VEHICLE production in the Philippines could drop by 8.7 percent this year on the back of weaker domestic demand, rising production costs and a dependence on imported components, a Fitch unit said.
In a report, BMI estimated that the country would produce 127,453 units, down from 139,606 in 2025. In particular, it said that passenger vehicle output may decrease by 9.3 percent to 58,157 units while commercial vehicles could drop 8.2 percent to 69,296 units.
It noted that the United States-Iran war had made production more challenging as increased fuel and energy prices had raised operational and logistics costs while weaker consumer confidence also weighed on demand.
A weakened peso has added to the pressure as assembly operations in the country rely on imported raw materials and components.
Vehicle manufacturers may have a hard time passing these costs to consumers, BMI added, due to high borrowing costs and weaker purchasing power that are weighing on vehicle affordability.
BMI said the projected production decline reflects its forecast of an identical drop in domestic vehicle sales for the year. While exports could lessen this, it noted that the Philippines lacked the production scale and established regional supplier networks found in larger Association of Southeast Asian Nations manufacturing hubs.
Still, the Philippine government was said to be continuing to expand domestic manufacturing via reforms such as the Create More Act, which is aimed at enhancing the investment climate through both fiscal and non-fiscal incentives, and efforts to negotiate tariff and trade agreements that could lower the price of import inputs and improve export access.
It also cited other Philippine structural advantages such as competitive labor costs, a large domestic market and its strategic location in Asia.
However, BMI said these advantages should be complemented by stronger local supplier networks, reliable transportation and energy infrastructure, and a long-term incentive framework to allow the Philippines to become a major automotive manufacturing hub.
“Without these improvements, the country may struggle to attract larger manufacturing commitments from global OEMs (original equipment manufacturers),” it said.
BMI stressed that policy uncertainty remained a major risk, recalling vetoed funding for the Comprehensive Automotive Resurgence Strategy (CARS) and the Revitalizing the Automotive Industry for Competitiveness Enhancement (RACE) programs early this year.
While funding was later reinstated, it said this had raised questions about the sustainability of support for automotive manufacturing.
Long-term policy visibility is needed because decisions about new models, tooling and assembly capacity involve significant upfront costs and long planning periods, BMI said.
Moving forward, it expects automotive manufacturing to rebound by 8.6 percent to 138,452 units in 2027, reach 150,312 in 2028, 163,101 in 2029 and 176,898 units in 2030 for an average annual growth of 8.5 percent.
It expects output to reach 233,103 units in 2035, a significant increase from 2026 projections but still lower than production in neighboring Thailand and Indonesia.
Rather than competing with the biggest Asean manufacturing hubs in all aspects of automotive production, BMI said the country could choose to focus on select vehicle and component segments.
Local production of hybrid electric vehicles (HEVs) will expand manufacturing and support skills and supplier capability development, BMI said.
This will also bring local production and domestic demand into closer alignment, with HEVs currency in high demand due to their reduced fuel consumption without reliance on charging availability.
While a manufacturing company has already hinted at the possibility of exports, BMI said competitiveness here would depend on production costs, trade access, logistics efficiency, and the ability to source components locally.
Strong investment competition could come from Thailand and Indonesia and the Philippines will need consistent incentives, clear long-term policies and continued investments in infrastructure.
Luring a gigafactory will be necessary if the Philippines wants to become a more important EV manufacturing hub in the long term, the Fitch unit said.
“While mainland China will remain the dominant force in Asia’s battery manufacturing sector, neighboring markets such as Indonesia, Thailand, and Malaysia have already attracted investment across battery cell production and EV supply chains, whereas the Philippines is still seeking to establish a foothold in these segments,” BMI noted.
