Electric vehicle market faces risk from non-performing loans

The rising popularity of electric vehicles (EVs) is facing a new challenge as concerns over non-performing loans (NPLs) seep into the EV market. The rapid surge in EV sales has led to worries about whether buyers, many of whom are considered new-generation people with weaker financial standing, will be able to meet their instalments.

This could lead to an increase in seized vehicles if payments are not managed effectively, especially in the current economic climate, according to Pinyo Tanawatcharaporn, the former president of the Association of Used Cars.

“The association expects to see EV seizures increase in the second half of this year.”

Pinyo further explained that if these seized EVs were to be sold in the second-hand car market, it’s unlikely that financial institutions would provide loan schemes for potential buyers of used EVs. The lack of confidence in granting loans in the second-hand EV market stems from the market’s expected small size and the continued fluctuation in new EV prices, making it difficult for banks to calculate the value of used EVs, said Pinyo.

“Usually, the prices of used cars are 30-40% lower than the prices of new ones.”

Pinyo added that in the second-hand car market, cars powered by internal combustion engines remain more favoured than EVs.

Highlighting the financial caution that has seeped into the automotive industry, banks tightened their criteria for car loans last year to mitigate the risk of NPLs. This caution led to a decrease in car sales, particularly in the pickup segment. Household debt was estimated to be over 90% of GDP in 2023, reported Bangkok Post.

However, the government’s EV incentive package, dubbed EV3.5, is set to boost the growth of the EV industry. This scheme, which covers subsidies, reduced import duties for fully assembled cars, and an excise tax cut, is expected to stimulate EV sales.

Companies participating in EV3.5 from 2024-27 are required to start domestic EV production from 2026. Despite the financial hurdles, the growth in the EV industry seems likely to continue.

In related news, Chinese EV dominates the Thai market with Atto 3 SUVs, capturing 31% share in the EV market in less than a year of production.