Toyota to source Chinese parts in Thailand: A turning point for Japanese companies' supply chains

“Compared with Japanese-funded enterprises, the costs of Chinese parts manufacturers are 20% - 30% lower. Some Japanese enterprises may face the dilemma of exiting or scaling down their businesses.” This will be a major turning point for the Japanese automotive supply chain in Southeast Asia, which is dominated by Japanese enterprises...

Toyota will source parts from Chinese manufacturers in Thailand, its largest production base in Southeast Asia. It will use Chinese parts in the new electric vehicles to be produced locally starting in 2028. Chinese manufacturers are becoming increasingly powerful with the popularization of pure electric vehicles (EVs). Toyota aims to enhance its cost competitiveness by using parts from Chinese manufacturers. This will be a major turning point for the Japanese automotive supply chain in Southeast Asia, which is dominated by Japanese enterprises.

For a long time, Japanese cars have accounted for 90% of the new car sales in Thailand. Currently, Chinese enterprises led by BYD are launching price-cutting offensives through EVs and plug-in hybrid vehicles (PHVs), beginning to undermine the strong position of Japanese car manufacturers. From January to May 2025, the market share of Japanese cars dropped to 71%, while that of Chinese cars rose to 16%.

In addition to competing with Chinese car manufacturers, Toyota also needs to deal with external environmental changes such as US tariff issues and rising global geopolitical risks. There is an urgent need to improve procurement efficiency in overseas regions such as Thailand.

According to multiple sources, Toyota has started officially sourcing parts produced by Chinese enterprises in Thailand. Toyota introduced the Chinese interior material manufacturer "Wuhu Yuefei New Sound-Absorbing Materials" to Summit Group, a large local parts enterprise and one of its major trading partners. The two enterprises established a joint venture in Thailand in January 2025 and plan to set up a factory locally in the future to supply parts for Toyota.

This is considered the first time that a large Japanese car manufacturer has taken the lead in promoting the entry of a large Chinese parts enterprise into the local market.

Toyota at the international auto show in Thailand in late March (Photo by Ogihara Yuki)

Toyota is also calling on Japanese parts manufacturers to use products from Chinese enterprises, including Zhejiang Kaihua Mould, which produces molds, and Kingfa Science & Technology, which produces resin materials. The policy is to use more price-competitive Chinese parts, and another intention of this move is considered to be to encourage Japanese enterprises to reduce costs.

Most of the Chinese parts promoted by Toyota have been used in cars produced by Toyota in China. In March, Toyota launched the self-developed low-cost EV "bZ3X" for the Chinese market, and it has been selling well.

An executive of a large parts enterprise under Toyota said: "In Southeast Asia, we also plan to develop electric vehicles with lower costs by making the most of parts from Chinese manufacturers, just like the bZ3X."

Toyota plans to launch new models in Southeast Asia as early as around 2028. At that time, it will use the "Multi-Pathway Platform", a vehicle body suitable for the driving devices of various electric vehicles such as EVs and hybrid vehicles (HVs). According to a Toyota source, the vehicle will use parts from Chinese manufacturers, "with the goal of reducing costs by 30% compared to the past."

Toyota's public relations officer did not comment on the interview by the Nikkei.

As Chinese car manufacturers such as BYD are becoming more influential in the EV field, Chinese parts manufacturers are also gradually strengthening their capabilities.

Data from the research firm MarkLines shows that there are about 3,100 auto parts manufacturers in Thailand. Among them, about 1,400 are Japanese-funded. Although there are only about 190 Chinese enterprises, the number has increased fourfold compared to the end of 2017.

The head of a local parts manufacturer pointed out: "Compared with Japanese-funded enterprises, the costs of Chinese parts manufacturers are 20% - 30% lower. Some Japanese enterprises may face the dilemma of exiting or scaling down their businesses."

Since the 1960s, Japanese car manufacturers have started to fully enter Thailand and establish supply chains. If Toyota, the largest car manufacturer, expands the use of Chinese parts locally, it will have an impact on the strategies of other Japanese enterprises in Southeast Asia.

The supply chain of Japanese cars in Southeast Asia is supported by an industrial pyramid formed by Japanese parts manufacturers led by Toyota-related companies such as Denso. Data from the research firm MarkLines shows that there are about 2,770 Japanese auto parts manufacturers that have entered Southeast Asia (as of August 1). Thailand accounts for 50% of them. The number of Japanese parts manufacturers that have entered the Chinese market, the main market outside Southeast Asia, is 2,090, and the number of Japanese-funded parts manufacturers that have entered North America is 1,630, both less than in Southeast Asia.

Although the annual new car sales in Southeast Asia are less than 3.5 million, in countries such as Indonesia and Thailand, Japanese cars have continuously accounted for nearly 90% of the market share and have not been under pressure from price competition. Parts enterprises have been producing at a lower wage level than in other regions and have always been regarded as a stable market where profits can be obtained.

Since the 2020s, large Chinese car manufacturers such as BYD have entered the Southeast Asian market. Under the free trade agreement between China and ASEAN, low-tariff auto parts have flowed in, and large Chinese car enterprises have also started local production. The situation where Chinese cars with price competitiveness are seizing the market share of Japanese cars has intensified. The trend of Japanese car manufacturers shifting their procurement focus from Japanese enterprises in the past to parts enterprises in other regions may expand.

This article is from the WeChat public account "Nikkei Chinese Net" (ID: rijingzhongwenwang), author: Akama Kensai. It is published by 36Kr with authorization.