Thailand bets on local production as its EV subsidy era ends
For nearly four years, Thailand ran one of the most aggressive Electric Vehicle (EV) adoption experiments in Southeast Asia, and it worked almost too well. The EV 3.0 and EV 3.5 incentive packages, launched in 2022, offered excise tax cuts from 8% down to 2%, subsidies as high as THB150,000 ($4,500) per vehicle, and generous import duty relief, with only a loose promise that manufacturers would eventually build locally what they imported.
Chinese OEMs were the quickest to seize the opportunity. BYD, Great Wall Motor (GWM), Chery, Changan, and others moved in with showroom-ready, competitively priced EVs years ahead of most rivals’ domestic launches. BYD alone captured 40% of Thailand’s EV market even before its Rayong plant came online in mid-2024, thanks to the strength of its imported models. Today, seven major Chinese OEMs operate in the country with a combined local capacity of over 550k units per year.
The influx arrived in a market where Japanese OEMs had long set the pace. For three decades, Japanese automakers, led by Toyota and Honda, have built and dominated Thailand’s auto industry, anchoring the market with deep local supply chains and a commanding position in hybrid technology.
However, that dominance is now being tested. Between 2023 and the first seven months of 2026, Honda’s share of Thailand’s Passenger Car market fell by 8 pp from just over 20% to 12%, while Toyota slipped from 32% to 28%, even as it held onto the top spot. Over the same period, BYD expanded its share from around 6% to 10%, and Jaecoo, which only entered the Thai market in August 2024, had already reached close to a 6% share by mid-2026, one of the fastest climbs the market has seen. That reshuffling was not only about which brand had the stronger lineup; it also reflected how the EV 3.0 and EV 3.5 local production requirements were backloaded, allowing importers to capture subsidy benefits years before they had to build anything on Thai soil.
Source: GlobalData
In terms of Passenger Vehicle (PV) sales, the battleground has also shifted by powertrain, tilting the competitive dynamic between Japanese and Chinese OEMs. Full Hybrids (FHEVs), the segment that Japanese brands have dominated through mature local supply chains and hybrid engineering strength, led Thailand’s electrified segment for most of the market’s history. That only changed in early 2026, when Battery Electric Vehicles (BEVs), the segment that Chinese OEMs had flooded with subsidy-supported imports and rapid model rollouts, took the lead for the first time. This marked a turning point that Japanese OEMs could not simply watch unfold.
Rather than compete purely on EV price, Japanese OEMs have been in discussion with the government to find a solution that could also support Thailand’s local supply chain. Those discussions culminated on September 10, 2026, when Thailand’s National EV Policy Committee agreed in principle to scrap the subsidy-first model entirely and replace it with a three-tier excise tax that ties rates directly to how much of a car is actually built in Thailand. The plan still needs Cabinet approval, which is expected by the end of September. Fully imported EVs face the steepest tax, above the old 10% baseline, while vehicles tied to local assembly or testing sit in the middle, and those built with genuine local content are subject to the lowest rate. Once approved, it flips the incentive structure that Chinese OEMs used to enter the market into one that rewards depth of investment over speed of entry.
That timing is not incidental. Reports have linked the overhaul directly to Indonesia’s attempt to lure Toyota’s production away from Thailand, turning the tax rewrite into a defense of Thailand’s manufacturing base. Japanese OEMs have responded by committing more capital to the country, with Honda, Mitsubishi, Isuzu, and Mazda collectively committing THB50.4 billion ($1.5 billion) to modernize their Thai assembly lines with automation and robotics, positioning plants to build Hybrids, Mild Hybrids, and BEVs alike. Their decades-old local supplier networks are precisely what the new tax tiers are designed to reward.
Source: GlobalData
Hybrids have not lost their relevance just because BEVs have pulled ahead. FHEV demand has remained a core part of the market even as the balance shifts, and Chinese OEMs are hedging accordingly. MG and GWM now sell hybrid variants alongside their EVs, while BYD has added Plug-in Hybrid Electric Vehicles (PHEVs), and Changan has brought its own Extended Range Electric Vehicle (EREV) technology into the market too, evidence that Thailand’s shift toward electrification was never going to be a BEV-only story.
Whether the tax tiers will play out as written is the key question shaping the next chapter. On paper, the structure favors companies that already have deep local roots, which points toward Japanese manufacturers with decades of established supplier networks. But Chinese OEMs are no longer showing up just as importers. BYD, GWM, Changan, and other Chinese OEMs now operate factories on Thai soil, and it is entirely plausible that the newest of those plants can meet the local-content thresholds that the policy is designed to reward. The more revealing test may not be a straightforward contest between two national industries, but whether Thailand’s own supply base—caught between both camps—can scale and adapt quickly enough to matter to either side.
Kunat Tharasrisuthi, Manager, Asia Powertrain Forecasts