From CARS to EVs: How the Philippines is rewriting its automotive industrial policy

Manila is finally beginning to reshape its automotive policy for the 21st century.

The government's decisions on local car-production incentives in 2026 signal a broader shift in Philippine industrial strategy — away from simply protecting conventional vehicle assembly and toward attracting the next generation of automotive manufacturing, particularly hybrids, electric vehicles (EVs) and their supply chains.

For years, Manila tried to revive local vehicle manufacturing through programs such as the Comprehensive Automotive Resurgence Strategy (CARS) and the Revitalising the Automotive Industry for Competitiveness Enhancement (RACE).

Then came a budget veto. And, within months, a policy pivot.

The government is now moving away from simply subsidising conventional (internal combustion engine, ICE) vehicle production and toward electric and hybrid vehicle manufacturing.

That shift could prove more consequential than the fate of either CARS or RACE.

When President Ferdinand Marcos Jr. signed the ₱6.793-trillion 2026 national budget in January, he vetoed ₱92.5 billion in "unprogrammed appropriations".

Among the items removed was ₱4.32 billion in fiscal support for CARS.

The veto immediately alarmed automotive manufacturers and parts suppliers.

The Philippine Parts Makers Association called the CARS and RACE programs a “critical lifeline” for an industry struggling to rebuild its manufacturing base and remain competitive within ASEAN.

But the veto did not mean the government had decided to abandon the automotive industry altogether.

On January 5, Board of Investments and DTI officials said they were working with the Department of Budget and Management to find a mechanism to settle CARS "obligations", particularly validated claims tied to manufacturers' performance commitments.

At that point, the government had released ₱1.44 billion of ₱5.43 billion allocated under the program.

By January 19, the DBM, DTI and Department of Finance said a "funding route" had been identified.

The government stressed that obligations backed by issued and validated Tax Payment Certificates would be honoured.

In other words: CARS had not been "killed". Its original 2026 funding mechanism had been vetoed, but the government found another way to meet its existing obligations.

That distinction matters.

Launched in 2015, CARS was designed to rebuild the Philippines as a vehicle manufacturing centre.

It offered performance-based fiscal incentives to participating automakers that committed to large-scale domestic production.

The programme targeted participating companies that would manufacture at least 200,000 units of an enrolled model (Toyota Vios and Mitsubishi Mirage) over a specified period, with incentives linked to production and investment commitments.

The strategy was straightforward: Give automakers incentives to manufacture vehicles in the Philippines, and in return build local production, parts manufacturing, jobs and supply chains.

It was an industrial-policy bargain. But it was built largely around the automotive industry as it existed when the program was designed.

That industry is changing rapidly.

RACE was intended as another mechanism to improve the competitiveness of the domestic automotive industry.

The 2026 budget had earmarked ₱250 million in unprogrammed funds for RACE. But unlike CARS, RACE did not survive the government's subsequent policy rethink.

By April, Trade and Industry officials said bluntly: “For now, wala nang (no more) RACE.”

The government was moving toward an incentive framework centred on electric vehicles (EVs) and the broader EV supply chain.

That is the real policy story: Not simply "CARS versus RACE", but ICE-era industrial policy versus the electrification era.

On April 6, Mitsubishi Motors Corp. announced that it intended to participate in the Philippine government's Electric Vehicle Incentive Strategy (EVIS).

Subject to approval of its application, Mitsubishi Motors Philippines Corp. announced plans to begin producing a new hybrid electric vehicle at its existing Santa Rosa, Laguna, plant around mid-2028.

The company also said it plans additional investment to upgrade its facilities for electrification, expand the local supply chain and create employment.

Mitsubishi's subsequent plan to build a hybrid model locally validates of the policy pivot, marked by a shift toward EV-focused incentives.

The Department of Finance described the move as potentially transformative, saying the Philippines could eventually become an exporter of hybrid vehicles.

That is a striking change in direction. Instead of merely asking: How do we keep producing conventional cars in the Philippines?

The government is increasingly asking: How do we get the next generation of vehicles manufactured here?

The Mitsubishi announcement matters because it demonstrates what a new incentive architecture can potentially accomplish.

The company already has an established Philippine manufacturing base.

Its Santa Rosa facility has a production capacity of about 50,000 vehicles a year and currently produces models including the Mirage, Mirage G4 and L300.

Now, the company is considering adding hybrid production. That means the transition does not necessarily require abandoning the existing industrial base.

It can mean upgrading it: Factories can be retooled, workers can be retrained, parts suppliers can be brought into new supply chains.

More importantly, local engineers can acquire new competencies, battery, electronics and power-management technologies can enter the domestic manufacturing ecosystem.

And potentially, Philippine-made vehicles can eventually be exported.

The global automobile industry is moving toward electrification. That does not mean internal-combustion engines disappear overnight.

It means the strategic value of being merely an assembly location for conventional gasoline and diesel vehicles is declining, and fast.

The higher-value opportunities are increasingly found in:

If the Philippines continues subsidising yesterday's technology indefinitely, it risks spending public money simply to preserve an industrial structure that is losing global competitiveness.

The better strategy is to use incentives to move the industry up the technology ladder.

It would also be unfair to dismiss CARS as simply a subsidy program for Japanese automakers.

The programme was an attempt to solve a genuine Philippine industrial problem: How do we get global automakers to manufacture at scale in a country surrounded by much larger automotive production centers such as Thailand and Indonesia?

The Philippines has struggled to achieve the manufacturing volumes needed to build deep automotive supply chains.

CARS attempted to change that equation by linking government support to production and investment commitments.

The problem is that industrial policy has to evolve. A program designed in 2015 cannot automatically be expected to provide the optimal framework for an automotive industry entering the late 2020s.

This should be the test for every peso of government support.

Not: “Does Toyota or Mitsubishi receive an incentive?”

But: “What does the Philippines receive in return?”

The answer should include measurable commitments on:

If an automaker receives ₱1 billion in government support but generates several billions in investment, thousands of jobs, a stronger supplier ecosystem and export capacity, the economics can be compelling.

If incentives simply protect low-value assembly without expanding Philippine industrial capability, the justification becomes much weaker.

That should be the standard.

The government's emerging EV incentive framework offers an opportunity to rewrite the bargain.

Instead of supporting manufacturing simply because it happens in the Philippines, Manila can make incentives conditional on where the industry is going.

That means attracting:

The Philippines already has a significant electronics and semiconductor base.

The strategic opportunity is to connect those capabilities to the automotive transition.

That is potentially far more valuable than simply keeping conventional vehicle assembly alive.

The geopolitical shock of 2026 has provided another reminder of the vulnerability created by oil dependence.

The more petroleum the Philippines imports, the more exposed the economy is to wars, shipping disruptions, sanctions and global oil-price spikes.

Hybrids are not zero-emission vehicles.

But they can reduce fuel consumption while the country builds toward broader electrification.

And locally manufactured hybrids could simultaneously create an industrial opportunity and reduce some petroleum dependence.

That is precisely why the Department of Finance has described Mitsubishi's proposed hybrid production as part of the country's transition toward cleaner transport and higher-value manufacturing.

The CARS episode therefore should not be read simply as: Marcos vetoed ₱4.32 billion and abandoned the auto industry.

That is incomplete.

The sequence was:

January: ₱4.32 billion in CARS fiscal support was vetoed as part of the ₱92.5-billion reduction in unprogrammed appropriations.

January: Government agencies said CARS obligations would still be honored and identified a funding mechanism.

April: Government officials said RACE was no longer proceeding and that automotive incentives were shifting toward EVs.

April: Mitsubishi announced plans to seek EVIS incentives and potentially begin local hybrid production by 2028.

That is not the disappearance of industrial policy. It is a change in industrial policy.

And it may be the more important development.

The Philippines has spent decades trying to persuade global manufacturers to produce here.

The next challenge is harder: Persuade them to manufacture the technologies that will matter 10, 20 and 30 years from now.

If EVIS can turn the Philippines from an assembly destination into a regional base for hybrids, EVs, batteries, electronics and automotive components, then the shift away from RACE — and the restructuring of CARS — could ultimately be less about abandoning the automotive industry than about forcing it to evolve.

The ₱4.32-billion question was never simply: “Should the government keep subsidising cars?”

It should be: “What kind of automotive industry do we want Filipinos to own, work in and compete with globally?”

That is the debate worth having.