Thailand’s automotive supply chain under pressure from weak demand, rising tariffs and economic volatility, but investment offers hope

Thailand has always been at the heart of the ASEAN region’s automotive industry, with big players like Mazda and BMW investing heavily in production and suppliers in the area, while the likes of Volvo, BYD and Nissan have targeted the country for exports and regional distribution centres.

But in the race to electrification, Thailand has struggled to keep up, with signs of market volatility coming through in dipping sales and production figures. To remain a strong competitive market, Thailand’s automotive industry will need to boost consumer demand with price incentives, while mitigating risk in a volatile economy.

OEMs have been investing heavily in Thailand in recent years. In February this year, Mazda announced its plan to strengthen Auto Alliance Thailand, its joint venture manufacturing base with Ford in Thailand, with an investment of 5 billion Thai baht ($148m), in a move to develop its facilities and become a regional manufacturing hub. Similarly, last year BMW started the construction of a 1.6 billion baht ($45.6m) battery manufacturing facility to supply Gen-5 high-voltage batteries for its BEV model, set to be made at its Rayong assembly plant in Thailand in the second half of this year. 

But confidence in future investment in the country’s automotive sector is currently fragile, as Thailand’s economy has grown weaker and the potential upcoming tariffs by the US threaten more uncertainty.

Thailand’s economy and the status of the automotive market

Currently, Thailand’s economy is weak, negatively affecting security of future investment by the automotive industry. Thai GDP growth rates were 3.5% in 2019, but this dropped to only 1.9% in 2023. While the country is a manufacturing stronghold in the ASEAN region, it is heavily reliant on exports – particularly to the US and China, Thailand’s two biggest export markets. And with US tariffs set to potentially come into play in July, the country’s two biggest sources of income are under threat.

On top of this, domestic car sales in the luxury vehicle segment are expected to fall this year, partly due to a slowdown in the Thai economy overall, but also due to the challenges facing the automotive industry. Inchcape, the distributor of JLR in Thailand, reported that ultra-luxury car sales fell by 16% year-on-year in Thailand in the first quarter of 2025.

Henner Lehne, vice-president of global vehicle forecasting, automotive, S&P Global Mobility recently told delegates at Automotive Logistics & Supply Chain Europe 2025 that the ASEAN region, including Thailand, is struggling and facing credit tightening which is holding back automotive market growth.

“In South Asia, India is going to continue to grow while the ASEAN market is still struggling quite a bit because of credit tightening which we see from the local and central banks,” he said.

“What we are seeing now is a recalibration of sales and production,” Lehne added. “What happened during the crisis in the last couple of years when we had the chip crisis and the Covid crisis, where vehicles physically couldn’t be produced, inventories were depleted and everybody sold what they could. There was a complete decoupling of the demand production model.

“But now, we have record high inventory levels, we have more inventory than ever, because everybody overproduced and the demand is not following at the moment. So, we’re now seeing recalibration of the supply and demand model.”

Lehne said there was over-investment in EVs as consumer demand was expected to rise, and at the same time ICE resources were cut and demand for ICE vehicles couldn’t be met. “It was kind of like a devil’s wheel,” he said. “This is part of the struggle a lot of the big suppliers are in.”

Trump’s tariffs and their effect on Thailand’s automotive industry

Thailand is particularly threatened by the US’ proposed tariffs on imported goods. The US makes up 18% of Thailand’s global exports, and its trade deficit with Thailand was $45.6 billion last year, an 11.7% increase over 2023.

Trump’s ‘Reciprocal’ tariffs, despite having been delayed for 90 days, could still come into effect in July, with a proposed rate of 36% on Thai imports to the US. If subjected to higher tariffs, there is a fear that production could move out of Thailand, with the Bank of Thailand stating that volatility and uncertainty in the market could negatively affect exports.

 Follow the tariff updates and their impacts on the automotive supply chain in our live timeline infographic

The suggested 36% rate is one of the highest in the context of the ASEAN region, putting even more pressure on Thailand’s automotive industry as it vies to stay competitive.

Before the reciprocal tariffs were proposed, Lehne said that a trade war would be the worst case scenario. “If this is a fully fledged trade war and the spiral continues, we could see a reduction up to 5m units and a significant impact on the industry even in the long run,” he said. As a result, this could lead to OEMs pulling out of less competitive markets. “The damage could be very big, there are discussions about not localising, or even abandoning certain markets with certain activities and investments frozen,” he added.

It’s currently unclear whether this tariff rate will be applied once the 90-day tariff pause ends, and while trade negotiations may happen before the tariff deadline, Thailand’s trade talks with the US have been postponed as of last week, causing further uncertainty and compounding the challenges facing Thailand’s automotive supply chain.

As a result of Trump’s tariffs, Inchcape is planning to increase its sales volume in Thailand and the ASEAN region, hoping to boost sales within the country to balance any losses from exports to the US.

Foreign domestic investment, particularly from China, is also set to take a hit from Trump’s tariffs. Thailand’s government estimates that the reciprocal tariffs will affect the country’s exports by about $8 billion, which equals around 2.3% of Thailand’s total exports last year.

Thailand’s struggle with EV sales

Thailand has been struggling in the race to electrification compared to other regions, partially due to the weak economy and increased household debt and the steep price of EVs limiting consumer demand. This is in line with an overall reduction in light vehicle production volume, which was down 320,000 units in 2024 compared to 2023, according to Global Data.

While EV sales boomed in 2023 with an increase of 320% year-on-year, reduced consumer incentives have stalled this growth.

Light at the end of the tunnel for Thailand’s EV market

However, things may be looking up for Thailand’s EV market. In September last year, Thailand’s government approved a budget of $212m for an EV subsidy programme for OEMs.

And as of today (April 29), the Thai government has approved lower tax rates for plug-in hybrid EVs (PHEVs), in a bid to encourage consumer demand. Effective from January 1 next year, the new regulation will establish a separate tax rate for PHEVs and eliminate fuel tank size as a factor in determining their tax rates.

Thailand’s deputy finance minister Paopoom Rojanasakul said the new regulations will help promote the country as a manufacturing base for PHEVs for both domestic and international sales.

While uncertainty remains, Thailand’s automotive market could in fact benefit and become more competitive over the coming years. With continued government support and OEM investment, Thailand looks set to remain competitive within the ASEAN region.