Why the Philippines’ Car Industry Is Lagging Behind Its Neighbours — and What It Needs to Catch Up
The Philippine automotive industry has seen sales rebound and growth momentum in recent years, but the local manufacturing base continues to trail behind its Southeast Asian neighbours. In many ways, the country is riding the “retail boom” of vehicle sales—but missing out on the deeper value‑chain benefits of full manufacturing and export capability. Here’s a breakdown of what’s happening, why it matters, and what needs to change.
What’s happening: The gap between sales and production
In recent years, the Philippine auto industry has shown encouraging growth in vehicle sales—yet local production remains low, and much of the vehicle‑assembly value chain is weak compared to Thailand, Indonesia, and Malaysia.
Sales versus production gap
In the Philippines, the ratio of sales to local production used to be about 2:1 a decade ago; by 2022 it had grown to roughly 3.8:1, indicating sales growth far outpacing manufacturing.
In 2023 the Philippines assembled around 110,000 vehicles, up about 20% from the previous year, placing it among the faster‑growing ASEAN producers—but the absolute volume remains very small relative to major producers.
Despite that growth, the Philippines is still ranked fifth (or lower) in ASEAN by production volume; for example, in late 2024 it produced only about 10,500 units compared to Thailand’s 120,000 and Indonesia’s 100,000 for the same period.
Dependence on imports and weak local content
Local content in Philippine‑assembled vehicles is estimated at only 20–30%, whereas Indonesia in some cases achieves 40–80%.
The country remains heavily reliant on vehicle imports to meet demand, rather than building a large export or assembly base serving regional markets.
Historical structural disadvantages
The Philippine auto industry suffers from lack of economies of scale, high logistics and energy costs, a weak local component supply base, and competition from smuggled used vehicles—all factors that hinder competitiveness.
An excise tax on the Asian Utility Vehicle (AUV) category in the early 2000s demolished a segment that had up to 60% local content and had been a key contributor to local parts manufacturing.
In short: the Philippines is doing well at selling vehicles, but not yet doing well at manufacturing and exporting them. The result: fewer jobs and less value‑added for the economy compared with neighbours.
Why it matters: Implications for economy, jobs and competitiveness
Understanding why this matters helps explain why many analysts call this a structural underperformance, not simply a temporary slump.
Lost opportunity for value‑chain growth When countries build a strong auto‑manufacturing base, they gain more than just vehicle sales: they get a domestic supplier network, skilled manufacturing jobs, upstream R&D clusters, and export earnings. For example, Thailand’s automotive sector contributes over 12% of GDP and employs more than 850,000 workers. By contrast, the Philippines misses many of those benefits.
Trade balance and industrial policy With heavy import dependence, the Philippines is exposed to exchange‑rate risk, supply chain shocks, and reduced manufacturing spillovers. Developing a more competitive manufacturing base could help diversify exports, strengthen industrialisation, and create higher‑value jobs.
Regional competitiveness and EV shift As the ASEAN region pivots toward electric vehicles (EVs) and new mobility paradigms, countries with strong manufacturing ecosystems are better positioned to win investment and capture next‑generation automotive value. Indonesia already targets EV production; the Philippines has a nickel supply advantage (critical for batteries) but lacks scale. Failure to catch up risks the Philippines being sidelined in the regional auto manufacturing race.
Domestic jobs and supplier ecosystem The local parts manufacturing sector is shrinking. Industry associations attribute the decline to weak policy incentives and shrinking domestic manufactured vehicle volumes. That means fewer domestic jobs, fewer technology transfers, and weaker regional supply‑chain positioning.
Why the Philippines is lagging: Key structural challenges
1. Small domestic market and lack of scale
The domestic Philippine market is smaller than those of Thailand or Indonesia, so manufacturing plants cannot exploit the same economies of scale. Studies estimate a cost disadvantage of at least US$1,000 per car in the Philippines relative to Thailand.
2. Weak supplier ecosystem and parts industry
Local content is low compared to neighbours, and many auto parts makers have scaled back or shut down.
Logistics and energy costs remain high, raising the manufacturing cost base.
3. Tax and regulatory policy misalignment
The AUV excise tax example shows how policy decisions can inadvertently destroy a segment.
While the Philippines adheres strictly to WTO compliance, neighbouring countries have used more aggressive incentives such as tax holidays, import duty exemptions, and local‑content mandates to build their auto industries.
4. Import dependence and smuggling
Importing finished vehicles reduces the incentive to build local production.
A weak export orientation means the Philippine industry remains domestic‑demand driven, not positioned as a regional hub.
5. Infrastructure, investment climate and industrial policy
High electricity and logistics costs raise the manufacturing cost base compared to competitors.
Despite rising vehicle sales, the Philippines has not seen the same level of export or assembly investment as other ASEAN nations due to the absence of a unified long‑term automotive industrial strategy.
What it needs to catch up: A roadmap for change
Reversing the lag won’t happen overnight. But here are key strategic actions that could help the Philippines build a stronger automotive manufacturing ecosystem.
A. Strengthen local content and supplier development
Increasing the local content percentage is a proven way to build ecosystem depth. For example, raising local content from 20% to 40% could add about US$1 billion to industry output and create roughly 30,000 jobs. Actions:
Provide incentives to parts suppliers and vehicle assemblers conditional on local‑content thresholds.
Invest in supplier clusters near assembly hubs (e.g., Laguna, Cavite) to reduce logistics costs.
Support R&D and workforce skills development for automotive manufacturing and EV components.
B. Scale up production and aim for export orientation
For a viable manufacturing industry, scale matters beyond the domestic market. Export‑oriented plants attract larger investments and provide upward mobility. Actions:
Encourage OEMs to locate regional export hubs in the Philippines.
Build capacity for EVs and battery production, leveraging the Philippines’ abundant nickel reserves.
Set strategic target volumes and align incentives accordingly.
C. Align policy framework and incentives
Policy needs to balance WTO compliance with strategic flexibility. Neighbours have used targeted local‑content mandates and tax incentives to build their base. Some policy directions:
Review excise tax and incentive structures to ensure they support local manufacturing.
Provide tax and duty incentives for jointly invested assembly operations and parts manufacturing.
Ensure coordinated long‑term industrial policy with stable incentives.
D. Improve cost competitiveness and infrastructure
Manufacturing cost competitiveness hinges on inputs like energy, logistics, and infrastructure. Key steps:
Improve electricity reliability and cost for manufacturing zones.
Enhance port, road, and rail logistics connectivity for automotive clusters.
Foster industrial zones with full services dedicated to automotive manufacturing.
E. Foster transition to EVs and future mobility
The global automotive industry is shifting rapidly toward electrification, and the Philippines has opportunities:
Leverage nickel mineral reserves to attract battery manufacturing and EV production.
Provide incentives for EV assembly and component plants—position the Philippines as an EV supply chain hub for Southeast Asia.
Encourage fleet renewal and public transport modernisation programmes to drive demand for locally manufactured vehicles and components.
Regional context: How the Philippines compares
To understand the scale of the challenge, it helps to contrast with regional peers.
Thailand produces over 2 million vehicles annually at its peak and attracts major global OEMs via aggressive incentives and export strategy.
Indonesia has used local content requirements to develop its manufacturing base—some models achieve up to 80% localised parts.
The Philippines, by contrast, produced only about 10,500 units per month versus Thailand’s 120,000 and Indonesia’s 100,000.
Moreover, many OEMs such as Honda, Ford, and Nissan have ceased local assembly operations in the Philippines, citing weak demand and more competitive production abroad.
Thus, while Philippine sales are improving—with the country posting nearly 430,000 units sold in 2023, up over 20% year on year—the manufacturing base remains small and import‑oriented.
Looking ahead: Opportunities and next steps
The window of opportunity is open—here’s what to watch and how the Philippines might catch up:
Investment announcements: Monitor new assembly or component plant announcements, especially for EVs and batteries.
Industry policy updates: New government incentives (e.g., successor programmes to the CARS Program) will signal intent to boost manufacturing.
Supply chain localisation: Growth of parts suppliers in Laguna, Cavite, or Clark would strengthen the ecosystem.
Exports take off: A key inflection point would be exporting 100,000+ units annually rather than serving only domestic demand.
EV value chain emergence: Establishing a battery or EV manufacturing node will be strategic for long‑term growth.
If these factors align, the Philippines could move from being a “sales market” to a “manufacturing hub” within ASEAN. But it requires coordinated policy, investment, infrastructure, and scale.
