEDA) extended its zero-tariff policy to cover hybrids (HEVs) and plug-in hybrids (PHEVs) until 2028 in a bid to wean the country away from fossil fuels and boost its electrified vehicles market. It was a move that split the auto industry in have with carmakers supporting it and the DTI’s Board of Investments (BOI) against it.