When it comes to countries that love Japanese cars the most, Thailand definitely ranks high on the list.
Anyone who has visited Thailand knows that the streets are filled with Japanese cars as far as the eye can see.
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Just how much do Thai people love Japanese cars? On a Q&amp;A website, someone even asked:
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Why are 99% of the cars on Thai streets Japanese?
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And the response below corrected them &#34;seriously&#34;:
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It's not 99%, it's 85%.
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Whether it's 85% or 99%, it's enough to show the significance of Japanese cars in the hearts of Thai people.
According to market research firm Marketline, in 2022, eight out of the top ten car brands in terms of sales volume in Thailand are Japanese, with SAIC Motor's MG and Ford from the United States being the only exceptions.
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However, if you pay close attention, you will notice that despite Japanese cars still dominating the Thai market, most brands have experienced a significant decline in growth rate.
This is because more and more Chinese car companies have entered Thailand.
In June of this year, Nezha, BYD, and Ora occupied the top three spots in Thailand's new registration list for pure electric vehicles. Except for Tesla in fourth and fifth place, and Volvo (which is also owned by China's Geely) in ninth place, all the models in the top ten are from Chinese car companies.
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In September of last year, BYD signed a land purchase agreement with Thailand's WHA Industrial Estate, acquiring approximately 96 hectares of land in Chonburi Province to build an electric vehicle factory. The factory is planned to start production in 2024 with an annual output of 150,000 vehicles.
The seller, WHA, stated that this is the largest deal the company has made in the past 25 years.
According to data compiled by the Japan External Trade Organization (JETRO), this deal could make China the largest investor in Thailand in 2022, replacing Japan for the first time since 1994.
This means that as the long-standing leader in the Thai automotive industry, Japanese automakers are facing challenges from new entrants, Chinese automakers.
<h2>&#34;Southeast Asia's Detroit&#34;</h2>
The connection between Japanese automakers and Thailand dates back to the 1960s.
In 1962, Siam Motors and Nissan established a joint venture called &#34;Siam Motors &amp; Nissan Co., Ltd.&#34;, making Nissan the first Japanese automaker to establish a factory in Thailand.
That same year, Toyota also established a joint venture and built a factory in Thailand. In 1968, the Toyota Thailand factory became the only factory outside of Japan to export the Corolla.
Since then, Honda, Isuzu, and other automakers have also entered Thailand and made it one of their main overseas production bases for exports.
One of the reasons why automakers favor Thailand is the government's supportive policies for the automotive industry.
To protect its domestic manufacturing, the Thai government imposes an 80% import tariff on cars and a 60% import tariff on motorcycles. At the same time, the Thai government allows foreign investors to purchase land in Thailand and has introduced tax incentives for foreign investors.
For example, in the case of BYD's land acquisition in Rayong Province, which is already a center of the Thai automotive industry, the Thai government has reduced the tax rate in that area by 50%. New entrants to this area can also enjoy an eight-year income tax exemption.
As a result, in addition to Japanese automakers, European and American automakers such as General Motors, Ford, and BMW have also followed suit and established factories in Thailand. A spokesperson for General Motors has stated that the Thai factory is its main manufacturing center in the Asia-Pacific region and Africa, with vehicle exports to 15 markets including Australia and New Zealand.
Since then, Thailand has become the largest automotive producer and exporter in Southeast Asia, and the second-largest automotive sales market in Southeast Asia after Indonesia.
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With the support of major automakers, Thailand has gained the confidence to be called the &#34;Detroit of Southeast Asia&#34;.
<h2>&#34;Home Away from Home&#34;</h2>
Among the many automakers, it is the Japanese automakers that have the closest and longest-lasting relationship with Thailand.
Since 1962, Japanese automakers have been &#34;occupying&#34; Thailand for over 60 years, with Toyota accounting for more than one-third of the market share and becoming the undisputed &#34;national car&#34; of Thailand.
Toyota has also given back to Thailand for its strong sales performance: Toyota and its group companies have brought 275,000 jobs to Thailand, accounting for about 4% of GDP. In the past decade alone, Toyota has invested over one billion dollars in Thailand.
Data from JETRO also shows that as of March 2022, Japan accounted for 32% of the balance of foreign direct investment (FDI) in Thailand, making it the largest foreign investor up to that time.
Given the dominant position of Japanese automakers like Toyota in Thailand, to the extent that they have almost treated the Thai market as an extension of their domestic market for decades.
At the end of last year, Toyota held its 60th anniversary celebration of business operations in Thailand. At the event, then-President Akio Toyoda expressed his love for Thailand, saying, &#34;Personally, I have always considered Thailand my 'home away from home.' If I didn't have to live in Japan for work... I would choose to live here!&#34;
During the celebration, Toyota unveiled its first electric pickup truck. Regarding the Thai market, where Toyota has a long-standing presence, as well as the challenges of new energy vehicles, Akio Toyoda stated, &#34;The future of Toyota and Thailand is very bright, and it will only get brighter.&#34;
However, just a few months before Toyota's anniversary celebration, BYD signed a land purchase agreement, making China surpass Japan as the largest foreign investor in Thailand.
Perhaps Akio Toyoda intentionally or unintentionally overlooked this fact.
<h2>Cracks</h2>
Japanese automakers' control of the Thai market has shown cracks in the electric vehicle sector.
According to Thai automotive media &#34;AutoLife,&#34; Chinese brands accounted for 80% of electric vehicle sales in Thailand in the first half of this year. Among Japanese brands, Toyota's bZ4X sold only 13 units, with sales of 1 in June, while Nissan's Leaf had zero sales in June.
This shift reflects the divergent attitudes of Japanese automakers and the Thai government towards electric vehicles.
One fact is that Japanese automakers have always held a very cautious view of electric vehicles.
When the Japanese government introduced a ban on gasoline-powered vehicles, Akio Toyoda criticized the hasty implementation of the ban, stating that it would lead to the collapse of the current business model in the automotive industry, causing numerous companies to go bankrupt and resulting in a large number of job losses.
As former leaders in gasoline-powered vehicles, Japanese automakers have felt a sense of insecurity in the face of this era of disruption.
Although Japanese automakers eventually made concessions to electric vehicles and officially announced the production of electric vehicles in Thailand last year, this shift came too late.
As early as 2016, the Thai government formulated a roadmap for the popularization of electric vehicles and approved tax incentives for domestic electric vehicle production in Thailand.
With the policy incentives and the attraction of a well-established local industry in Thailand, a group of Chinese automakers came to Thailand, reshaping the country's automotive industry and disrupting the dominance of Japanese automakers.
<h2>Expansion</h2>
Chinese automakers' exploration of the Thai market began eleven years ago.
In 2012, SAIC Motor Group formed a joint venture with the Thai Chinese conglomerate Charoen Pokphand Group and officially invested in building a factory in Thailand. SAIC's brand, MG, also entered the Thai market for sales in 2014. Through cooperation with leading local companies in Thailand, MG's development in Thailand has been smooth, and it has entered the top ten automotive brands in Thailand in 2021.
In 2019, MG launched its first electric vehicle model, the MG ZS EV, in Thailand, followed by the MG VS HEV and MG EP. This laid the foundation for Chinese automakers to enter the market through the electric vehicle track.
In 2020, Great Wall Motors acquired a factory from General Motors in Thailand and invested 22.6 billion Thai baht (approximately 4.673 billion yuan) for renovation, becoming the second Chinese automaker to enter Thailand. Great Wall's Ora Cat became the most popular electric vehicle model in Thailand, with sold-out stocks in multiple stores.
In September last year, Great Wall Motors announced the production of the 10,000th new energy vehicle at its Rayong New Energy Plant in Thailand. 60% of the cars produced at Great Wall's Thailand factory are sold in Thailand, while 40% are exported to overseas markets.
Following suit, other automakers such as BYD, NIO, and GAC Aion have also started plans to build factories in Thailand.
The rapid development of Chinese automakers in Thailand can be attributed to several factors. On the one hand, it is related to the cultural similarities between the two countries. Thai consumers still share some behavioral habits with their Chinese counterparts, minimizing the &#34;cultural shock&#34; as much as possible.
On the other hand, Thailand already has a well-established automotive parts industry. As the largest automotive manufacturing country in Southeast Asia and the 11th largest globally, Thailand's capacity for vehicle assembly and manufacturing is quite mature, with an annual production capacity of nearly 2 million vehicles, accounting for nearly 50% of the Southeast Asian automotive market. The automotive industry workforce in Thailand accounts for about 10% of its labor force.
The local parts manufacturing industry in Thailand is also well-established. According to reports, there are nearly 700 local Tier 1 automotive suppliers that can supply parts to car assembly plants, with a local parts procurement rate as high as 98%.
Furthermore, the penetration rate of electric vehicles in Thailand is currently less than 3%, but Thailand plans to achieve a 30% share of zero-emission vehicles in new vehicle production by 2030.
This provides a broader space for Chinese automakers who are already exhausted from intense competition.
<h2>Support</h2>
Unlike NIO and XPeng, which have chosen to enter the European market to the west and rely on local partners to sell new cars, most of these automakers entering Southeast Asia to the south are attracted by the region's proximity to China, lower labor costs, and a series of policy incentives such as tax subsidies and exemptions obtained through local factory establishment.
Thailand has provided strong support in promoting the transition of the traditional automotive industry to new energy vehicles.
In 2022, Thailand introduced new subsidies and tax reductions for pure electric vehicles, providing a subsidy of up to 150,000 Thai baht (approximately 30,000 yuan) for each pure electric vehicle, reducing the consumption tax for electric passenger vehicles from 8% to 2%, and granting an 80% reduction in road tax.
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This offers great opportunities for Chinese automakers who are already fatigued from intense competition.
In addition, the Thailand Investment Committee has stated that the Thai government has agreed to provide electric vehicle manufacturers with a tax exemption on corporate income for up to 8 years, as well as exempting import taxes on key components such as batteries, electric vehicle drive motors, and electric vehicle compressors until the end of 2025. They have also promised to subsidize the electricity costs of automobile manufacturers.
However, in order to obtain these preferential policies and subsidies, car companies must have factories in Thailand. This is also one of the reasons why many Chinese car companies choose to establish factories in Thailand.
Last month, Lin Chuchen, Chairman of the Thai-Chinese Chamber of Commerce, stated at an event that an increasing number of Chinese electric vehicle manufacturers are currently focusing on the Thai market and using it as a production and distribution base for the surrounding economies:
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From the investments made by MG, Great Wall Motors, and BYD, it can be seen that the electric vehicle industry is currently the most innovative sector in terms of investment in Thailand. The investment incentives recently provided by Thailand for Chinese car manufacturers have supported this prospect, and investments are continuously pouring in.
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With a series of incentives, Chinese car companies are able to offer competitive prices to attract traditional fuel vehicle owners and challenge the dominant position of Japanese car companies in the market.
In 2021, Ora Cat debuted in Thailand with a starting price of 989,000 Thai baht (29,800 USD), which is equivalent to the cheapest model sold by MG in Thailand and 30% cheaper than the Nissan Almera.
However, although Chinese car models have a price advantage in Thailand, they still have a premium of about 50% compared to domestic prices (the starting price of Ora Cat in China is 127,900 yuan), which leaves more profit margin for car companies.
Of course, one of the key reasons is that the transition to electric vehicles in Japan has been slow, creating opportunities for Chinese car companies.
According to Thai government data, of the nearly 850,000 new cars registered in Thailand last year, only about 1% were electric vehicles. However, from January to April this year, this proportion has risen to over 6%.
Although this proportion is still small, it is an achievement for Chinese new energy vehicle companies starting from scratch in a new market.
Hajime Yamamoto, Head of the Thailand Advisory Division at Nomura Securities Research Institute, said that in the next 10 years, Chinese brands may capture at least 15 percentage points of market share from Japan by launching affordable electric vehicles:
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With Chinese car manufacturers shifting production to Thailand, competition between China and Japan may become more intense.
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<h2>Conclusion</h2>
Earlier this year, Standard &amp; Poor's released a research report on changes in consumer behavior, which pointed out that Japanese car companies such as Toyota and Honda, which have long been rooted overseas, are gradually being forgotten.
The research also shows that the majority of consumers who will switch to electric vehicles in 2022 are from Toyota and Honda.
At this moment, although companies like Toyota have belatedly introduced models like the bZ4X, reality tells them that achieving success in the electric vehicle market is not as easy as they imagined.
Meanwhile, Chinese automakers, whose wings are growing stronger day by day, may no longer give them the opportunity to catch up.

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