kimberly-sutanto
When Prime Minister Anutin Charnvirakul traveled to Wellington this month, he found himself doing damage control. Speaking to reporters in New Zealand on August 21, the premier dismissed suggestions that Japanese manufacturers were pulling their production out of Thailand, citing strong headline figures for foreign investment as evidence that all was well. Yet in the same appearance, he acknowledged he had tasked Deputy Prime Minister and Finance Minister Ekniti Nitithanprapas with examining whether the country's tax framework treats long-established manufacturers equitably. Governments rarely commission urgent reviews of sectors they consider healthy.
At the heart of the friction are Thailand's electric vehicle subsidy programs, known as EV 3.0 and EV 3.5. These schemes offered foreign automakers a bargain: bring battery-powered cars into the country at a reduced excise rate of 2% rather than 8%, with import duties capped and buyer subsidies of as much as 150,000 baht per vehicle. In exchange, manufacturers had to produce cars locally. Under EV 3.5, each imported unit obliges them to build two vehicles domestically by 2026, rising to three in 2027 if the initial deadline slips.
That obligation functions like a debt settled in finished automobiles. Companies that imported heavily during 2023 and 2024 must now keep Thai assembly lines running at full speed through 2026 and 2027 regardless of demand, because failing to comply means repaying the subsidies plus the excise difference plus penalties. Critics say the design has manufactured oversupply, driving showroom prices sharply downward.
The fragility of the arrangement has already been exposed. After Chinese-owned Neta entered bankruptcy proceedings at its parent level, its Thai arm was left owing roughly 24,000 offset vehicles while having produced only about 4,700, having collected more than 2 billion baht in subsidies. Regulators responded with monthly production forecasts, suspended disbursements and bank guarantees, but dealers were left chasing unpaid invoices.
The exits have followed. Subaru's contract assembler halted Thai production at the close of 2024, and Suzuki confirmed it would shut its Pluak Daeng factory by the end of 2025 — a plant born of the 2007 Eco Car program, an earlier round of Thai industrial policy. Honda, meanwhile, has consolidated vehicle assembly from its aging Ayutthaya site into Prachinburi, converting Ayutthaya to component work. Combined national capacity stood at 270,000 units against actual output below 150,000 for four consecutive years. There is also precedent for the fallout benefiting China: when General Motors withdrew in 2020, Great Wall Motor acquired its Rayong plant.
What the Japanese makers are pursuing, however, is not a retreat but a lobbying push. Honda Automobile (Thailand) chief executive Koji Iwanami argued at the local debut of the Super-ONE EV that fully built cars shipped from Japan, Europe and the United States face import duties reaching 80%, while certain battery and range-extended models arriving under free trade agreements enter duty-free. Honda seeks closer parity so it can import models such as the Freed and Jazz, given Prachinburi is already near its 110,000-unit cap. A second demand concerns tightening local-content rules for hybrids: Honda says four of its hybrid models cannot be re-engineered within current product cycles, which would lift their excise burden from 6% to 8% and later 10%. The company is coordinating with five other Japanese brands via the Japanese Chamber of Commerce in Bangkok around an eight-point agenda. Toyota has lodged parallel objections that imported EVs enjoy a lighter effective tax load than Thai-built vehicles, while publicly ruling out any departure after Indonesia's finance minister invited it to relocate regional production to Jakarta on August 4.
Bangkok's countermove centers on mild hybrids. The National EV Policy Committee has created a dedicated excise band — 10% for vehicles under 100g/km of CO2 and 12% for 101–120g/km, guaranteed for seven years through 2032 — contingent on investment of at least 5 billion baht, locally made batteries from 2026, locally sourced motors or assist components from 2028, and four of six advanced driver-assistance features. The category preserves most of the conventional powertrain supply chain, which is precisely the point for an industry spanning more than 2,400 firms and over 700,000 jobs. Mazda has secured Board of Investment approval exceeding 7.4 billion baht for a mild-hybrid B-segment SUV at AutoAlliance in Rayong from 2027, Isuzu is committing over 15 billion baht largely toward Euro 6 pickup capability, and Mitsubishi has outlined 16 billion baht across five years for hybrids.
The decisive moment comes in September. Ekniti has directed Finance permanent secretary Lavaron Sangsnit and Excise Department director-general Pornchai Theeravech to complete a new excise structure, to be enacted as a ministerial regulation under the Excise Tax Act — allowing it to take effect within 2026 without a parliamentary vote. Because tariffs on Chinese vehicles are locked down by the ASEAN-China free trade agreement, excise policy becomes the lever: preferential rates for anyone manufacturing in Thailand with local content, standard rates for finished-car importers. If the structure withstands pressure from Beijing, other ASEAN governments are expected to imitate it.
For consumers, the consequences ripple outward — from resale risk when brands exit, to insurance complications around structural battery packs, to the future of Thai-built pickup exports like the Hilux, Ranger, D-Max and Triton across right-hand-drive markets. Thailand spent four decades persuading Japan to build its automotive sector, then three years subsidizing the rivals that undercut it. The reckoning arrives next month.
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