When Chinese EV prices drop Consumer behavior has changed.
ttb analytics Looking at 5 megatrends affecting the automotive market, consumer behavior has changed since the entry of Chinese manufacturers into the electric vehicle (EV) market, causing the pricing standards for new cars in the market to tend to decrease from the original.
Since Japan moved its production base to Thailand, the Thai automotive industry has grown steadily over the past several decades, with two main periods of rapid growth: The first period in 2554-2555 Due to the economic stimulus measures through the first car policy, car sales during that period soared to 1.3-1.4 million cars per year and another During 2560-2562 This follows the easing of the first-car ownership conditions, which resulted in car sales reaching 1.1 million units per year, compared to 7.8 units the previous year.
However, despite the COVID-19 crisis and parts shortages stemming from global supply disruptions, the domestic automotive market has been relatively slow to recover. Car sales for the first five months of 2024 contracted by a staggering 23.8% year-on-year, and are projected to contract the most severely in 15 years.
By ttb analytics I think that Domestic car sales may not return to pre-COVID-19 levels in 2562 in the near term due to a long-term slowdown in demand due to
The five main structural problems are:
1. The domestic automobile market is saturated. The number of cars on the road nationwide is currently nearly 20 million, or 277 cars per 1,000 Thai people, which is quite high when compared to Vietnam's 50 cars, the Philippines' 38 cars, and Indonesia's 78 cars per 1,000 people. This, combined with the car usage behavior of Thai people, is quite long, averaging 12 years, compared to the average of major countries that use cars for about 6-8 years, makes the opportunity to buy a new car to rotate old cars quite low.
2. Consumer behavior has changed. Since the advent of Chinese manufacturers into the electric vehicle market, new car pricing standards have been declining, giving consumers more options than ever before. Some are postponing their car purchases until they find a price that suits their purchasing power. Furthermore, the attitudes of the new generation toward car purchases have shifted, with leasing instead of ownership, increasing flexibility in lifestyle and reducing subsequent expenses. This means that car purchases in this era may be lower than in the past.
3. The population structure is entering a full-fledged aging society. It is clearly seen from the recent slowdown in domestic sales of housing and automobiles, partly due to the Thai population structure being in a state of "Complete Aged Society" and is about to become “Super Aged Society” (The proportion of the population aged 65 years is more than 20% of the total population) in less than 10 years.
Contrary to the proportion of the target population with purchasing power for cars, the age group 25-49 years has been steadily decreasing from 40% of the total population in 2553 to 35.2% in 2566 and is expected to decrease to only 33.2% of the total population in 2573.
4. The Thai economy tends to grow more slowly. Although recent consumption indicators have shown strong growth, this is partly due to the recovery of the service sector, driven by tourism. Meanwhile, overall investment has remained low for a long time. The manufacturing and export sectors are facing increasingly severe structural problems.
This includes the increasing influx of cheap goods from China, which is impacting the country's competitiveness and is likely to slow down the Thai economy in the long term, ultimately undermining household income and purchasing power growth.
5. High household debt is increasing the constraints on lending. With Thailand's household debt currently at 91.3% of GDP, exceeding the appropriate level of 80% of GDP for consumption and higher than countries with similar per capita incomes, amidst efforts to address household debt sustainably and systematically, financial institutions are increasingly restricting their ability to extend loans to retail customers. This is reflected in the continuous contraction in hire-purchase loan growth of financial institutions over the past two consecutive quarters.
Although financial institutions' lending is expected to ease somewhat in line with the economic recovery and purchasing power, concerns about future asset (automobile) depreciation, deteriorating debt quality, loan contract terms and measures related to consumer protection are expected to continue to be strict in their consideration of hire-purchase loan contracts.
In addition to the tendency for domestic automobile demand to slow down in the long term, ttb analytics believes that the supply chain of the Thai automotive industry is also facing more severe structural changes in many dimensions.
The popularity of EVs is leading to five key megatrends that are changing the competitive landscape in the automotive industry and key supply chains, including:
Megatrend 1 Traditional automakers and secondary brands will face greater competition in the market, as EV prices are expected to decline significantly due to falling battery costs. Technological advancements to simplify manufacturing and assembly, as well as R&D to design fully integrated software and hardware systems from start to finish (in-house production), will provide EV manufacturers with greater flexibility in their pricing strategies than traditional automakers.
Meanwhile, many legacy automakers continue to outsource parts production and assembly, resulting in limited flexibility, high costs, and inability to adapt production lines to rapidly changing consumer behavior. This pressure has forced legacy manufacturers to lower their selling prices, further limiting their already low sales and potentially thinning margins.
Megatrend 2 Japanese manufacturers will continue to focus on developing the hybrid vehicle market, partly due to their slower adaptation compared to Chinese EV manufacturers. Japanese brands are expected to continue their commitment to research and development of hybrid-compatible vehicles, a core strength, to retain their existing customer base and serve new markets still accustomed to internal combustion engine (ICE) vehicles.
The Japanese manufacturer is currently developing a hybrid engine that can run on carbon-neutral fuels such as synthetic fuels and biofuels, which is expected to be launched by 2573.
Megatrend 3 Premium car manufacturers are increasingly focusing on software development. In fact, many traditional automakers are accelerating major business restructuring towards EVs to align with their goal of achieving net-zero greenhouse gas emissions.
In recent times, European automotive manufacturers have turned to connecting their supply chains with IT industry leaders (Hub and Spoke) to develop EVs that support more advanced technologies and software systems. This includes the development of advanced driving assistance technologies. This not only enhances brand value, but also provides an additional revenue stream through mechanisms that enable automatic over-the-air (OTA) updates of vehicle software or firmware.
It also allows manufacturers to use data on vehicle usage behavior and location to inform further development in other forms.
Megatrend 4 EV battery manufacturing technology will disrupt EV battery swapping technology, with battery cell manufacturers worldwide seeking ways to reduce production costs and improve charging efficiency.
As the global oversupply of lithium-ion reserves used to manufacture EV batteries remains relatively high, the current selling price of EV batteries has dropped by more than a third in just two years, and this trend is expected to continue. This has resulted in a decrease in the need for EV battery swapping services during peak hours.
While building battery swapping stations for EVs remains costly and relies heavily on research and development from the automakers, this is different from charging stations where outside players can join the supply chain.
Megatrend 5 EV car rental providers may not be getting their money's worth. While EV charging can cut costs by more than half (the cost of charging an EV is 0.5-1 baht per kilometer, compared to the fuel cost of an ICE car, which is around 2-3 baht per kilometer), it comes at the cost of higher hidden costs, such as tires, insurance, maintenance, and taxes. These costs are ultimately borne by the rental provider, particularly the risk associated with long-term fleet rentals.
This group of customers will have usage behaviors that are 4-5 times heavier than typical usage patterns, which may affect the performance of EV batteries after the warranty period. They also face obstacles in terms of expertise in in-house repair and maintenance, as well as the risk of loss from resale after the lease expires, which is more severe than for general EVs.
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