China is winning the ‘Sino-japanese car war’ in south-east Asia, offering EVS starting at just £11k

Sobering news for Tokyo as Thailand warns that Japan’s era of automobile domination is under threat

The Japanese have owned Thailand’s auto industry since the 1960s, turning the country into the world’s 10th largest carmaker and a launchpad for Toyota, Honda, and Isuzu exports across south-east Asia. Early last year, the Japanese still had 85pc of the Thai market; by late next year, they will struggle to keep 70pc. From there, it could become an unstoppable slide.

The Chinese have swept into the country with electric vehicles starting at £11,000 for Hozon Auto’s Neta V, the spearhead of what is already being dubbed the “Sino-japanese car war” by the Beijing press. The triumphant upstart BYD, fresh from toppling Tesla as world EV leader, will start producing its Dolphin and ATTO 3 models in March at a new plant near Bangkok, reaching an annual pace of 150,000 cars by year’s end.

Five Chinese carmakers have either begun building factories in the country or will start within months. “Thailand is a springboard for China’s overseas expansion, leveraging the entire market of south-east Asia,” said Chinese auto analyst Zhang Xiang.

Japan is a victim of its own past success. Asia fund managers say the country so dominates gasoline-electric hybrids, and makes so much money from them, that it wants to keep enjoying rents from its sunk costs.

Its long love affair with hydrogen has proved a costly distraction. The Japanese have also talked themselves into a collective view that a) EVS are not really green, and b) that there is too little electricity output and charging infrastructure to sustain a fast global rollout, so the shrewder choice is to stay above the fray.

Thailand is changing dance partner with an ice-cold calculation of its own national interest. “We are very grateful to Japanese companies for injecting so much capital into the Thai economy over the past 50 years, but when it comes to EV manufacturing, they have fallen behind and need to catch up,” said premier Srettha Thavisin.

He reassured officials in Tokyo last month that Thailand is not going to turn its back on the internal combustion engine (ICE) overnight. His country will continue to manufacture petrol cars for a while from existing plants. He might as well have rubbed salt in the wound.

His government is in reality forcing electrification with a carrot and stick policy. It is offering subsidies of £1,700-£3,400 for new EVS, but only for companies that commit to building EV plants on a very fast timetable. The Japanese are scrambling to catch up but it may be too late. “They don’t have a model that balances price and performance. The situation will remain critical until 2027,” said Thailand’s Nomura Research Institute.

Thailand’s embrace of the new Chinese order is a foretaste of what may be coming for carmakers across the G7 if they drop the ball on EVS. Europe, the US and Japan can try to shield their industries from competition behind tariffs or antidumping measures. Some argue that the West should give up on EVS altogether and go all-out on the combustion engine, in hopes of creating a split global market of rival technologies.

But if they do that they will be left with a shrinking world share as the fastest- growing regions of the global economy move on without them. The

Asean trade bloc is a litmus test. Every major country of this 650m-population zone is trying to elbow its way into EV’S future. Vietnam’s richest man, Pham Nhat Vuong, has launched a national EV start-up called Vinfast, aiming to undercut the Chinese model rather than import it. Last August, Malaysia’s government pushed through a merger of its two biggest conglomerates in the auto sector to create a national EV champion. Indonesia is rolling out the red carpet for both Tesla and China’s BYD. The race is on.

In Thailand, EV sales smashed forecasts in 2023, rising ninefold to 8.6pc of total car sales. A study by the Japanese trade body JETRO said that 90.1pc of these were Chinese imports. Just 0.4pc were Japanese. The top 10 were all Chinese except for Tesla’s Model Y and Model 3.

That surge in sales may be misleading. Enthusiastic early adopters can lead to front-loading followed by stagnation. Thailand is taking an economic gamble. The car industry in all forms makes up over 10pc of Thai GDP, a bigger share than in Germany. The Thai National Shippers Council estimates that the local value-added for EV production will be 34pc, compared to 53pc for ICE cars.

There is the cautionary tale of the notorious Chinese motorcycle flop in Vietnam. Chinese producers snatched the market from the Japanese with cut-throat pricing and predatory dumping, but the models were so shoddy that the Japanese fought their way back with higher quality.

That may happen with some of the over-leveraged adventurers in China’s EV industry but it would be unwise to bank on it with BYD or Great Wall Motor. Toyota’s EV chief Takero Kato said recently that he was “stunned” by China’s state of the art manufacturing in the auto sector on a visit in 2018. “I was struck by a sense of crisis. We’re in trouble,” he told the Toyota Times.

Bloomberg New Energy Finance says lithium-ion battery packs have fallen from $780 kwh a decade ago to a new low of $137 this year. They are on track to reach $80 by 2030.

At least one of the radical new technologies emerging from the world’s best research labs may succeed in tripling energy density (and halving battery costs) by the late 2020s, at which point the debate is over.

South-east Asia is hedging its bets. So is Saudi Arabia. It signed a $5.6bn deal with China’s Human Horizons in November to develop and manufacture EVS in the kingdom. Prince Mohammed bin Salman likes oil. He also likes to be on the winning side.