How Chinese Cars Took Over Thailand

Chinese OEMs are on an export spree, given domestic sales weakness, production overcapacity, intense local competition, and persistently low margins. Europe remains their first export destination, but ASEAN is now close behind—with Thailand the canary in the coalmine for Chinese carmakers’ ASEAN foray. In just a few years, Chinese OEMs have gone from zero to almost 30% market share, and a whopping 90% of EV sales. Thailand’s generous EV subsidy scheme and its low tariff levels on Chinese auto imports played a major role. But Chinese OEMs’ cost-effective and diverse EV offering, and intense pressure to internationalize away from an ever-tightening Chinese market also weighed in the balance. The question now is how much more market share Chinese OEMs can gain in the country, given structural constraints to EV adoption, emerging concerns over job impact of China’s success, and growing fiscal constraints from the Iran war. The Thai example also raises important questions about the future of Chinese auto competition in other global markets, and implications for international OEMs and suppliers.

In with a bang

If Chinese automakers are having a “good time” in Europe, they are having a ball in Thailand. With barely any presence in the Thai auto market just five years ago, they now collectively command nearly 30% market share and sell nine out of ten electric vehicles (EVs) purchased in ASEAN’s biggest auto market (Figure 1).

While Chinese OEMs are gaining market share in most markets outside North America, two Thailand-specific factors lie behind this particularly rapid success: The Thailand-China free trade agreement and Thailand’s EV scheme. Thailand has formally high tariffs of 80% on imported vehicles, but significantly lower ones with its free trade partners. Japan-made cars enter Thailand at a 20% tariff rate under the Japan–Thailand Economic Partnership Agreement. But Thailand’s 2003 agreement with China means that China-made EVs face no tariffs at all, giving Chinese exporters a huge competitive advantage.

In addition, Thailand’s government—eager to reduce dependence on oil imports and meet the country’s climate targets—has also rolled out generous EV incentive schemes. The EV 3.0 program, starting in 2022, involved direct cash subsidies to buyers, excise tax cuts for qualifying EVs, and import tax cuts paired with offset requirements, namely requirements to make up imported vehicles with a certain amount of locally produced vehicles (Table 1). While the Thai government also offers various tax cuts and subsidies to promote local production and local content, the deferred offset timelines (starting in 2024 only) meant Chinese carmakers were able to export EVs to Thailand for two years not just tariff free, but also boosted by a highly preferential tax and subsidies regime. Naturally, Chinese EV makers piled in. By the middle of 2025, over a dozen Chinese brands were present in the Thai market, with China’s largest players (BYD, Changan, Chery, GWM, and SAIC) making up most of these sales. By end-2025, Chinese EV makers had captured 89% of Thailand’s EV market.

Their success stemmed from their speed and readiness to respond to the Thai EV scheme, as well as from a cost-effective and diverse EV offering fit for the Thai market. Under significant pressure to find outlets for domestic overcapacity, Chinese OEMs have competed fiercely against one another, exporting China’s own automotive prices to Thailand. According to Krungsi, a Thai economic research institute, Chinese EV brands reduced prices by 10.2% during the 2024 Motor Show compared to the Motor Expo in 2023. Half a year later, again during the Motor Expo, prices were slashed by another 13.1%. Stabilization only came in 2025 with price reductions moderating to 2.7%. During a field trip to Thailand in May, local stakeholders spoke of an up to 50% price differential between Chinese and non-Chinese EV models. Low prices come with additional perks like full vehicle trims at base level prices including a lot of digital features, 8+-year guarantees on batteries, free installation of charging stations, favorable financing terms, and more.

In December 2025, Chinese EV sales peaked as OEMs looked to leverage EV incentives due to expire in January 2026. Sales cratered in January 2026 but were back close to 2025 levels within just a few months—and China’s EV market share didn’t budge. The question now is whether Chinese OEMs can keep that success going. Three factors will matter: first, Thailand’s ability to sustain its EV scheme in the medium run, given fiscal headwinds, elevated global energy prices from the Iran war, and persistent economic weakness; second, whether Chinese OEMs are able to meet the offset criteria set out by the government, and abide by Thailand’s tightened localization demands under EV 3.5; and third, whether Chinese OEMs can withstand the political scrutiny around the economic and employment implications of their speedy entry into the Thai market.

The fiscal test

Because Chinese OEMs’ recent success in Thailand was so tightly linked to the country’s generous EV scheme, the way forward will hinge at least in part on Bangkok’s ability to keep it going, especially at a time of broader economic weakness and slowing auto sales. The scheme itself is not particularly burdensome from a fiscal perspective. By early-2025, the Thai government had subsidized about 175,000 BEVs and 35,000 e-motorcycles for about 12 billion baht ($360 million over the first three years of the scheme). This amounts to less than a half percentage point of Thailand’s annual budget. The government already revised its EV incentives under the EV 3.5 scheme, bringing down rebates for 2024-2027. The scheme also involves foregone taxes, which weigh on Thai fiscal revenues, but these are unlikely to be significantly greater than the subsidies regime.

Still, as the country faces intense fiscal pressure, the EV scheme will have to compete against other priorities. Thailand’s fiscal deficit exceeded 3% of GDP in 2025 and will near 3.5% in 2026, and the country is fast approaching its self-imposed debt ceiling of 70%. High global energy prices have dampened growth expectations from already low levels. By mid-2026, the Thai government was seeking permission from the Constitutional Court to borrow 400 billion baht ($12.2 billion) to cushion the economy from Iran war spillovers via consumer subsidies and funding for the longer-term transition to clean energy.

Thailand’s EV scheme is also dependent on the success of its localization push (see below), given the scheme was meant not just to promote EV adoption, but also production onshoring. Domestic production would bring in industrial activity and associated tax revenues. If these fall short, the scheme might be restructured at the very least.

Fiscal capacity matters, finally, insofar as Thailand’s EV market is structurally constrained by charging infrastructure. China’s inroads have been significant in large cities like Bangkok where charging infrastructure exists. But in rural areas, ICE vehicles still dominate (as do therefore, Japanese OEMs), and the market still relies heavily on second- and even third-hand purchases. China also exports ICEs, of course, but these face 80% tariffs for finished vehicles and 30% for knock-down operations, and do not benefit from the same tax benefits as EVs. The government has ambitions to electrify more of its transportation sector, but further investment will naturally be constrained by its fiscal space and broader economic performance. If EV adoption plateaus, so might Chinese OEMs sales.

The localization test

Chinese OEMs’ continued expansion in Thailand will also depend on their ability to “offset” their direct exports into the market with locally produced vehicles. In addition to zero tariffs under the China-ASEAN Free Trade Area (CAFTA), Chinese car exporters have benefitted from generous subsidies—of between 7.5 and 10% of the price of an EV—and excise tax reductions from Thailand’s EV 3.0 and 3.5 schemes. Chinese OEMs, however, now need to offset these exports with local production, at increasing ratios (see Table 1). Thailand’s EV 3.5 scheme also introduced more stringent local content requirements in exchange for continued tax cuts.

This localization process is underway. According to Rhodium Group data (Figure 3), announced Chinese EV FDI in the country surged between 2021 and 2023, averaging $550 million annually. This spike likely reflects Chinese EV-makers’ attempt to capitalize on Thailand’s EV scheme. This has made Thailand the third-largest global destination for China’s EV manufacturing FDI in value terms, behind Hungary and Brazil, and first by number of plants.

Even though China’s EV-related FDI has slowed since 2023, as many as eight Chinese OEMs have by now announced EV assembly plants in the country (BYD, GWM, Changan, SAIC, Chery, Hozon (Neta), GAC, and Wuling), and as of Q2 2026, most of these plants had started operations (Table 2). Some of this capacity builds on existing facilities: SAIC, for instance, converted an existing internal combustion engine vehicle plant in Chonburi to EV production, while GWM acquired a former Ford plant. But most OEMs have built completely new operations.

Following assembly plant announcements, battery investment also rose quickly. SVOLT moved in to supply GWM, SAIC invested to support its plant, and Gotion followed its client Nuovo Plus into the Thai market. The focus however has been on low value-add and low capex battery module assembly. The first full-blown battery cell manufacturing plant was announced only in 2025: a roughly $1 billion investment by Sunwoda with 17.4 GWh in planned capacity, enough to supply around 300,000 EVs.

Beyond batteries, Chinese vehicle parts makers have long been present in Thailand, especially in the tire value chain (Figure 4). The country is the largest natural rubber producer in the world, is an important auto market and auto export hub, and offered incentives to circumvent US trade remedies on Chinese-made tires.

From 2023 onward, however, auto parts FDI has diversified into other parts of the supply chain, including chassis systems, interior components, transmission parts, and EV-specific products. This happened as suppliers followed car makers overseas and local content demands on OEMs grew. It also involved a spike in Chinese electronics manufacturing FDI, especially printed circuit boards used in auto production.

Chinese OEMs’ efforts to ramp up local production have made China the number one auto investor in Thailand over the past three years, exceeding approved investment by historical partner Japan (Figure 5). In 2025, though, Japanese carmakers including Toyota and Honda were back with a bang, looking to tap into Thailand’s EV schemes through 50 billion baht ($1.5 billion) of investment each. Isuzu and Mitsubishi also announced 30 and 20 billion baht investments, respectively, to produce EVs in the country.

While Chinese OEMs’ investment is starting to translate into greater local production—close to 12,000 units at its peak in September 2025—China’s share of Thai production remains way below its market share—less than 10% of production vs almost 30% of sales—indicating a persistent production gap. At the OEM level, sales also continue to exceed local production for most Chinese carmakers, even by 2026 (Figure 6). Not all Chinese OEMs are following suit, either. Players like Geely/Zeekr, Xpeng, Leapmotor, JAC, and Dongfeng are still due to announce investments.

Those producing too few local vehicles are starting to face the consequences: Neta, which went bankrupt in China, was the first Chinese OEM to foot the bill for a lack of local production. Unable to meet its offset obligations, it was sued in January 2026 by the Thai government, which is aiming to claw back 2 billion baht paid since 2022. Other cases could follow, and rumors were swirling during a recent trip to Bangkok that some Chinese OEMs could chose to file for bankruptcy in the country to avoid having to pay the punitive compensation fee.

The next big question will be whether these Chinese plants can become more than screwdriver operations, and hence contribute local value added and jobs via supplier networks. So far, Chinese OEMs’ reported local content ratio hovers between 40%—the minimum required to qualify as made in Thailand under CAFTA—and 60%. In contrast, most Japanese OEMs on the ground report local content ratios of 70% to 80% (Figure 7). Of course, this has a lot to do with timing: Japanese OEMs started producing in Thailand in the 60s and 70s, also with minimal value add. But local value rose in the 70s and 80s due to local content requirements, and because of their prolonged presence on the ground. For Chinese OEMs, the challenge will be to preserve price-competitiveness once local content requirements are implemented, as Chinese carmakers’ low price point is deeply linked to their access to known and cheaper suppliers in China.

At this stage, imports of auto parts from China are still surging. In 2025, China displaced Japan as Thailand’s biggest auto parts supplier (Figure 8). Thailand is quickly becoming an important export market for suppliers, both Chinese and international, that benefit from higher electrification, like producers of connectors, cables, or generally automotive electronics.

But Chinese OEMs are also starting to partner with established international suppliers. For instance, French supplier Forvia, which is already a partner for BYD within China and has had a presence in Thailand for a long time, has opened a seat plant JV with BYD that can supply up to 180,000 car seating sets per year in Thailand. In its first year of full operation, 2025, that plant had already become profitable.

Some OEMs are also bringing over their Chinese partners to Thailand. Great Wall Motor is bringing over five affiliated Chinese suppliers to Thailand. These include Svolt Energy for battery packs, Hycet Engine Systems for engine and power train components, Nobo Automotive for interior trims and seating, Mind Auto for body and structural parts, and Exquisite Automotive for other auto parts (Figure 9).

Some Chinese auto suppliers, finally, are likely leveraging Thailand to avoid scrutiny of Chinese inputs in key markets like the US. Leading Chinese LiDAR maker Hesai, for instance, is aiming to start mass production of LiDAR systems in Thailand for ex-China customers starting in 2027.

Battery manufacturing is so far a big missing link. Unlike in Europe, where Chinese players have localized EV production across battery cells, cathodes and anodes, Chinese EV investment in Thailand remains at the surface level (see above), and Chinese EVs made in Thailand still rely on imported cells, mostly from China (Figure 10).

If Chinese players manage to localize and offset their imports, Japanese OEMs stand to lose the most. As incumbents, any gain in Chinese OEM production is likely to come at their expense. Japanese and Thai suppliers also face pressure. Some may be able to partner with Chinese OEMs, but most will lose more business from their existing Japanese OEM clients than they will recover through new relationships. China-based suppliers, whether domestic or international, are most likely to gain new growth opportunities. More broadly, the winners will be firms geared to rising electrification rates and the electronics supply chain, at the expense of those tied to internal combustion.

The political test

Finally, Chinese OEMs’ ability to localize will be key to meet the political test lying ahead. The past year has seen concerns rise in Thailand—especially in the country’s auto industry—about the potential economic and employment costs of China’s foray into the Thai auto market. If Chinese EVs end up displacing Japanese and other OEMs, which typically display higher levels of local content, then this could negatively affect Thailand’s auto industry. Given the sector directly employs around 650,000 people, indirectly supports roughly an additional million jobs, and contributes approximately 10–11% of GDP, the stakes are high. Thailand’s National Economic and Social Development Council (NESDC) estimates that in 2025 and 2026, around 110,000 workers, representing 16.3% of the automotive industry workforce, could be at risk of displacement—due to persistently low vehicle production and the inability of some parts manufacturers to adapt quickly enough to the EV transition.

Most recently and noteworthy, Thai auto industry groups warned in a letter to the Thai government that the industry could face a crisis if and as EV adoption ​erodes local production, with manufacturers struggling to compete with ‌cheap zero-tariff imports from China and part makers losing orders. The letter, endorsed by ten business associations representing more than 1,500 members, encourages the government to take a series of measures, including tax reforms to favor locally produced EVs, a 32% excise tax on CBUs, tightening of local content rules, ‌mandating ⁠higher Thai material usage, tying import quotas ​to domestic production and technology transfers, tightening origin rules, and more.

The impact of the letter and rising calls for protection is still to be determined. The government seems pleased with the pace of auto electrification—key to achieving the country’s climate targets—and has not yet publicly raised concerns over local auto employment. Importantly, Bangkok is also seeking to maintain positive ties with Beijing and hence is reluctant to take strong defensive measures against Chinese EVs. If pressure accumulates, the government could choose to implement more piecemeal measures—including a tightening of local content rules, further addition of key auto components to the list of required locally-sourced parts, more stringent end-of-life regulations, and/or an expansion of the EV scheme to HEVs—a segment still overwhelmingly dominated by Japanese OEMs. Still, seeing how strongly Beijing is pushing back against EU and Turkish attempts to wall off their auto markets, the government might stay away from more drastic action like tariffs, despite some industry calls to that effect.

In the longer run, Thailand’s auto sector will face two more pressure points from China’s auto rise, which will feed into the current debate. First, as incumbents face increasing competition from Chinese automakers in Thailand, they could and probably will chose to decrease their own local content in favor of cheaper Chinese inputs. This is already happening to some extent. In 2025 Toyota, by far Thailand’s biggest auto producer, announced plans to increase sourcing of Chinese components to cut costs by up to 30% for upcoming EV models. Beyond Toyota, the increasing use of Chinese components by Japanese OEMs already seems to be well under way: The increase in Thailand’s auto part imports from China predates the increase in Chinese auto production on the ground. Second, intensifying Chinese competition in third markets will increasingly affect Thailand’s auto exports, a major Thai export category. Thai vehicle output dropped nearly 18% in May, on the back of the war in Iran and of a dramatic drop in Thailand’s auto exports to Australia and Oceania (-37%). The later derived from stricter carbon control regulations and aggressive expansion by EVs from China.

Lessons learned

Chinese OEMs’ extremely fast foray into the Thai auto market has important implications for Western OEMs and suppliers. First, it illustrates the speed and scale at which Chinese brands can take over a market when incentives and trade barriers play to their favor. With excess production capacity at home, Chinese automakers have been able to seize the Thai opportunity faster than anyone else. Japanese OEMs, their main contenders in Thailand, were not nearly as nimble.

Second, it shows the extreme price pressures that come with a massive entry of Chinese automakers into a foreign market. While Chinese OEMs have typically used overseas sales to recoup margins and profits lost on an intensely competitive Chinese market, the Thai experience shows that as Chinese OEMs accumulate into a market, they start to compete against each other, cutting prices aggressively, and driving out other competitors.

Third, it is forcing a realization among incumbents—in this case Japanese OEMs—that competing with Chinese OEMs overseas will be extremely difficult, even with a China-heavy supply chain. Conversations with firms on the ground show that even if they were to shift sourcing to integrate more China-made components, non-Chinese OEMs would probably find it hard to match Chinese price points. This explains why many are doubling down on advocacy instead, to try and influence market outcomes through strong and open support for local value add, and expansion of Thai EV support to HEVs.

Fourth, it makes for a more nuanced picture for suppliers. ICE-focused players will likely suffer from the fast pace of EV growth in Thailand in general. But for those planning to grow alongside Chinese OEMs’ EV-first push, the jury is still out. Chinese carmakers are showing willingness to source more locally and cooperate with foreign suppliers for their overseas production. But the scale of these partnerships is still unknown, and the question remains of how fast these might be displaced as Chinese suppliers start investing in Thailand. In any case, we don’t expect Chinese OEMs will reach the levels of local value-add of Japanese OEMs, given the price advantage of China-based sourcing.

Fifth, it points to the possibility that other markets in the region will follow a similar path. Indonesia is currently implementing an almost identical EV scheme and starting to see similar outcomes in terms of Chinese market share gains (Figure 11). Indonesia could still be different for two reasons: first, the country’s investment climate is more challenging, raising the bar for Chinese OEMs to set up local operations; and second, Chinese OEMs might bet on export opportunities from Thailand, but these will be harder to replicate for Indonesia. Seeing Thailand’s experience, markets with strong local incumbents might also become less open. Chinese car exports to Malaysia are around Thai levels, but they could come down drastically as Malaysia started implementing a ban on imports of low-priced EVs in July—targeting precisely Chinese EV-makers’ strong spot.

Finally, the Thai example bears implications for Western policymakers. Thailand has long been an export hub for Japanese OEMs—to countries in the Middle East, Australia, and more. Once Chinese OEMs set up shop in Thailand, they might leverage these factories for export, especially under Thailand’s trade agreements. Most in focus should be Thai-EU FTA negotiations, which could open the door to more Chinese car exports to Europe. Important negotiations will need to take place around rules of origin and market access conditions for Thai-made vehicles.

Thailand is also worth watching for EU policymakers for another reason. Japanese carmakers used Thailand as an export hub, with exports often outpacing domestic sales. It remains an open question whether Chinese carmakers will follow this model—beyond specific export plays, for instance to benefit from preferential market access—given massive overcapacity in China. Pressure from Beijing to prioritize exports from China will add further uncertainty. The EU, like Thailand, is a net vehicle exporter, with large surpluses to its neighbors like the UK. But Chinese OEMs producing in Europe might similarly limit their output to serve the domestic EU market—meaning displacement of European OEM manufacturing by Chinese ones could be a net negative, rather than a like-for-like substitution, given less of an export orientation.