Why Chinese Automakers Do Not Build Factories in the Philippines

Written by | Wu Jing

Edited by | Huang Dalu

Designed by | Zhen Youmei

On July 10, 2026, on the eve of the tenth anniversary of the South China Sea Arbitration Ruling, China Daily released an AI-generated video: a monkey wearing traditional Filipino attire was thrown into the sea, operated by hands representing the United States and Japan, and sprayed with water cannons from a suspected Chinese Coast Guard ship.

The Philippine government characterized this as derogatory and racist expression; President Marcos summoned the Chinese ambassador; the Chinese Ministry of Foreign Affairs responded that the video does not represent the official stance, but reiterated non-recognition of the arbitration ruling.

Nineteen days later, on July 29, Marcos signed Executive Order No. 121, launching the Electric Vehicle Incentive Strategy (EVIS) with a total scale of 60 billion pesos (about 1 billion US dollars), aiming to transform the Philippines into a regional automotive manufacturing center.

On the list of investors this policy most hopes to attract, Chinese automakers appear exactly — In March this year, the Philippines' trade and economic institution in China held a Philippines-China business cooperation meeting, publicly inviting Chinese electric vehicle, power battery, and component companies to invest in the Philippines.

EVIS provides matching funds for corporate capital expenditures, covering R&D and worker training: Pure electric vehicles and parts up to 40% subsidy, hybrid, plug-in hybrid, fuel cell models up to 30%. Entry threshold: choose one, minimum capital 5 billion pesos (about 81 million US dollars), or electric vehicle annual capacity 10,000 units. Single model subsidy cap 1.5 billion pesos, each automaker can declare up to two models, issued as tax credit, deductible for corporate income tax, consumption tax, VAT, and import tariffs.

The Philippines hopes to use this money to convert electric vehicle consumption into local capacity. But as of now, no Chinese vehicle manufacturer has publicly announced participation in EVIS.

The first to respond was Mitsubishi Motors, which has produced vehicles in the Philippines for decades.

From CARS to EVIS

EVIS did not appear out of thin air. Its policy source can be traced back to the 2022 Electric Vehicle Industry Development Act (EVIDA) — In that year, the Philippines had already reduced import tariffs on complete electric vehicles and core parts to zero to stimulate consumption, after which an incentive framework for EV manufacturing was brewing for about four years, EO 121 is the implementation of this clue.

In contrast, there was a contraction in fuel vehicle era policies. In January this year, Marcos signed the 2026 national budget of 6.793 trillion pesos, simultaneously vetoing 92.5 billion pesos in unstarted reserve appropriation, including 4.32 billion pesos of fiscal support funds under the CARS plan. The Philippine Association of Parts Manufacturers stated that CARS and RACE are the 'lifeline' of local manufacturing; this veto made automakers and suppliers immediately nervous.

CARS landed in 2015, budget 27 billion pesos, aiming to rebuild the Philippines' status as a regional complete vehicle manufacturing center: Automakers promise filed models (Toyota Vios, Mitsubishi Mirage) to achieve at least 200,000 units of local mass production, can receive subsidies according to production capacity and investment promises. RACE is its follow-up, originally to further enhance local competitiveness.

The government quickly clarified: CARS was not abolished, only the 2026 disbursement channel was vetoed. On January 19, the Budget Management Department, Department of Trade and Industry, and Ministry of Finance jointly announced that all payable subsidy amounts with issued verification tax payment certificates will be paid as scheduled — Among the plan's 5.43 billion pesos total appropriation, 1.44 billion pesos had been allocated previously. RACE was announced by the Ministry of Trade and Industry in April not to proceed, but in July the government expressed consideration to restore the plan, to be implemented in parallel with EVIS, fate not yet finally decided.

The center of policy is clear: Old debts paid as usual, new resources directed to electrification. The Philippine Ministry of Finance's statement on this is, the national thinking has shifted from 'how to maintain fuel vehicle capacity' to 'how to keep the manufacturing link of the next generation new energy vehicle in the country'.

This shift has its inevitability. Global automotive electrification is the trend, the value of pure assembly fuel vehicle bases is shrinking, high-value-added opportunities concentrate on drive motors, power batteries, power semiconductors, in-vehicle software and chips, thermal management systems, hybrid technology, battery recycling, and other fields. Continuing to subsidize backward fuel vehicle capacity is just maintaining a structure that is losing competitiveness.

This doesn't mean CARS was wrong back then. It solved a real dilemma: With large production bases like Thailand, Indonesia nearby, how to enable automakers to achieve mass production scale in the Philippines? CARS broke the deadlock to some extent by binding capacity and investment promises with subsidies.

It's just that this scheme designed in 2015 cannot adapt to the electrification and intelligence wave sweeping the globe in recent years.

Why Chinese Automakers Will Not Build Factories

Chinese automakers are at the forefront of the global electrification and intelligence wave, but they basically will not accept invitations like the Philippines.

First is market scale. Philippines 2025 new car sales about 493,000 units, far smaller than Indonesia, Thailand's million-unit level markets, relying solely on domestic demand cannot support a large new energy vehicle factory.

Second is industrial foundation. Thailand has a complete complete vehicle, parts, and export system, Chinese automakers entering Thailand is expanding on the existing automotive ecosystem. Indonesia relies on nickel resources and battery material industry chain to attract CATL, BYD, etc. Although Philippines also has nickel mines, it has not yet formed a new energy material and parts industry chain of the same scale.

Third is import substitution. BYD, Geely, Chery, Great Wall, and SAIC and other Chinese brands have entered the Philippines, but mainly rely on complete vehicle import. Enterprises can supply directly from China, or set production in Thailand or Indonesia, export to the Philippines after satisfying ASEAN rules of origin. As long as the combined cost of these two plans is lower than local production, building factories in the Philippines is not the optimal choice.

Finally is China-Philippines relations. The video trouble at the beginning cannot directly explain why Chinese automakers did not go to the Philippines to build factories, and currently no enterprise publicly stated investment decisions were affected by the event. But automotive manufacturing has a long recovery cycle, assets are difficult to migrate, China-Philippines relations are still a risk that Chinese enterprises must consider additionally. Smart electric vehicles also involve maps, cameras, data storage and remote upgrades, easier to enter data compliance and security review scope than traditional fuel vehicles.

OCTA Research survey in July 2026 showed that 64% of Philippine adult respondents do not trust China, up 9 percentage points from the first quarter of that year. Philippine Statistics Authority data shows 2025 Chinese investment commitments accounted for 3.76% of all foreign investment commitments. These data cannot prove the South China Sea dispute stopped Chinese investment, but can indicate the Philippines has not yet become a priority layout for Chinese capital.

The Philippines also finds it hard to force enterprises to build factories by greatly raising tariffs. Toyota and Mitsubishi local factories combined annual capacity about 110,000 units, far below national demand. Before local capacity is established restricting imports, first may bring car price rise, consumer choice reduction, and market shrinkage.

60 billion pesos can help existing automakers like Mitsubishi upgrade production lines, but not enough to change the regional layout of Chinese automakers. Therefore, in the foreseeable future, the possibility of Chinese automakers building complete vehicle factories in the Philippines is very low.

Why Toyota, Mitsubishi Can Produce in the Philippines

Automotive Business Review believes the goal that EVIS truly likely to achieve is not to exchange for Chinese automakers building factories, but to help existing enterprises like Toyota, Mitsubishi complete electrification renovation, avoid the Philippines existing automotive manufacturing capacity continue to loss.

Toyota and Mitsubishi's manufacturing history in the Philippines both exceed half a century: Toyota traces back to 1962 Philippine enterprise Delta Motors assembling Toyota cars, current Toyota Philippines company established 1988, Bicutan factory started 1989, Santa Rosa factory opened 1997; Mitsubishi Philippines predecessor established 1963, production started 1964.

Their rooting is the product of specific historical conditions. After WWII Philippines long lacked foreign exchange, 1949 starting foreign exchange control forced automakers to import parts local assembly; 1973 phased automotive manufacturing plan (PCMP) further restricted complete vehicle import, mandatory increase localization rate.

Institutional signal is clear: To long term enter the Philippines market, must assemble locally, gradually localise. At that time ASEAN had no regional production network, Thailand also at beginning.

After 1990s control lifted, ASEAN tariffs dropped, Thailand, Indonesia developed larger scale industry clusters, automakers no longer need to set up factories in every country. Philippines factory scale small, supply chain incomplete, market not big enough, Ford, Honda, Nissan gradually withdrew from local production.

Toyota, Mitsubishi stayed, first sunk cost of factory, equipment, workers and suppliers, second enough large market share. What CARS plan did was actually stabilize these two's existing capacity.

This also explains why Mitsubishi is EVIS's first responder: Santa Rosa factory annual capacity about 50,000 units, produces Mirage, Mirage G4, L300 and other models, adding hybrid production lines need not push down rebuild, workers can be retrained, local suppliers can enter new energy supply chain.

For Mitsubishi, importing hybrid models is transforming existing production lines, not building a production system from scratch. This is the key why it was able to express participation intention before EVIS officially issued.