Thailand's Manufacturing Sector Faces Headwinds Amid April Contraction, But Opportunities Lurk in EVs and Resilience

The Thai manufacturing sector’s struggles deepened in April 2025, with the S&P Global Purchasing Managers’ Index (PMI) falling to 49.5—its lowest level in a year—marking the fastest contraction since April 2024. While the data underscores the sector’s vulnerability to external shocks and domestic economic slowdowns, pockets of resilience in electric vehicle (EV) production, digital infrastructure, and targeted government policies suggest a path to stabilization.

The Contractionary Trend

The April PMI decline was driven by a sharp drop in new business orders, falling at the fastest rate since April 2024, as subdued global demand and supply chain disruptions from March’s earthquake weighed on manufacturers. Export orders continued their 20-month decline, reflecting weak external demand—particularly in key markets like China and Europe—while domestic orders stagnated amid sluggish consumer spending. The earthquake, which struck in late March, further disrupted logistics and delayed production timelines, exacerbating backlogs.

Yet, manufacturers showed surprising tenacity. Production volumes rose for the third consecutive month, as firms drew down existing workloads, leading to the steepest decline in outstanding orders in over a year. Staffing levels also increased for the first time since November 2024, signaling cautious optimism about future output. However, purchasing activity and inventory levels fell again, with finished goods piling up due to shipment delays and higher production volumes.

Sector-Specific Performance: Winners and Losers

The contraction was not uniform across industries. Key sectors faced divergent challenges and opportunities:

1. Automobiles: EVs Light Up a Darker Landscape
   Total vehicle production fell 19.3% year-on-year (YoY) in the first two months of 2025, as conventional car sales slumped due to weak domestic demand and trade tensions. However, the EV segment exploded, with plug-in hybrid (PHEV) production surging 366.2% YoY and battery electric vehicles (BEV) up 175% YoY. Exports of EVs to markets like the U.S. and Vietnam grew sharply, though overall auto exports declined 18.1% YoY due to global oversupply and low-cost competition from China.

2. Electronics: Export Growth Amid Domestic Headwinds
   Integrated circuit (IC) production dipped 15.2% YoY in early 2025 due to inventory overhangs from prior chip shortages. However, IC exports rose 16.5% YoY, benefiting from rebounding global demand for PCs and smartphones. Electrical appliance exports grew 12.4% YoY, though air-conditioner sales fell post-2024 heatwave.

3. Plastics: Trade Winds and Regulatory Hurdles
   Domestic plastic production shrank across categories, but exports jumped 12.4% YoY, fueled by U.S. pre-tariff import rushes. Yet, rising environmental policies—such as the EU’s Carbon Border Adjustment Mechanism (CBAM)—threaten to curb growth unless manufacturers adapt.

4. Refineries: Margin Pressures Mount
   Slowing domestic demand for refined products and rising crude oil supplies from OPEC+ squeezed margins. Gasoline refining margins (GRMs) declined, while electricity demand dropped 7.3% YoY in early 2025 as households and industries cut consumption.

Earthquake Aftermath: Construction and Tourism Struggle

The March 2025 earthquake dealt a double blow to construction and tourism:
- Construction: New residential launches collapsed 38.1% YoY, with buyers wary of high-rise safety. Office occupancy is projected to hit a record low of 79.5% in 2025, as new Grade A+ office supply outpaces demand. Tenants now demand seismic safety certifications, forcing older buildings to retrofit or risk vacancies.
- Tourism: Chinese arrivals fell 24.2% YoY in early 2025 due to safety concerns, though domestic tourism grew 7.5%. The earthquake also slowed hotel bookings, though Phuket’s occupancy rose to 84.9% on visa-free policies for Russians and Indians.

Policy Responses and the Path Forward

The government is countering the slowdown with targeted measures:
- EV Incentives: The EV 3.5 scheme and Euro 6 emissions standards are boosting XEV (battery and plug-in hybrid) registrations, which could hit 220,000 units in 2025 (+7.8% YoY).
- Real Estate Stimulus: Relaxed loan-to-value (LTV) ratios (up to 100% for affordable homes) and reduced transfer fees aim to revive housing demand.
- Renewables Push: The Utility Green Tariff (UGT) and direct power purchase agreements (PPAs) are accelerating renewable energy adoption, aligning with Thailand’s goal to become a regional green hub.

Risks and Challenges

• Trade Wars: U.S. tariffs threaten 5.8% of IC exports and 25% of appliance exports, while Chinese EV price wars could undercut Thailand’s competitiveness.
• Structural Costs: New seismic safety standards for buildings will raise construction costs but improve long-term resilience.
• Global Slowdown: The Global Composite PMI Output Index fell to 51.5 in February 2025—the lowest in 14 months—suggesting weaker external demand ahead.

Conclusion: Navigating the Crossroads

Thailand’s manufacturing sector faces a challenging 2025, with contraction accelerating in April and headwinds from trade wars, safety concerns, and weak global demand. Yet, the EV boom, digital infrastructure investments, and government stimulus offer hope. For investors, the key is to focus on EV manufacturers, seismic-resistant construction firms, and renewable energy projects—sectors poised to thrive despite the broader slowdown.

The April PMI data (49.5) highlights the urgency of structural reforms, but the sector’s resilience—evidenced by production increases and rising staffing levels—suggests a path to recovery. If Thailand can leverage its EV momentum and green transition, it may yet turn the tide.

Investment takeaways: Overweight EV supply chains (e.g., battery materials, charging infrastructure), underweight traditional automotive and plastic exporters exposed to trade wars. Monitor the UGT rollout for renewable energy opportunities.