China is condemning Old Auto to the wreckage of the past
The Japanese have owned Thailand’s auto industry since the 1960s, turning the country into the world’s tenth-largest carmaker and a launch pad for Toyota, Honda, and Isuzu exports across Southeast Asia.
Early last year the Japanese still had 85pc of the Thai market; by late next year they will struggle to keep 70pc. From there it could become an unstoppable slide.
The Chinese have swept into the country with electric vehicles starting at £11,000 for Hozon Auto’s Neta V, the spearhead of what is already being dubbed the ‘Sino-Japanese car war’ by the Beijing press – or ‘seizing food from the tiger’s mouth’ in the Xiaobao tabloids.
The triumphant upstart BYD, fresh from toppling Tesla as world EV leader, will start producing its Dolphin and ATTO 3 models in March at a new plant near Bangkok, reaching an annual pace of 150,000 cars by year’s end.
Five Chinese carmakers have either begun building factories in the country or will start within months. “Thailand is a springboard for China’s overseas expansion, leveraging the entire market of Southeast Asia,” said Chinese auto analyst Zhang Xiang.
Japan is a victim of its own past success. Asia Fund Managers says the country so dominates gasoline-electric hybrids, and makes so much money from them, that it wants to keep enjoying rents from its sunk costs.
Its long love-affair with hydrogen has proved a costly distraction, with subsidies misdirected into fuel-cell cars going nowhere.
The Japanese have also talked themselves into a collective view that a) EVs are not really green, and b) that there is too little electricity output and charging infrastructure to sustain a fast global roll-out, so the shrewder choice is to stay above the fray.
A cynic might say this is a textbook illustration of incumbent psychology, and why outsiders almost always run away with the great technology upheavals.
Thailand is changing dance partners with an ice-cold calculation of its own national interest. “We are very grateful to Japanese companies for injecting so much capital into the Thai economy over the past 50 years, but when it comes to EV manufacturing, they have fallen behind and need to catch up,” said premier Srettha Thavisin.
He reassured alarmed officials in Tokyo last month that Thailand is not going to turn its back on the internal combustion engine (ICE) overnight. His country will continue to manufacture petrol cars for a while from existing plants. He might as well have rubbed salt in the wound.
His government is in reality forcing electrification with a carrot-and-stick policy. It is offering subsidies of £1,700 to £3,400 for new EVs, but only for companies that commit to building EV plants on a very fast timetable. The Japanese are scrambling to catch up but it may be too late. “They don’t have a model that balances price and performance. The situation will remain critical until 2027, “ said the Nomura Research Institute in Thailand.
Thailand’s embrace of the new Chinese order is a foretaste of what may be coming for carmakers across the G7 bloc if they drop the ball on EVs. Much the same is happening in Morocco, also aiming to become an EV hub, with minerals and cheap clean power to bring to the party.
Europe, the US, and Japan can try to shield their auto industries from competition behind tariffs or anti-dumping measures. Some argue that the West should give up on EVs altogether and go all out on the combustion engine, in hopes of creating a split global market of rival technologies. At least they would still dominate one of them – or so goes the thinking.
But if they do that they will be left with a shrinking world share as the fastest-growing regions of the global economy move on without them. The ASEAN trade bloc is a litmus test. Every major country of this 650 million-strong zone is trying to elbow its way into the EV future.
Vietnam’s richest man, Phạm Nhật Vượng, has launched a national EV start-up called VinFast, aiming to undercut the Chinese model rather than import it. He floated the company last year in New York, touting skilled labour costs in Vietnam some two-thirds lower than on China’s Eastern seaboard.
The Moscow-educated geologist started his business career selling noodles in Kharkiv at the end of the Cold War, seeing an opportunity because Ukrainians looked “very hungry”.
Last August, Malaysia’s government pushed through a merger of its two biggest conglomerates in the auto sector to create a national EV champion. Indonesia is rolling out the red carpet for both Tesla and China’s BYD. The race is on.
In Thailand, EV sales smashed forecasts in 2023, rising ninefold to 8.6pc of total car sales. A study by the Japanese trade body JETRO said that 90.1pc of these were Chinese imports. Just 0.4pc were Japanese. The top 10 were all Chinese except for Tesla’s Model Y and Model 3.
That surge in sales may be misleading. Enthusiastic early adopters – the ‘woke segment’, in culture war parlance – can lead to front-loading followed by stagnation.
Thailand is taking an economic gamble. The car industry in all forms makes up over 10pc of Thai GDP, a bigger share than in Germany. The Thai National Shippers Council estimates that the local value added for EV production will be 34pc, compared to 53pc for ICE cars.
There is the cautionary tale of the notorious Chinese motorcycle flop in Vietnam. Chinese producers snatched the market from the Japanese with cut-throat pricing and predatory dumping, but the models were so shoddy that the Japanese fought their way back in the end with higher quality.
That may happen with some of the over-leveraged adventurers in China’s EV industry but it would be unwise to bank on it with BYD or Great Wall Motors. Toyota’s EV chief Takero Kato said recently that he was “stunned” by China’s state-of-the-art manufacturing in the auto sector on a trip through the country in 2018. “I was struck by a sense of crisis. We’re in trouble,” he told the Toyota Times.
Whether you think Old Auto can plausibly retreat behind a protectionist wall and string out the ICE incumbency depends on where you think the technology is going, and who will have the decisive cost advantage in five years – leaving aside the issue of global warming and the morally-binding obligations of UN climate agreements.
Bloomberg New Energy Finance says lithium-ion battery packs have fallen from $780 kWh a decade ago to a new low $137 this year. They are on track to reach $80 by 2030 under the relatively predictable ‘learning curve’ of Wright’s Law. That is a known known.
The known unknown is that at least one of the radical new technologies emerging from the world’s best research labs may succeed in tripling energy density (while halving battery costs) by the late 2020s, at which point the debate is over.
Southeast Asia is hedging its bets. So is Saudi Arabia. It signed a $5.6bn deal with China’s Human Horizons in November to develop and manufacture EVs in the Kingdom. Prince Mohammed bin Salman likes oil. He also likes to be on the winning side.
