Thailand's Auto Industry Downturn: Navigating Risk and Opportunity in a Shifting Supply Chain Landscape

Thailand's automotive industry, once a cornerstone of Southeast Asia's manufacturing prowess, now faces a confluence of challenges that threaten its export-driven model. From a 320,000-unit decline in light vehicle production in 2024 to the looming specter of U.S. "reciprocal" tariffs—projected at 36%—the sector is at a crossroads. For investors, this crisis presents a dual narrative: assessing the financial risks to key automakers and identifying undervalued opportunities in regional supply chains.

The Perfect Storm: Tariffs, Demand, and Electrification

Thailand's automotive sector contributes 10%-11% of GDP and employs over 1.5 million people indirectly. Yet, the industry's reliance on exports—40% of its manufactured goods—has exposed it to global headwinds. The U.S., Thailand's second-largest export market, now threatens to impose tariffs that could reduce shipments by $8 billion annually. Meanwhile, domestic demand has weakened, with light vehicle sales contracting 7% year-on-year in Q1 2025.

The shift to electric vehicles (EVs) adds complexity. While EV sales surged 320% in 2023, growth has stalled due to high prices and waning incentives. Thailand's government has responded with a $212 million EV subsidy and tax cuts for plug-in hybrids, but these measures have yet to translate into sustained demand.

For automakers like Mazda, BMW, and BYD, the risks are acute. Mazda's $148 million investment in a joint venture with Ford, and BMW's $45.6 million battery plant in Rayong, are strategic bets on regionalization. However, U.S. tariffs could erode margins for companies reliant on the American market. BYD's 150,000-unit EV plant in Thailand, meanwhile, faces competition from Chinese rivals like GAC Aion, which are expanding their regional footprint.

Risk Exposure: Who's Most Vulnerable?

The U.S. tariff threat is not uniform. Automakers with direct U.S. export exposure—such as AAPICO Hitech, which supplies auto parts to global OEMs—face immediate margin pressure. AAPICO's CEO, Yeap Swee Chuan, notes that while U.S. exports account for a small portion of its business, the complexity of routing shipments through third-party countries could inflate costs.

For OEMs like Volvo and Nissan, the risk lies in production relocations. Thailand's Finance Minister has proposed reducing the U.S. trade surplus by 70% over five years, but this may not be enough to avert a 36% tariff. If implemented, the rate could force companies to shift production to lower-cost ASEAN rivals like Vietnam or Indonesia, which already enjoy lower U.S. tariffs (20% and 19%, respectively).

Undervalued Opportunities: The EV Supply Chain and Regional Partnerships

Amid the turmoil, opportunities emerge for investors who can spot structural shifts. Thailand's push to become a regional EV hub—aiming for 30% EV production by 2030—has spurred investments in battery manufacturing and charging infrastructure. PTT Global Chemical, for instance, is supplying materials for EV batteries, while Advanced Info Service is expanding charging networks. These companies represent undervalued plays in a sector poised for growth.

Regional trade partnerships also offer upside. The ASEAN-China Free Trade Area (ACFTA) and the Regional Comprehensive Economic Partnership (RCEP) are facilitating access to Asian markets, reducing reliance on the U.S. Thai automakers are pivoting to high-value EV components, which are less vulnerable to tariffs. For example, Thailand's Eastern Economic Corridor (EEC) has attracted $1.44 billion in Chinese EV investments, creating a localized supply chain that could insulate the industry from U.S. trade volatility.

Investment Strategy: Balancing Caution and Opportunity

For investors, the key is to balance risk mitigation with long-term positioning. Short-term volatility from U.S. tariffs and economic weakness in Thailand necessitates caution. However, the sector's structural shift toward electrification and regionalization offers compelling opportunities.

1. Short-Term Plays: Focus on Thai automakers with diversified export markets and strong regional partnerships. AAPICO Hitech, with its focus on local Japanese OEMs, may be less exposed to U.S. tariffs. Similarly, companies like PTT Global Chemical, which supply critical EV components, could benefit from government incentives.
2. Long-Term Bets: Invest in regional EV infrastructure and supply chain players. Thailand's EEC and RCEP-driven trade flows position it as a key node in the ASEAN EV ecosystem. Companies like Advanced Info Service, which are expanding charging networks, could see demand surge as EV adoption accelerates.
3. Hedging Against Tariffs: Consider hedging exposure to U.S. trade risks by diversifying into ASEAN-focused automakers. Vietnam and Indonesia, with their lower U.S. tariff rates and growing EV markets, offer alternative avenues for growth.

Conclusion

Thailand's automotive industry is at a pivotal moment. While U.S. tariffs and economic headwinds pose significant risks, the sector's pivot to electrification and regional integration creates a fertile ground for opportunity. For investors, the path forward lies in identifying undervalued players in the EV supply chain and leveraging regional trade dynamics to navigate the uncertainty. As the industry recalibrates, those who act with both caution and foresight will be best positioned to capitalize on the next phase of Southeast Asia's automotive evolution.