The escalating Israel-US war on Iran is denting Thai car exports to the Middle East, causing the Federation of Thai Industries (FTI) to downgrade the country's car manufacturing target for 2026.

Car exporters were initially relieved when Washington and Tehran signed a memorandum of understanding on June 17 that paved the way for peace, but days later both sides quickly accused each other of violating the interim ceasefire.

Severe clashes re-emerged, disrupting shipping via the Strait of Hormuz and affecting car exports.

The situation caused the FTI's Automotive Industry Club to reduce its car production target from 1.5 million vehicles, with 950,000 for export and 550,000 for domestic sales, to 1.45 million vehicles.

The club decreased the production target for export by 50,000 vehicles, though it maintained the production target for domestic sales.

"If the war does not stop, we may need to cut the target again," said Surapong Paisitpatanapong, adviser and spokesman for the club.

During the first half of this year, car exports fell by 8.32% year-on-year to 421,144 units.

In the Middle East alone, Thai car exports have plummeted by more than 38%, said Mr Surapong.

"There is still vehicle demand there, but our exports to that region are disrupted," he said.

Other factors causing the club to adjust the production target are the negative impacts of the US tariff policy, more sales of Chinese electric vehicles (EVs) in global markets, and a policy to control carbon dioxide emissions of new internal combustion engine (ICE) cars in some countries.

Domestically, car sales increased by 17.3% year-on-year to 58,724, driven by higher sales of battery EVs despite a drop in oil-fuelled car sales.

In the passenger car category, battery EV sales surged by 140% year-on-year to 22,275 units, compared with ICE car sales dipping by 33.7% to 8,114 units.

Domestic car sales during the first half of this year recorded the same trend, with total sales increasing thanks to more purchases of battery EVs.