Law firm interviewed: Chandler MHM

Thailand has established itself as the most dynamic automotive market in Southeast Asia, particularly during a period of industrial transformation in the region. In response to cost and regulatory factors, manufacturers and automakers from China are realigning their supply chains, resulting in increased competition within the Thai market. And while the surge in Chinese electric vehicles in Thailand is creating new opportunities for legal services, lawyers need to adapt quickly to grab their share of the work.

Dubbed the “Detroit of Southeast Asia,” Thailand has gained a reputation as one of Southeast Asia’s fastest-growing markets for electric vehicles, especially as countries relocate supply chains for cost and regulatory considerations.

Historically, Thailand has been home to the manufacturing facilities of heavyweight auto brands, making it the largest vehicle manufacturing base in Southeast Asia. In particular, Japanese automakers such as Toyota Motor, Honda Motor and Isuzu Motor have long had a significant footprint in Thailand, the region’s auto export hub.

“These facilities are closely supported by different tiers of parts manufacturers and businesses connected with vehicle manufacture, including logistics and distribution, manpower and recruitment, and commodity sourcing,” notes Pranat Laohapairoj, partner at Thai law firm Chandler MHM.

Thailand’s already dominant auto assembly prowess has been bolstered even further by the ascendency of electric vehicles (EVs) as Southeast Asia pivots to sustainability and decarbonisation.  

In July, Thailand attracted Chinese EV champion BYD to set up its first Southeast Asia factory in ASEAN’s second-largest economy. The $490 million factory has just rolled out its first locally assembled model – BYD Dolphin - to the domestic Thai market, sweetening the launch even more with sizable discounts.

Pranat points out that the influx of Chinese EV manufacturing facilities coincides with a significant increase in sales of both imported and domestically manufactured EVs in Thailand, which is now the largest overseas market for Shenzhen-based BYD.

As a result, the rising dominance of Chinese EV makers in Thailand has encroached upon the market share of Japanese carmakers in the niche eco-car segment. The growing appetite of Thai consumers towards EVs against internal combustion engine (ICE) cars has also been translated to lagging sales of non-eco-friendly auto models.

In June, Suzuki Motor announced it will close its factory in Thailand by the end of 2025, a decision prompted by consistently sluggish sales and intensifying competition in the country despite painful price cuts. The Japanese carmakers will continue to sell electric and hybrid cars in Thailand but will steer its production focus in Asia to Indonesia, Japan and India, markets believed to be more promising.

Suzuki’s announcement came at the heels of Subaru’s own decision to shut down a plant in Thailand due to a “proactive business transformation.” In May, Tan Chong Subaru Automotive (Thailand), Subaru’s first dedicated assembly plant in Southeast Asia, said that it would halt the manufacturing of vehicles in Thailand by the end of this year after five consecutive years of losses.

“This rapid increase in EV sales, predominantly from Chinese brands or exports from China, has naturally resulted in a concerning decrease in sales for traditional competitors - namely, Japanese brands”, adds Pranat.  

ELECTRIC MOMENTUM

Lawyers note that the seismic shift from ICE or hybrid vehicles to EVs, especially the Chinese brands, could bring significant impact on Thailand’s legal industry. Firstly, divestment from existing joint ventures of automakers will present additional opportunities for regulatory, labour, and dealmaking work, keeping lawyers busy.

However, the scale-down in capacity of ICE and hybrid car manufacturers and their parts manufacturers, which has traditionally formed a significant part of the work for law firms in Thailand, now might be thinning those firms’ timesheets.

“The reduced presence or decreased production capacity may mean fewer opportunities for future commercial projects and conflict resolution, as well as natural tightening of the budgeting process, which can have a direct impact on law firms.”

On the other side of the coin, fresh demand is also arising for legal services from “emerging operators” in the market. Those include “consultation and work on corporate structures, Board of Investment promotions, distribution and consumer protection, labour relations, data protection, and trade competition,” says Pranat, while also noting a surge in business opportunities related to charging stations and electrification. 

Wading through the intricacies of cross-border operations, meanwhile, requires more than sound knowledge of the “letter of the law.”

“One obvious challenge for all law firms is the minor differences in cultural practices and ‘modus operandi’  - usual ways of working or doing things - between Japanese, European, and American manufacturers on the one hand, and Chinese manufacturers on the other,” says Pranat.

“If a law firm can internalise and manage these differences, it will undoubtedly receive opportunities from the new Chinese clients,” he adds.

PRICE WAR DISPUTES

To enlarge shares in Southeast Asia’s second-largest car market, automakers have been embroiled in a brutal price war. China-made EVs, in particular, have been wooing price-sensitive customers with unmatched affordability and their widespread network of service centres.

Pranat notes that the price rivalry, sometimes fraught with animosity, have not only created challenges for automakers but also for end-consumers.

“Several cases regarding consumer protection have already been lodged by end-users with the Consumer Protection Board, mainly regarding price wars between EV brands and the significant and rapid drop in prices,” says Pranat.

Some end-users alleged that they had lost 10 to 15 per cent of car value within just a few weeks due to these ongoing price wars, he adds.

The slew of dealership closures and brand switching by dealers could also give rise to disputes relating to anti-trust and trade competition. Contractual disagreements due to early closures or terminations are also matters to be considered, Pranat notes.

“Relatedly, different competitors have been engaging in unspoken conflicts regarding price drops, all of which fall under the purview of the predatory pricing regulation.  Some cases have already been scrutinised by the relevant authorities,” he adds.

As a result, Pranat believes this is a “once-in-a-decade” opportunity for law firms in Thailand resulting from the seismic shift within the auto manufacturing landscape, as well as shifting auto-consumer preference.

“The challenges are not easy to internalise and resolve, as they represent a once-in-a-decade shift in a large part of the modern economy and our lives. All law firms will be forced to adapt to and capitalise on these issues in some way,” says Pranat.