Thai auto industry hampered by sluggish local demand

Thailand's economy has been sluggish for some time, weighed down by elevated household debt. (Fitch cut its credit rating on the country to "negative" from "stable" this week.)

We can examine the knock-on effects for the local automotive industry, which is increasingly dependent on foreign markets as local demand falters. Thailand is a major manufacturing hub, especially for Japanese brands; Toyota, Honda and Ford all have local facilities, as do Chinese electric-vehicle makers.

Our first chart deploys used-vehicle indices from Thailand's central bank. Prices are still well below their 2022 peak, making new cars less attractive by comparison. Meanwhile, sales of domestically made cars have started rising again year-on-year (5.4% in August), but that followed a slump on that basis through 2024.

As our second chart shows, before the pandemic, about half of the vehicles made in Thailand were absorbed by the domestic market. This share has declined to below 40%.

This is no doubt also related to the capacity issues shown in our third and fourth charts. Thai auto factories have faced a sustained period of overcapacity since 2024 -- a phenomenon unseen in previous years. In the early 2010s, by contrast, capacity was very tight -- coinciding with the peak in Thai auto production.

Our final charts tap datasets from the Federation of Thai Industries and Toyota's research on Thailand's local market.

They show how the domestic car market is seeing increasing competition from the Chinese. Japan used to dominate sales of imported cars in Thailand, but that is no longer the case.

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