Introduction
The global automotive industry is undergoing a once-in-a-century transformation. Accelerated adoption of electric vehicles (EVs), the rise of Chinese manufacturers, and a reconfiguration of supply chains are reshaping the industry’s structure. In Southeast Asia, the long-standing dominance of Japanese automakers is being challenged, affecting not only OEMs but also parts suppliers, logistics providers, and IT firms. This report analyzes the broader industry shifts and their implications for Japanese companies, using the strategic pivot by Toyota toward Chinese parts procurement in Thailand as a case study.
Industry-Wide Shifts: EV Transition and the Rise of Chinese Automakers
The global auto industry is rapidly electrifying. In 2023, EVs accounted for 18% of new car sales—up from just 2% five years earlier. While China, Europe, and the U.S. dominate EV adoption (95% of global sales), China stands out as both the largest market and production hub. In 2023, China exported over 4 million vehicles, including 1.2 million EVs.
Chinese automakers are expanding globally, leveraging their strengths in EV and battery technologies. While Western countries have responded with tariffs and trade barriers, Southeast Asia remains receptive, offering Chinese firms a strategic entry point.
Geopolitical tensions and trade frictions are also prompting automakers to localize and diversify their supply chains. This shift affects not only OEMs but also tiered suppliers and raw material providers, triggering a wave of restructuring across the automotive value chain.
Southeast Asia’s Changing Landscape: Japan’s Stronghold Under Siege
Thailand has long been considered a stronghold for Japanese automakers. Since the 1960s, companies like Toyota, Honda, Nissan, and Isuzu have built robust supply chains with local parts manufacturers. Of the 3,100 parts suppliers in Thailand, around 1,400 are Japanese-affiliated.
However, the landscape is shifting. Japanese carmakers’ market share in Thailand has dropped to 71%, while Chinese brands have surged to 16%. Leading the charge is BYD, followed by AION, NETA, MG, and others, offering affordable EVs and plug-in hybrids tailored to urban consumers.
Chinese firms are also investing heavily in local production. BYD’s massive factory—20 times the size of Tokyo Dome—is set to become an export hub for ASEAN. Chinese engineers are training Thai staff, and partnerships with local universities and suppliers are accelerating supply chain integration. Industry insiders liken this to the early localization efforts of Japanese automakers.
Government policy is also favorable. Thailand offers EV import duty exemptions and purchase subsidies, contingent on local production. This has spurred Chinese firms to build factories, positioning Thailand as an EV manufacturing hub and eroding Japan’s competitive edge.
Meanwhile, Japanese firms are scaling back. Subaru has exited local production, Suzuki plans to close its Thai plant by end-2025, and Honda is consolidating its two Thai factories into one, halving production capacity. Declining sales and lost market share in small car segments have forced these moves.
Toyota’s Strategic Pivot: Embracing Chinese Parts in Thailand
In response to these shifts, Toyota is making a bold strategic move. According to Nikkei, Toyota will begin sourcing parts from Chinese suppliers for its Thai operations—its largest production base in Southeast Asia. This marks a departure from its traditional reliance on Japanese-affiliated suppliers.
Toyota facilitated a joint venture between Thailand’s Summit Group and China’s Wuhu Yuefei, a leading interior materials firm. The new factory will supply Toyota with interior components. This is the first known case of a Japanese OEM actively promoting Chinese supplier entry into Southeast Asia.
Toyota is also encouraging Japanese suppliers to adopt Chinese components, including molds from Zhejiang Kaihua and resins from Kingfa. The goal is to reduce procurement costs and introduce competitive pressure within its supply chain.
This strategy aligns with Toyota’s plan to launch a new multi-powertrain EV platform in Southeast Asia around 2028. By leveraging Chinese parts, Toyota aims to cut costs by 30%, replicating the success of its low-cost EV “bZ3X” in China, which retails for just ¥220,000 (CNY 110,000).
Toyota’s push for Chinese parts adoption is not only about cost—it’s also a signal to Japanese suppliers to evolve. While Japanese firms still dominate Thailand’s supplier base, Chinese-affiliated companies have quadrupled since 2017. Industry voices warn that Japanese suppliers unable to match Chinese cost-efficiency may face downsizing or exit.
Implications for Japanese Firms: Supply Chain, Keiretsu, and Competitive Pressure
Toyota’s shift has far-reaching implications for Japan’s auto industry. Other OEMs face similar pressures, and Toyota’s actions may serve as a bellwether.
Impact on Supply Chains and Keiretsu Structures
Japan’s auto industry has long relied on vertically integrated keiretsu systems, characterized by stable relationships and shared equity. However, the EV transition is disrupting this model. EVs require fewer parts and more software expertise, making it harder for OEMs to support all traditional suppliers.
Collaborations with external firms, including Chinese suppliers, are accelerating keiretsu restructuring. Japanese suppliers face risks of reduced orders and declining profitability. Experts warn that a 20–30% cost gap between Japanese and Chinese parts could collapse long-standing supply networks.
Some analysts suggest that only OEMs may survive in the long run, while lower-tier suppliers must pivot to other industries or face obsolescence.
On the upside, diversified sourcing helps mitigate geopolitical risks. Toyota’s strategy also reflects a desire to localize and stabilize supply chains across ASEAN and India. Japanese suppliers must adapt to this new reality by offering globally competitive value.
Effects on Logistics and IT Partners
Changes in the supply chain affect logistics and IT firms as well. EVs require new logistics protocols, especially for heavy and hazardous batteries. Logistics providers must develop capabilities in battery handling, recycling, and regional distribution.
IT firms also face new opportunities and challenges. With the rise of CASE (Connected, Autonomous, Shared, Electric), vehicles are becoming data platforms. Software and digital services are now integral to automotive value.
Toyota is investing in proprietary OS and connected services, while also collaborating with global tech firms like Huawei and Google. This trend will likely continue, opening doors for non-keiretsu tech firms and foreign suppliers. Conversely, traditional IT partners lacking software capabilities may lose relevance.
Competitive Landscape and Brand Perception
The rise of Chinese EVs threatens Japanese automakers’ market share and profitability in Southeast Asia—a key revenue region after the U.S. Chinese brands are gaining ground, while Japanese firms lag in pure EV offerings.
However, hybrid vehicles (HVs) remain popular in Southeast Asia, offering fuel efficiency and high resale value. Japanese brands still enjoy strong consumer trust, with perceptions of reliability and superior after-sales service.
Yet, the global push for carbon neutrality makes EV adoption inevitable. Japanese firms must catch up in EV development to remain competitive. Chinese brands are improving quality and service, narrowing the gap in consumer perception.
BYD, for example, is building extensive sales and service networks in Thailand and investing in charging infrastructure. Software updates and digital features are enhancing customer satisfaction, making brand differentiation more difficult.
Pros and Cons of Using Chinese Suppliers
Toyota’s strategy may seem radical, but other firms will likely face similar decisions. Below is a summary of the key advantages and risks:
| Advantages of Chinese Suppliers | Risks of Chinese Suppliers |
|---|---|
| Cost Efficiency: Chinese parts are 20–30% cheaper, enabling significant cost reductions. Toyota targets a 30% cut for its new EV platform. | Impact on Japanese Suppliers: Reduced orders and profitability may lead to exits or bankruptcies, weakening Japan’s industrial base. |
| Access to EV Technologies: Chinese firms excel in batteries and motors, offering scale and innovation. | Supply Dependence and Geopolitical Risk: Overreliance on China could expose firms to political tensions and export restrictions. |
| Adaptability to Emerging Markets: Chinese firms have experience in low-cost competition and can help tailor products to local needs. | Quality and Brand Concerns: While improving, Chinese products may still face skepticism in some markets. A major defect could damage brand trust. |
Strategic Recommendations for Japanese Companies
To maintain and enhance competitiveness, Japanese firms must consider the following:
1. Accelerate EV Strategy
Experts warn this may be the “last chance” for Japanese automakers in Southeast Asia. While hybrid technology remains strong, pure EV development has lagged. Firms must invest in EV and software R&D, leverage government incentives, and launch region-specific EVs with robust service networks.
2. Pursue Cost Competitiveness and Open Collaboration
The EV era favors agile, low-cost players. Japanese firms must embrace open partnerships, even outside traditional keiretsu. Nissan’s China-developed EV “N7” is a case in point, with plans to export to Southeast Asia and the Middle East. Strategic joint ventures and external capital should be considered.
3. Strengthen Supplier Competitiveness and Leverage Industrial Policy
Japanese suppliers must improve efficiency and shift toward high-value segments. This may involve product portfolio reviews, M&A, and diversification. Government support—through subsidies, tax incentives, and ecosystem-building—is essential to bolster competitiveness.
4. Tailor Market Strategies and Move Beyond Series-Based Thinking
EV and HV will coexist in Southeast Asia for now. Firms must deploy region-specific powertrain strategies. Toyota’s “multi-pathway” approach is a practical model. Long-term, firms must be ready to pivot fully to EVs and streamline operations, shedding unprofitable segments and embracing external partnerships.
5. Redefine Value Across the Value Chain
Japanese firms must evolve from product-centric to service-centric models. This includes software updates, charging services, and battery warranties. Suppliers and partners should also explore new services and cross-industry applications, building a collaborative ecosystem that enhances overall value.
Conclusion
Toyota’s adoption of Chinese suppliers in Thailand marks a pivotal moment in the automotive industry’s transformation. The sector is entering an era of intense competition, where legacy models no longer suffice. Yet, Japanese firms possess deep technological expertise and brand trust. The challenge is to adapt swiftly and collaborate openly.
At Syntax Partners, we support Japanese companies in navigating this transformation—from strategic planning and M&A advisory to overseas expansion consulting. Contact us to explore how we can help your business thrive in the EV era.
Sources:
- Nikkei: “Toyota to Source Chinese Parts in Thailand—Turning Point for Japanese Supply Chains” (August 2, 2025)
- NHK News: “Toyota’s Stronghold in Thailand Under Threat—Chinese EVs on the Rise” (July 31, 2024)