In February 2022, Thailand launched new government incentives for its electric vehicle (EV) industry as part of its ambitious plan to convert 50% of its total automobile production into EVs by 2030 and become a production of cleaner vehicles in Southeast Asia. The new incentive package includes a significant exemption from import duties and excise duties for a wide range of electric vehicle models, not to mention previous subsidies announced in February.
The electric vehicle incentive program reflects ASEAN’s incremental investment in environmentally friendly transport to align with the global shift to electric vehicles by major automakers. According to a 2021 EV report, the total stock of electric vehicles in ASEAN reached 3.4 million in 2019 and is expected to increase amid improved economic development, population growth and concern for the environment.
In Southeast Asia, Thailand has consistently ranked first in terms of total automobile production output, and 11and in the 2019 world ranking. The country manufactures 2 million internal combustion engine vehicles annually for major brands such as Toyota, Honda and Mitsubishi. To maintain its reputation as a leader in the automotive industry, Thailand plans to attract 400 billion baht ($12.08 billion) in investment over the next few years and support the production of 1.2 million electric vehicles and 690 charging stations by 2036.
What is included in the incentive package?
The latest announced incentive package includes:
- A 40% reduction in import duties for fully-built battery-electric vehicles (CBUs) priced up to 2 million baht ($61,805) and a 20% reduction for those priced between 2 million ($61,805) and 7 million baht (US$211,278) from 2022 to 2023; and
- Reduced excise tax from 8% to 2% for imported electric vehicles, which is expected to add 7,000 electric vehicles in the first year.
The package follows earlier subsidy programs in February to encourage EV production and purchases, which include:
- A subsidy of 70,000 baht (US$2,111) is available per EV unit for passenger cars with a battery capacity of 10-30 kWh for completely knocked down (CKD) and CBU units;
- A subsidy of 150,000 baht (US$4,523) for each EV unit for passenger cars with a battery capacity above 30 kWh for completely knocked down (CKD) and CBU units;
- A subsidy of 18,000 baht for electric motorcycles from eligible automakers between 2022 and 2023; and
- Exemption from import duties on major electrical components: batteries, traction motors, compressors for battery electric vehicles, battery management systems, drive control units and gearboxes between 2022 and 2025.
The subsidy programs are funded by 3 billion baht ($90.4 million) from the 2022 central budget and the longer-term investment of 40 billion baht ($1.2 billion) in the industry electric vehicles between 2023 and 2025.
What are the challenges facing Thailand’s electric vehicle industry?
The country wants to play a key role in becoming a hub for electric vehicle production, but manufacturers are facing challenges. These range from insufficient infrastructure to financial barriers.
Insufficient EV infrastructure
Insufficient development of electric vehicle infrastructure is one of the obstacles to Thailand’s development of a holistic electric vehicle manufacturing industry. According to Bangkok Postthe country could take up to a decade to efficiently produce electric vehicles, as existing supply chains are designed to manufacture parts and bodies for internal combustion engine (ICE) vehicles.
There is also a lack of charging stations throughout Thailand, with only around 1,000 public charging points compared to around 30,000 gas stations – there is also a lack of home charging stations. Additionally, many Thai consumers are concerned about barriers to EV performance, including reliability, battery life, range, motor power and charging time.
However, since early 2022, several private sector entities such as PTT Oil and Retail Business and Eppo are looking to invest in charging stations in the country.
High purchase costs, battery costs and resale value are also obstacles for Thailand’s electric vehicle industry – compared to ICE vehicles, electric vehicles are often more expensive due to the lack of economy of scale. Additionally, a significant portion of total electric vehicle costs are battery costs, and capacity increases with size, type, and range.
While other ASEAN countries such as Indonesia and the Philippines are major global sources of nickel, these deposits are not as significant in Thailand, meaning there could be a shortage. potential supply of materials to produce the lithium-ion batteries used in electric vehicles.
Another challenge is the government’s targeted approach to focus on BEVs in its electric vehicle policy. As mentioned earlier, some incentives, such as the latest import duty reduction, only apply to BEVs. However, investors should be cautious as analysis shows limited interest in BEVs despite government leverage. In 2021, the number of new BEV registrations was around 1,900 units, a significantly small fraction compared to the 38,600 newly registered hybrid electric vehicles (HEVs) and plug-in hybrid electric vehicles (PHEVs). Investors should also keep in mind the novelty and complexity of BEV technology which, in a relatively nascent EV industry, is difficult to mass-produce in Thailand.
ASEAN Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia and has offices throughout ASEAN including Singapore, Hanoi, Ho Chi Minh City and Da Nang in Vietnam, Munich and Esen in Germany, Boston and Salt Lake City in the United States, Milan, Conegliano and Udine in Italy, in addition to Jakarta and Batam in Indonesia. We also have partner firms in Malaysia, Bangladesh, the Philippines and Thailand as well as our firms in China and India. Please contact us at [email protected] or visit our website at www.dezshira.com.