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Thailand is the world's ninth largest auto market with annual sales of one million vehicles and annual production of two million vehicles. It is the most active auto market in Southeast Asia and a market that neither Chinese nor Japanese automakers can afford to lose. This is the base camp of Japanese automakers in Southeast Asia and the outpost for Chinese automakers to go overseas. In 2023, Chinese and Japanese automakers formed a rare one-on-one situation in Thailand, with the market share of Chinese cars soaring from about 5% to about 11%, while Japanese cars fell from about 90% to 78%.

In July 2024, Caijing researchers once again went to Thailand to investigate the auto market. Half a year later, the market situation here has changed dramatically.

Drive 110 kilometers south from Bangkok, approaching the Pattaya Beach Resort, you can see a large number of containers on the roadside and gantry cranes in the distance. This is Laem Chabang Port, Thailand's largest seaport, known as the "Detroit of the East" and Thailand's largest automobile import and export base.

After getting off the highway, walking through the narrow road beside the beach, passing low houses and roadside stalls, you will arrive at the high wall on the north side of the Laem Chabang Port. The wall is more than 3 meters high and stretches for several kilometers, enclosing all the gaps in the port area.

Climbing up a roadside truck or other vantage point, the scene behind the high wall can be gradually revealed: countless new cars in stock are neatly lined up to the end of the field of vision.

According to the distance measurement based on the electronic map, the parking area on the north side of the Laem Chabang Port is about 2 kilometers long and 1 kilometer wide. Based on on-site visual inspection and rough count, there are approximately 8,000 to 10,000 vehicles in stock.

Most of the cars parked here are Mitsubishi brands, and some areFord, the Isuzu brand endured silently under the scorching sun in Thailand in July.

Mitsubishi has suffered a global collapse in recent years, and it is even worse in Thailand. From fiscal 2021 to fiscal 2023 (the Japanese fiscal year is from April of the previous year to March of the current year), Mitsubishi's global total sales fell by about 13%. Its inventory suddenly doubled in 2022 to about 200,000 vehicles. In fiscal 2023, the inventory was also 200,000 vehicles, accounting for about 20% of its total production. Healthy car companies usually have equal production and sales (inventory is the total production minus total sales in the fiscal year).

Mitsubishi's annual sales in Thailand fell from 80,000 vehicles in fiscal 2019 to 30,000 vehicles in fiscal 2023. Mitsubishi's three vehicle plants and engine plants near Thailand's Laem Chabang Port produced about 275,000 vehicles in fiscal 2023. The Thai market cannot absorb them, and the country can only rely on other markets. However, other places cannot absorb them either. Mitsubishi dealers in neighboring Indonesia have already filled up their inventory of vehicles, which are finally piled up at Laem Chabang Port.

The Mitsubishi inventory of cars on the north side of Laem Chabang Port is just the tip of the iceberg of Thailand's car market.

In other areas of the port area, you can see many parking lots surrounded by high walls, where inventory cars of other brands are parked.

Chinese brands have also accumulated a considerable amount of inventory. Some Chinese automakers have accumulated thousands of vehicles in the port, which has put Thai dealers under tremendous sales pressure. Some Chinese automakers store thousands of vehicles in their factories in Rayong Province. Some Chinese automakers have accumulated part of their inventory with Thai dealers and the rest at the port.

Generally speaking, when inventory levels exceed three times the monthly sales, it is a relatively dangerous situation. Most Chinese automakers have an average monthly sales of about 1,000 vehicles in Thailand, and the inventory levels of many Chinese automakers in Thailand have already exceeded three times the average monthly sales.

Boqiu (pseudonym) is a slender man in his 30s. He can only shyly and softly say "Sawadee Ka" and relies on Google Translate for other conversations. Five years ago, he bought aToyotaFortuner four-wheel drive off-road vehicles and sports cars are used for business, mainly serving high-end customers on long-distance trips.

Boqiu bought the car with a loan. Toyota's dealer helped him get a loan from Toyota Financial Corporation, which was equivalent to a car price of RMB 370,000. The down payment was only about RMB 20,000, and the monthly repayment was about RMB 6,000. The repayment period was six years, and his monthly income was about RMB 10,000.

Boqiu is a typical Thai car owner who buys his car with loans and faces considerable pressure from monthly payments.

According to estimates by middle and senior management of various automobile companies in Thailand, in the Thai automobile market, 90% of new car sales, regardless of price or model, rely on auto loans.

Thai people don't earn much, but cars are expensive. The average monthly salary in Thailand is about RMB 3,100. The per capita GDP (gross domestic product) in 2023 is higher than that of Indonesia, Vietnam, and India, but lower than that of Brazil and China. However, in China, the price of cars has dropped to about RMB 130,000.Toyota Camry, the price in Thailand is about 300,000 yuan.

Car companies have also used financial tools to the fullest. For example, Toyota has its own financial institution in Thailand, and can provide car loans to car buyers who cannot obtain loans from regular banks; Isuzu,MazdaWe offer 0% interest loans, and some car models can be loaned for seven years.HondaA zero down payment policy was introduced.

Auto loans are a double-edged sword. By using financial instruments, one can tap into demand and even overdraw demand, but on the other hand, they are also more vulnerable to the impact of changes in the macro-economy and financial policies.

"Loan review has become particularly strict this year," said Larisa (pseudonym), who works at a bank in Bangkok. In order to review the borrower's credit, she now needs to go to the reviewer's home and workplace in person to check.

"The bad debt rate of Thai banks has increased. Many people have lost their jobs or gone bankrupt, and have no choice but to stop paying their car loans or mortgages," said Larisa, who has been working for more than a decade and this is the first time she has seen such a situation.

Thailand's economy suffered a severe blow during the epidemic. Its average annual GDP growth rate was 3.6% from 2010 to 2019, but it dropped to -6.1% in 2020.

In response to the epidemic, the Bank of Thailand has introduced a series of measures, including allowing debtors to postpone repayments and interest payments.

Since then, Thailand's economy has slowly recovered, with GDP growth rates rebounding to 1.5%, 2.6% and 1.9% in 2021, 2022 and 2023; on the other hand, the Federal Reserve began raising interest rates in March 2022, putting pressure on the Thai baht exchange rate.

Taking various factors into consideration, the Bank of Thailand raised its benchmark interest rate in August 2022, and subsequently raised interest rates several times in succession. By September 2023, the benchmark interest rate had risen from 0.5% to 2.5% in just one year.

The Thai government has also gradually terminated various stimulus policies during the epidemic period.

The end of the stimulus policy has objectively increased the debt burden on Thai society. People have not been able to repay their existing debts, and have also incurred new debts. The policy of loan repayment extension has also been stopped, so they have to pay off their debts in a concentrated manner, which has increased the pressure sharply.

Thailand's debt problem is becoming increasingly prominent.

In early October 2023, the Economic and Commercial Office of the Chinese Embassy in Thailand reprinted a Thai media report stating that 57% of people in Thailand have debts of more than 20,000 yuan, 14% have debts of more than 200,000 yuan, and more than 32% face four or more debts at the same time. The proportion of Thai household debt to GDP is higher than that of India, Indonesia and Malaysia.

A person from the Financial Institutions Stability Department of the Bank of Thailand pointed out on October 30, 2023 that Thailand's household debt accounted for 90.7% of GDP, while the target set by the Bank of Thailand was below 80%.

In order to control debt risks and bank bad debt rates, the Bank of Thailand introduced a "responsible lending" policy in October 2023, emphasizing that financial institutions must lend responsibly. The policy will take effect on January 1, 2024.

One of the effects of the "responsible loan" policy is the sudden tightening of car loans in 2024. According to senior executives of car companies in Thailand, since January 2024, the approval rate of car loans in Thailand has suddenly dropped to about 50%, compared with 80%-90% before.

This means that most of the dealers' previous car sales contracts were able to generate real sales, but after 2024, although they had finally developed customers, car loans were tightened and nearly half of the orders could not be fulfilled.

"It's not selling well," Sun Wei (pseudonym), a middle-level employee of a Chinese car company in Bangkok, told Caixin in July 2024. Previously, they could sell nearly a thousand vehicles per month, but now it's difficult to sell even a few hundred vehicles. The market seems to be frozen.

Around 2003,CherySAIC Motor once tried to export its QQ model to Thailand. Around 2014, SAIC Motor and Thailand’s Charoen Pokphand Group jointly built a factory in Thailand with an annual production capacity of 100,000 vehicles.mgThe (MG) brand sells cars in Thailand, with annual sales of about 20,000 units and low capacity utilization.

Around 2020,Great Wall MotorsOptimistic about the Indian market, Great Wall Motors planned to acquire a General Motors plant in India. However, the Indian government suddenly introduced restrictive policies, which hindered Chinese investment in India. Great Wall Motors had no choice but to acquire General Motors' factory in Thailand and thus entered Thailand. Currently, it sells itsHarvard、tank、EulerBrand model.

Second half of 2022BYD、NezhaEntering Thailand,GAC Aion、Changan AutomobileSubsequently, a company will be established in Thailand in the second half of 2023 to start sales.

The entry of a large number of Chinese car companies has changed the landscape of the Thai automobile market. The penetration rate of electric vehicles in the Thai automobile market will exceed 10% in 2023. The market share of Japanese brands that have monopolized the Thai automobile market for decades has dropped from 90% to below 80%. BYD has suddenly jumped to sixth place in annual sales, almost catching up with Mitsubishi.

Unexpectedly, the Thai auto market suddenly took a big dive.

Since 2024, Thailand's automobile sales have declined sharply every month, with a year-on-year decline of 16.4% in January 2024, 26.1% in February, 29.8% in March, 21.5% in April, and 23.8% in January-May 2024.

No matter which auto market in the world, an overall decline of more than 20% is catastrophic. During the 2020 epidemic, the Thai auto market fell by 21%, and the decline in the first five months of 2024 was even greater.

Chinese automakers have no way out and cannot accept slowing down. The pressure comes largely from Thailand’s electric vehicle policy.

According to Thailand's electric vehicle incentive policy from 2022 to 2023, Chinese automakers will be exempt from tariffs on electric vehicles exported to Thailand during this period, and the consumption tax will be reduced from 8% to 1%, and they can receive subsidies from the Thai government. However, the prerequisite is that Chinese automakers must build factories in Thailand and produce the same number of electric vehicles in 2024. If the production and sales tasks are not completed and postponed to 2025, they will need to produce a total of 1.5 times the number of electric vehicles from 2024 to 2025.

That is to say, if Chinese car companies sell 30,000 electric vehicles in Thailand in 2023, they must produce 30,000 electric vehicles locally in 2024. If the production is postponed to 2025, they will need to produce a total of 45,000 electric vehicles from 2024 to 2025.

But the Thai auto market is deteriorating month by month.

Electric vehicles shipped from China, Chinese electric vehicles produced locally in Thailand, and fuel vehicles are constantly accumulating in Thailand's ports, factories, and dealers, forming a huge inventory.

Chinese car companies can only start rounds of price cuts.

Some Chinese brands of electric vehicles have reduced their prices by 10%-20%. Some more aggressive car companies have made four consecutive major price cuts, reducing the prices of some models from about 220,000 yuan to about 160,000 yuan.SAIC-GM-WulingLaunched in Thailand in July 2024Wuling BingoThe model has a starting price of approximately RMB 84,000, setting a new record for the lowest price of electric vehicles in the Thai market.

In response, Thai consumers and media gave consistent negative feedback, commenting that this was an unprecedented "car sales model" in Thailand's history. They turned to "distrust" of related brands and believed that Chinese car companies cut prices because they could no longer hold on and would withdraw from Thailand in the future.

BYD's price cuts even prompted car owners to complain to the Consumer Protection Commission of Thailand. On July 9, the Thai Trade Fair Competition Commission stated that BYD dealers' price cuts did not constitute vicious price competition and the situation had not deteriorated further for the time being.

"It will probably be difficult to hold on this time," said Ichiro Matsui (pseudonym), a Japanese expert at a Thai automotive consulting company, frowning as he saw Mitsubishi's inventory of cars at Laem Chabang Port.

Japanese automakers began exporting cars on a large scale around 1970, with exports reaching 6.73 million vehicles in 1985 and currently around 4 million vehicles per year.

Japanese automakers have hidden their wealth overseas. The annual domestic automobile production is about 8 million vehicles. The production of overseas bases once reached 20 million vehicles in 2018, while the production in China that year was about 27.81 million vehicles.

Thailand is one of the most important overseas bases for Japanese automakers.

For decades, due to little external competition, Japanese automakers have never lowered prices in Thailand. Instead, they have continued to raise prices through upgrades.

At the same time, Japanese car companies have also established a stable second-hand car pricing system, which makes consumers believe that they will not suffer losses when buying new cars, and they can still get a stable cash flow when selling used cars a few years later.

The success of Japanese car companies in Thailand is based on the fact that cars retain their value, car repairs are cheap, and service outlets are widely available.

Japanese automakers also tacitly maintain a common system and will not take the initiative to compete for market share.

However, since 2024, "maintaining" has become increasingly difficult.

The main sales of Japanese automakers are concentrated in pickup trucks, especially Mitsubishi and Isuzu, while the decline in pickup trucks in Thailand was even greater.

In addition, there is the impact of Chinese cars.

The cheapest models sold by Japanese car companies in Thailand are about 110,000 yuan, mainly entry-level family cars, such as Toyota Yaris,Honda Civic, Mazda 2, Mitsubishi Attrage, the lowest price of pickup trucks is about 110,000 yuan.Toyota CorollaThe price is about 170,000 yuan.

Since 2023, Chinese cars have entered the Thai market in large numbers. After several rounds of price cuts, the lowest price of Chinese-branded electric vehicles has dropped to less than 90,000 yuan.BYD Dolphin, and also dropped to 110,000 yuan, starting to compete with Yaris-level models for the market.

The pricing system of Japanese car companies has finally loosened.

At the end of 2023, Toyota cut prices in Thailand for the first time in decades. At the beginning of 2024, Toyota also launched a lower-priced pickup truck model Hilux Champ in Thailand, with the starting price reduced to 92,000 yuan.

Honda and Isuzu also started to cut prices in 2024. The Honda Civic HEV model was reduced from 126,000 yuan to 119,800 yuan, and the starting price of the Isuzu pickup truck was reduced from 130,000 yuan to 118,000 yuan.

Although it is one of the most difficult Japanese automakers, Mitsubishi has not officially cut prices in Thailand since 2024. However, Japanese automakers that have not cut prices, including Mitsubishi, have launched large-scale hidden promotions, such as insurance coverage, 0% interest on car loans, and several years of maintenance and repair costs.

"This is the consistent practice of Japanese automakers. They can reduce prices implicitly at dealerships, but they will never lower the official selling price. This is also to ensure the selling price of used cars and maintain the value retention rate," said Ichiro Matsui.

Unfortunately, Thailand's used car pricing system has been hit even harder.

Union Auction Plc is the largest used car auction company in Thailand, accounting for about 40% of Thailand's used car auction market.

All its used cars come from bank auctions. That is, when the car owner defaults on the loan, the car will be taken back by the bank and sent to a used car auction company for sale to recover funds to make up for the bank's losses.

In an interview with Thailand's Bangkok Post in July, the CEO of Union Auction Plc said there has been a significant increase in recycled vehicles, with an estimated 20% increase in 2023 and a smaller increase in 2024, but the total amount is still large.

Caption: In July 2024, a parking lot at a second-hand car auction site in the suburbs of Bangkok, with second-hand cars for sale everywhere. Photograph: Liu Ding

The economy is down, and people who are unemployed, bankrupt, or have reduced incomes choose to stop paying for their vehicles. According to Thailand's policy, the cost of stopping paying for a vehicle is not high, and unlike in China, people will not be unable to take high-speed trains or airplanes. The only impact is that they will not be able to borrow money from banks again, but they can still seek private loans.

Under such circumstances, used cars began to be in oversupply and prices plummeted.

At an auction site located in the suburbs of Bangkok, the auction opens at 7:30 in the morning. In the parking lot that is 500 meters long and wide, every gap is filled with second-hand cars. Under the shed at the entrance of the parking lot, the auctioneer stands behind a high platform and quickly calls out the performance and price of each vehicle through a loudspeaker, and rings a bronze bell once the deal is completed.

At the auction site, the starting price for motorcycles is 100 yuan and the starting price for four-wheeled vehicles is 700 yuan. The additional condition is that if the vehicle battery is old and cannot be started, the buyer needs to replace the battery himself and move the vehicle away as soon as possible.

Under such a serious situation, it is clear that in the future, Chinese and Japanese automakers have lost the possibility of expanding the pie and achieving win-win coexistence in Thailand, and their own security can only be achieved at the cost of their competitors' withdrawal.

On the one hand, Japanese automakers are adjusting their global layout and moving to more geopolitically favorable regions.

On the other hand, Japanese automakers have also begun to organize counterattacks in Thailand.

First, in terms of finance and insurance.

The Insurance Commission of Thailand (OIC) will release a new insurance policy for electric vehicles at the end of 2023, lowering the compensation ratio for electric vehicle batteries. It will take effect on January 1, 2024, and requires all insurance companies to adjust their policies before May 31, 2024.

In the past, if you bought electric car insurance in Thailand and the battery broke down, you could get 100% compensation. But starting from January 1, 2024, electric car insurance will get 100% compensation in the first year, but only 90% in the second year, 80% in the third year, 70% in the fourth year, 60% in the fifth year, and 50% for more than five years.

This is not conducive to the sales of electric vehicles in China. The Thai Insurance Committee is a semi-official organization that represents several major insurance companies. They formulate insurance policies and regulate the Thai insurance industry.

"Some of Thailand's large insurance companies are Japanese, and even if they are not, they have close ties with Japanese capital," said a Chinese businessman in Thailand.

In an even more extreme case, Thailand's leading insurance company, Japanese company Tokio Marine Insurance Public Company Limited, will stop accepting insurance policies for all brands of electric vehicles on July 1, 2024.

Second, in terms of automobile policy.

The Thailand Board of Investment (BOI) announced on July 26, 2024 that it will provide incentives for non-rechargeable hybrid electric vehicles (HEVs) and reduce consumption tax on eligible models between 2028 and 2032.

This is a policy that Japanese automakers have been waiting for for a long time.

At present, the governments of Thailand and Indonesia only support pure electric vehicles (EVs) and deliberately exclude HEVs because HEVs are essentially fuel vehicles and have little effect on driving the new energy vehicle industry chain. However, Japanese automakers are good at HEVs and regard HEVs as a weapon to compete with Chinese electric vehicles.

The four major Japanese automakers promised the visiting Thai Prime Minister at the end of 2023 that they would invest about 30 billion yuan in Thailand in the next five years, but they have not taken any action so far. On the contrary, Suzuki,Subaru, Honda announced that they would close their factories in Thailand.

"Japanese automakers need policies to encourage HEVs, but the Thai government did not take action, so Japanese automakers did not take action either," Matsui said, but now the Thai government is finally willing to support HEVs.

Under such circumstances, Chinese automakers urgently need to change.

First, stop disorderly price wars and establish a coordination mechanism. Either lower prices to the target level in one step, or keep the official selling price unchanged while dealers reduce prices implicitly, so as to avoid the wait-and-see attitude of Thai consumers caused by continuous price cuts.

Second, improve the ability to communicate with the Thai people and media. In other regions, price cuts usually attract a variety of comments, after all, lower car prices are actually beneficial to consumers. However, in this price cut storm in Thailand, the Thai media and people unanimously criticized Chinese brands.

As Chinese car companies go overseas, they should learn from the Japanese car companies’ narrative and event interpretation abilities. Only by mastering these abilities can they capture the minds of consumers.

Third, Chinese automakers should be alert to macro risks and control the rhythm of production and sales. The production capacity of Japanese automakers in Thailand can be absorbed in different regional markets in a timely manner through the global production and sales system to ensure capacity utilization. However, most of the current overseas production capacity of Chinese automakers has a very low capacity utilization rate and faces the problem of capacity absorption.

Fourth, Chinese automakers need to strengthen their financial strength in Thailand. For Thai consumers who have formed the habit of buying cars with loans, Chinese auto brands that lack financial support will find it difficult to establish long-term and stable market expectations.

No matter how many difficulties there are, Thailand's friendly geopolitical environment and high penetration rate of electric vehicles have not changed. It is still one of the best destinations for Chinese automakers to go overseas.