By Chayut Setboonsarng and Thanadech Staporncharnchai

BANGKOK (Reuters) -Hyper-competition in China's electric vehicle sector is spilling over to its biggest market in Asia, Thailand, as smaller players struggle to compete with dominant BYD, putting ambitious local production plans at risk.

Neta, among the earliest Chinese EV brands to enter Thailand in 2022, is an example of a struggling automaker finding it difficult to meet the requirements of a demanding government incentive programme meant to boost Thai EV production.

Under the scheme, carmakers are exempt from import duties, but were obligated to match import volumes with domestic production in 2024. 

Citing slowing sales and tightening credit conditions, carmakers asked the government to adjust the scheme and the 2024 production shortfall was rolled over into this year. 

Neta has said that it cannot produce the required number of cars locally and the government has withheld some payments to the EV maker, said Excise Department official Panupong Sriket, who received a complaint filed last month by 18 Neta dealers in Thailand seeking to recover over 200 million baht ($6.17 million) of allegedly unpaid debt.

The complaint, a copy of which was reviewed by Reuters, also detailed missed payments by Neta related to promised support for building showrooms and after-sales service. 

"I stopped ordering more cars in September because I sensed something was wrong," said Neta dealership owner Saravut Khunpitiluck. "I'm currently suing them."

Neta's parent company, Zhejiang Hozon New Energy Automobile, entered bankruptcy proceedings in China last month, according to state media.

Neta and its Chinese parent did not respond to Reuters' requests for comment.

MARKET SHARE DECLINE

Neta's share of Thailand's EV market peaked at around 12% of EV sales in 2023 when the industry was growing, according to Counterpoint Research data, with BYD having a 49% share that year.

In Thailand, a regional auto production and export hub, Chinese brands dominate the EV market with a combined share of more than 70%.

The number of Chinese EV brands has doubled in the last year to 18, placing pressure on those that lack the reach of BYD, which has taken over from Tesla as the world's biggest EV maker.

In the first five months of this year, new registration of Neta cars - a proxy for sales - slumped 48.5% from the prior year and its share of EV registrations was down to 4%, according to government data.

"Neta's downturn in Thailand reflects the fragility of second-tier Chinese EV brands both at home and abroad," said Abhik Mukherjee, an automotive analyst at Counterpoint Research.  

"Intense price competition and the scale advantages of dominant players have made survival increasingly difficult for smaller companies, particularly in export markets, where margins are slim and robust after-sales support is essential."

In Thailand, Neta's biggest international market, it sells three models, with the cheapest Neta V-II Lite priced at 549,000 baht ($16,924) before discounts, compared to market leader BYD's entry-level Dolphin model that is priced at 569,900 baht.

Thailand's domestic auto market has become increasingly competitive amid a sluggish economy.

"Some Chinese brands have slashed prices by more than 20%," said Rujipun Assarut, assistant managing director of KResearch, a unit of Thai lender Kasikornbank.

"Pricing has become the main strategy to stimulate buying."

China's EV overcapacity and price war have pushed automakers to expand abroad, but markets like Thailand are now mirroring the same hyper-competitive pressures, exposing smaller firms to similar risks.

'NO CONFIDENCE'

Three years ago, Thailand unveiled an ambitious plan to transform its car industry, long dominated by Japanese majors like Toyota and Honda, to ensure at least 30% of its total auto production was EVs by 2030. 

The country, which exports about half of its auto output, has drawn more than $3 billion in investments from a clutch of Chinese EV makers, including Neta, who were partly lured to Southeast Asia's second-largest economy by the government incentive scheme.

"Neta's case should give the Thai policymakers pause," said Ben Kiatkwankul, partner at Bangkok-based government affairs advisory firm, Maverick Consulting Group.

Last December, after a sharp sales contraction, Thailand's Board of Investment gave EV makers an extension to the initial local production timeline to avoid oversupply and a worsening price war. 

Under the original scheme, local EV production in 2024 was required to match each vehicle imported between February 2022 to December 2023 or the automaker would incur hefty fines.

Car manufacturers avoided those fines with the extension carrying over unmet production into this year, but at a higher ratio of 1.5 times imports.

Thailand's Board of Investment did not respond to a Reuters request for comment.

Siamnat Panassorn, vice president of the Electric Vehicle Association of Thailand, said Neta's issues were company-specific and did not reflect flaws in Thai policies or the market.

But external shocks, including geopolitical tensions and the spectre of higher tariffs, have added to the pressure felt by the sector, he said.

For Thai Neta dealers like Chatdanai Komrutai, the crisis is deepening. The brand's car owners have taken to social media in droves to share maintenance issues and limited after-sales support and a consumer watchdog agency is inspecting some of those complaints. 

"Selling cars is difficult right now," Chatdanai said. "There's no confidence."

($1 = 32.4100 baht)

(Additional reporting by Panarat Thepgumpanat; Graphics by Pasit Kongkunakornkul; Editing by Devjyot Ghoshal and Jamie Freed)