With EVs, the “Detroit of Asia” aims to hedge automakers against China

There’s a lot going on at Tesla. Elon Musk’s company lays off employees as sharply weaker sales raise concerns among investors and industry analysts in an EV market that needs aggressive price reductions to stimulate demand This is tied to the decision to reduce spending on EV superchargers. Communication network. Tesla stock has fallen more than 30% this year.

Then there’s the whole trade war with China, in which Mr. Musk is in a unique position.

The US government is determined to limit China’s ability to “flood” the US market with renewable energy products, including models as low as $10,000, including the rapidly increasing supply of EVs. But Tesla has large operations in China, similar to Apple in some ways, making it an important market for both the company’s manufacturing and consumer demand. All of this puts Musk under enormous pressure to explore new frontiers of growth while navigating the challenges of increased competition, supply chain disruptions and rising raw material costs.

EV giants appear to be paying more attention to Asia’s vast potential beyond China, one of the hottest EV markets. In addition to its well-known interest in India, Tesla is also keeping a close eye on Thailand, the EV capital of Southeast Asia, where green mobility is rapidly gaining momentum.

Thai government officials have been touting talks with Tesla as Mr. Musk scouts sites for his next giant factory. Thailand has been part of the discussion for several years, as has India, and Mr. Musk was scheduled to visit recently, but he was scheduled to cancel the visit due to troubled relations with India. Tesla needed to be dealt with, and soon after that he visited China. The Southeast Asia region has the potential to provide Tesla with a substantial customer base to diversify away from over-reliance on Europe and the US, and apart from its existing operations in China and interests in India. There is no doubt that it has the potential to provide a clear alternative for the production of

Tesla did not respond to a request for comment.

“Asia’s Detroit”

Thailand has long been known as the “Detroit of Asia” because of its skilled workforce and success in attracting many international auto companies, which could help Tesla reduce its dependence on China. Tesla has a manufacturing base in Thailand and could serve Asian and other markets as well, replicating China’s rapid growth trajectory.

“Thailand has the potential to raise auto parts costs to China’s levels and enable lower-cost production,” said Craig Irwin, a senior research analyst at Roth Capital who covers Tesla. “Thailand is an option as it will continue to have access to the supply chain that supports the Shanghai facility but will not be subject to regulation by the Chinese government.”

This comes at a critical juncture for new demand, with the U.S. government significantly reducing EV tax credits available to consumers based on Chinese sourcing of manufacturing processes, but some critics believe the rules are not going far enough. It is pointed out that it is not strict. The Thai government is offering its own subsidies and tax incentives to encourage the adoption of EVs and attract foreign manufacturers.

“The political implications of exporting cars from Thailand to markets like the U.S. and the EU versus China are low,” said Seth Goldstein, a Morningstar equity strategist who covers Tesla.

Cars made in Thailand may not qualify for subsidies under the Inflation Control Act, but they are unlikely to face the same high tariffs imposed on Chinese-made cars in the United States, Goldstein said. He said many in the market were concerned that tariffs could be raised further. Donald Trump will be re-elected. Trump doesn’t even need to be re-elected because the Biden administration could impose 100% tariffs on Chinese EVs next week, according to a report on Friday.

It could also sell into a much larger market where U.S. tariffs would not be an issue at all. 650 million people in Southeast Asia have direct access to one of ASEAN’s largest auto markets, said Tu Le, founder of Beijing-based consultancy Sino. Mr. Auto Insights has worked from Detroit to China.

A more affordable Tesla

The supply chain strategy known as “China Plus One” is gaining momentum across industries amid geopolitical uncertainty and ongoing trade tensions between the United States and China. Even before the latest reports, President Biden was in many ways as hawkish on China as President Trump.

But affordable mass-market cars, which have so far eluded Tesla, will be the key to achieving significant sales in the region. “Model 3 and Model Y will still be too expensive for Tesla’s mass-produced products for these markets,” Lee said.

Tesla said in its recent earnings report that it is accelerating the launch of “new vehicles, including more affordable models,” and said it plans to launch a long-awaited $25,000 model by 2025. But the company also revealed that much of that will be done in current manufacturing. Before investing in new equipment,

In particular, Tesla launched the Model 3 and Model Y in Thailand in 2022, but has struggled against the onslaught of Chinese rivals such as BYD and Xiaomi, which offer a wide range of products from high-end to affordable. In fact, BYD will manufacture more than 3 million EVs in 2023, outpacing Tesla’s production for the second year in a row.

According to a recent report in Nikkei Asia, Thailand’s auto market joins the global recession, with Tesla’s The price of the Model 3 sedan has been reduced by 9% to 18%. Domestic production. Chinese EV makers including BYD have spent $1.44 billion on new production facilities in Southeast Asia’s second-largest economy.

“The price war is not going to end anytime soon,” Naredom Mujarinkur of Krungsri Securities told Nikkei Asia.

Recent Tesla Thailand We have developed a special financing program. To drive more sales.

Thailand is one of the world’s leading car manufacturers

Stephen Dyer, a former Ford executive and managing director at the Shanghai-based consulting firm AlixPartners, said Thailand’s existing automotive infrastructure, workforce and policies all make it possible for Thailand to become a major EV manufacturer. He said it has potential. But just as importantly, automakers see ample supply of local production in the consumer market. He said the rule of thumb in the auto industry is to “make it where you sell it,” which reduces shipping and customs costs and reduces currency risk.

Southeast Asia has a growing automotive market, with Thailand already the region’s largest car producer and exporter, with Toyota, Honda, Nissan, Ford, GM and Mercedes-Benz already hosting Thailand as their regional headquarters.

The country aims to become one of the world’s leading manufacturing powers through tax incentives and import tariffs, but it also has a long way to go to convert its current car production to electric vehicles. Thailand aims to convert 30% of its annual car production to EVs by 2030, equivalent to 725,000 cars and 675,000 motorcycles. Motorcycles are also a very important market, both from a manufacturing and consumer perspective.

Lee said the country has an advantage but still needs to play its cards right. “All ASEAN countries are looking to adopt EV manufacturers in their countries, but I would say Thailand and Vietnam are two countries that have an advantage over others due to their automotive experience,” he said.

Major legacy automakers such as Honda and Toyota are investing $4.1 billion in EV production in Thailand.

According to reports, the Thai government has offered foreign EV manufacturers up to a 40% reduction in import duties for fully assembled EVs imported in 2024 and 2025, provided they start production in Thailand by 2027. The company is said to be offering significant incentives, including a 2% reduction in the excise tax rate. Narit Terdostelasukdee, Secretary General, Thailand Investment Board.

Dyer said that if U.S. automakers succeed in far-flung markets with EVs, they will “bring more consumers familiar with different U.S. brands, and in many cases will be able to compete with other compatriots in those markets.” “This will help build momentum for manufacturers.”

The discovery of nearly 15 million tonnes of lithium deposits in Thailand, now key to battery chemistry, could give the country an even greater advantage over Asian rivals in attracting EV makers.

Mr. Goldstein said, “If Thailand becomes a market where EVs and their parts can be produced cheaply and exported freely, many major EV manufacturers, including Tesla, will consider expanding their business in the country.” .

Musk’s EV risks in Asia

There are risks for Tesla within Asia. Some experts have expressed concern that China could cut off Tesla’s access to low-cost parts if it competes effectively with Chinese rivals in China and the broader Asian market. ing. Thailand’s rise as a manufacturing hub could help soften this blow.

Additionally, “If EVs produced in Thailand are eligible for subsidies under the Anti-Inflation Act, there will be a strong incentive to produce vehicles and batteries in Thailand for export,” Goldstein said. Ta.

For now, U.S. government rules are buying U.S. companies “time to design, develop and manufacture more competitive EVs at a fair price,” Lee said.

But without cheaper entry-level models, U.S. EV makers like Tesla could hold back Chinese rivals from ramping up production and rolling out models across a wider range of price points.

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

Tesla’s expected $25,000 entry-level car, the Model 2, may help turn the tide amid declining sales and fierce competition from China, but as with all things Tesla, promises Experts remain cautious, if not outright skeptical, given the current situation and timeline. Li says Tesla may already be too late in the Asian market, where $11,000 Chinese EVs are already becoming more competitive. He said, “Europe and the US still have expectations for an ‘affordable’ Tesla, but its importance to the Asian market will be further limited due to ‘China EV Corp.'” .

But that doesn’t mean it’s not a great opportunity. Goldstein believes that affordable Tesla models could help the company grow to 5 million deliveries in 2030, especially in the U.S. and EU, where local production could avoid tariffs. There is. This is not something that is likely to have a significant impact on Southeast Asian consumers, even though the market is too large to be completely ignored.

“Asean and South Asia are important markets for Tesla’s future, but the Chinese EV maker is greatly complicating its path to future global domination,” Le said.

According to the International Energy Agency, Chinese EVs already account for 60% of global sales.

“The mystique of the Tesla brand is starting to permeate around the world, in part because the company’s best-selling products have remained largely unchanged for three to four years,” Lee said.