With EVs, the ‘Detroit of Asia’ wants to be China hedge for automakers

Tesla has a lot on its plate. In an electric vehicle market that needs deep price cuts to stimulate demand, the sharp sales slump has raised concerns among investors and industry analysts, as Elon Musk’s company makes plans to lay off employees and cut electric vehicle supercharger stations. Spending decisions are closely related. Tesla’s Shares have fallen more than 30% this year.

And then there’s the whole trade war with China, in which Musk occupies a unique position.

The U.S. government is determined to limit China’s ability to “flood” the U.S. market with renewable energy products, including a rapidly growing supply of electric vehicles with models priced as low as $10,000. But Tesla has a major business, similar to Apple in some ways, in China, a key market for its manufacturing and consumer demand. All this puts Musk under tremendous pressure to open up new areas of growth while dealing with the challenges of intensifying competition, supply chain disruptions and rising raw material costs.

The EV giant appears to be focusing more on the huge potential in Asia outside of China, one of the hottest EV markets. In addition to its well-known interest in India, Tesla is also keeping a close eye on Southeast Asia’s EV capital, Thailand, where green mobility is rapidly gaining traction.

As Musk searches for site for next Gigafactory, Thai government officials tout talks with Tesla – Thailand has been involved in these deliberations for many yearsThe same goes for India, where Musk was scheduled to visit recently, but canceled his visit citing Tesla’s need to resolve issues – and he did visit China shortly afterwards. There is no doubt that the Southeast Asia region has the potential to provide Tesla with a large customer base, diversify away from over-reliance on Europe and the United States, and, in addition to its existing business in China and interest in India, A unique manufacturing choice.

Tesla did not respond to a request for comment.

“The Detroit of Asia”

Thailand, Known as the “Detroit of Asia” for many years It could help Tesla reduce its dependence on China due to its skilled workforce and its success in attracting many international car companies. With its manufacturing base in Thailand, Tesla can also serve Asia and other markets, potentially replicating China’s rapid growth trajectory.

“The cost of auto parts in Thailand is likely to be similar to China, allowing for low-cost production,” said Craig Irwin, senior research analyst covering Tesla at Roth Capital. “Thailand is an option. , as it will provide supply chain continuity that supports the Shanghai factory but is not regulated by Beijing.”

This is a critical moment for the U.S. government to make new demands Sharp cuts to electric vehicle tax credits Consumers can obtain these products based on Chinese sourcing in the manufacturing process — although some critics say the rules are not strict enough.The Thai government has launched its own Subsidies and tax benefits Promote the adoption of electric vehicles and attract foreign manufacturers.

“Exporting cars from Thailand to markets like the U.S. or the European Union has less political impact than China,” said Seth Goldstein, an equity strategist who covers Tesla at Morningstar.

Goldstein said that while Thai-made cars may not be eligible for Inflation Reduction Act subsidies, they are unlikely to face high U.S. tariffs on Chinese cars, and many markets expect that if tariffs are likely to increase further, Donald ·Trump was re-elected. Trump’s reelection isn’t even necessary: ​​The Biden administration may impose 100% tariffs on Chinese electric vehicles next week, according to reports on Friday.

Tu Le, founder of Beijing-based consultancy Sino, said there is a very large market to sell to, and U.S. tariffs are simply not important: Southeast Asia’s 650 million people have direct access to one of ASEAN’s largest car markets. Insights has traveled from Detroit to work in China.

A more affordable Tesla

Amid geopolitical uncertainty and the ongoing trade dispute between the U.S. and China, the so-called “China plus one” supply chain strategy is booming across industries — and even before the latest reports were released, President Biden was in many ways at odds with Trump. Trump also takes a tough stance on China.

However, affordable mass-market cars, which Tesla has so far eluded, will be key to achieving big sales in the region. “For these markets, the Model 3 or Y is still too expensive to be a high-volume product for Tesla,” Le said.

Tesla said in its most recent earnings report that it is accelerating the launch of “new vehicles, including more affordable models,” and plans to launch a highly anticipated $25,000 model by 2025. Manufacturing is currently underway before investing in any new facilities.

Notably, Tesla launched the Model 3 and Model Y in Thailand in 2022, but has struggled under the onslaught of Chinese rivals such as BYD and Xiaomi, which offer products ranging from high-end to affordable. In fact, BYD produced more than 3 million electric vehicles in 2023, surpassing Tesla’s production for the second consecutive year.

Recent reports from Nikkei Asia indicate that Tesla Model 3 sedan pricing in Thailand has been cut by 9% as the country’s auto market sinks into a global downturn and as BYD, Great Wall Motors and other Chinese EV makers prepare to launch their own electric vehicles. to 18% domestic production. Chinese electric vehicle manufacturerCompanies including BYD have earmarked $1.44 billion to build new production facilities in Southeast Asia’s second-largest economy.

“The price war is not going to end anytime soon,” said Naruedom Mujjalinkool of Krungsri Securities. Tell Nikkei Asia.

Tesla Thailand recent Launch special financing plan to stimulate more sales.

Thailand is the world’s leading car manufacturer

Steven Dyer, a former senior executive at Ford and managing director of the Shanghai branch of consulting firm AlixPartners, said Thailand’s existing automotive infrastructure, workforce and policies provide the conditions for Thailand to become an important player in electric vehicle manufacturing. potential. But just as importantly, automakers see enough consumer markets to satisfy locally manufactured supplies. In the automotive industry, he said, a rule of thumb is to “produce where you sell,” which reduces freight and tariff costs and reduces currency exchange risks.

Southeast Asia is a growing auto market, and Thailand is already the region’s largest auto producer and exporter. Toyota, Honda, Nissan, Ford, General Motors and Mercedes-Benz have made the country their regional headquarters.

the country is Strive to become the world’s leading manufacturing power Through favorable tax incentives and import duties, there is still a long way to go before current car production can be switched to electric vehicles.By 2030, Thailand aims to transform 30% of its annual production is electric vehiclesequivalent to 725,000 cars and 675,000 motorcycles – motorcycles are also very important in this market from a manufacturing and consumer perspective.

Le said the country has advantages but must still play its cards right. “All ASEAN countries are looking to recruit electric vehicle manufacturers to their shores, but I would say two countries, Thailand and Vietnam, have an advantage over others because of their automotive experience,” he said.

Leading traditional car manufacturerSeveral companies, including Honda and Toyota, have pledged to invest US$4.1 billion to produce electric vehicles in Thailand.

The Thai government is offering significant incentives to foreign electric vehicle manufacturers, including up to a 40% import tariff cut and a 2% consumption tax reduction for fully assembled electric vehicles imported in 2024 and 2025, provided these manufacturers Started production in Thailand.

Dell said that if a U.S. automaker succeeds with electric vehicles in distant markets, “it familiarizes more consumers with various U.S. brands, which often helps create momentum for other fellow automakers in those markets.” .

discovered in thailand Nearly 15 million tons of lithium deposits This is a key factor in battery chemistry right now, which could give the country an advantage over Asian rivals in attracting EV manufacturers.

“If Thailand becomes a market where electric vehicles or their parts can be produced cheaply and exported freely, then I think many large electric vehicle manufacturers will consider establishing operations in the country,” said Goldstein, including Tesla.

Risks to Musk’s electric cars in Asia

Tesla has risks in Asia. Some experts worry that China could cut off Tesla’s access to low-priced parts if it competes effectively with Chinese rivals in China and the broader Asian market. Thailand’s emergence as a manufacturing hub will help soften the blow.

In addition, “if electric vehicles produced in Thailand are eligible for Inflation Reduction Act subsidies, then this would be a significant incentive for Thailand to produce vehicles or batteries for export,” Goldstein said.

Le said that so far, U.S. government regulations are buying U.S. companies “time to design, develop and manufacture more competitive electric vehicles at reasonable prices.”

However, without cheaper entry-level models, U.S. electric carmakers such as Tesla could be hampered as Chinese rivals ramp up production and launch models across a wider price range.

“Tesla can compete in the luxury car segment by producing cars locally in China, but the U.S. is far behind China as an electric car market,” Goldstein said.

Tesla’s projected $25,000 entry-level car, the Model 2, could help turn the corner amid declining sales and fierce competition in China, but as with all things Tesla, commitments and timelines lead experts to be cautious , if not outright skeptical. Le said Tesla may be too late in the Asian market because China’s $11,000 electric cars have become more competitive. “Europe and the United States still hold out hope for an ‘affordable’ Tesla, but its significance to the Asian market will be more limited due to the presence of ‘Chinese EV companies,'” he said.

That doesn’t mean it’s not a big opportunity: Goldstein believes an affordable Tesla model could help the company increase deliveries to 5 million vehicles by 2030, especially in the U.S. and EU, where Tesla La can be manufactured locally to avoid tariffs. While the Southeast Asian market is too large to completely ignore, this is not likely to be a major development for Southeast Asian consumers.

“ASEAN and South Asia are key markets for Tesla going forward, but Chinese EV makers are complicating their path to future global dominance,” Le said.

China’s electric vehicle sales account for 60% of global sales According to data from the International Energy Agency.

“The mystique of the Tesla brand has begun to emerge globally, in part because their best-selling products have been essentially unchanged for three to four years,” Le said.