Automotive Industry

Thailand is the dominant automotive hub of South East Asia with a very robust logistics and supply chain backed with impressive production figures for both domestic and export markets. Thailand was the largest car manufacturer in the ASEAN Region and 11th in the world with 23 car assembly plants, 8 motorcycle plants, 386 tier-one auto parts makers, and 1700 tier-two and tier-three auto parts manufacturers. The automotive industry in Thailand employs over 850,000 people with automotive product exports worth a staggering 950 billion baht (during 2018) according to the Federation of Thai Industries (FTI).

The automotive sector is a major driver of the Thai economy contributing to about 10-12% of the GDP with a strong infrastructure and vast network of small and large, local and foreign companies encompassing the entire car-production supply chain. 

COVID 19 Pandemic Effect

Last year, there was a prediction from the Ministry of Industry expecting that 2.2 million cars will be manufactured in Thailand, comprising 1.1 million cars for domestic sales and another 1.1 million cars for export. Thailand is the eleventh largest car manufacturer in the world. It produced more than 2 million cars in 2019. Federation of Thai Industries however expects only about half of it to be manufactured during 2020 due to the current pandemic. During 2020, about 1 million vehicles will be manufactured in Thailand with about 50% contributing to exports, as a result of partial production capacity during the crisis days of the pandemic. 

However, Kasikorn Research Center’s projection of 1.5 million cars produced in 2020 is on the optimistic side which may very well be achievable if the situation is controlled and production is in full swing for the last 5 months. The current economic crisis incidentally is affecting even the parent companies in Japan, Europe, and the US which in turn bootstraps the subsidiaries in Thailand to operate in a restrained situation and produce much lesser than capacity. 

Thailand’s car exports fell 35% year-on-year during the first five months of 2020 to 158.7 billion baht in value, pressured by the global economic slowdown and travel restrictions caused by the coronavirus crisis. As of May 2020, car production fell 69.1% year-on-year to 56,035 units. Of the output, 20,070 were produced for the domestic market (down 76.9% year-on-year) and 35,965 were for export (down 61.9%).

However, as Thailand has been able to keep a very low number of total Covid-19 cases in the country, due to strong discipline and management, the auto industry is poised to recover growth in the remaining months of the year. Vehicle production in the first two weeks of June rose 126.8% year-on-year, thanks to key manufacturers reopening plants after a month-long shutdown.

As per Krungsri’s report, as of July, production is expected to shrink by 36- 37% in 2020 to 1.27-1.29 million units. However, in 2021 and 2022, as Covid-19 is brought under control and economies recover, it is expected to grow by 3.0-4.0% per year to 1.32-1.33 million and 1.36-1.38 million vehicles, respectively.

The economy of Thailand has been accelerating rapidly and the automotive industry has been contributing the most with its strong resources. The huge network comprising of big, small, local and foreign organizations create an efficient value chain system. Asia has become one of the most popular automotive hubs operating in the global market.

Thailand as a hub in the ASEAN countries strives hard towards achieving a successful green production area. According to reports, a percentage of 12% of Thailand’s income is received from the automotive industry. Moreover, it employs a large number of people who contribute to the national income of Thailand.

In 2019, Thailand’s total auto output made the country the 11th largest producer worldwide, 5th in Asia, and 1st in the ASEAN zone. But in terms of unit sales, Thailand is 17th largest in the world, 6th in Asia, and 2nd in the ASEAN zone (Figure 3).

 

The market is split between the following vehicle types:

Passenger vehicles: These account for 46% of all vehicles distributed domestically, with 32% of all vehicles in the sub-1,500 cc group of passenger vehicles (which  also includes eco-cars) and 14% with engine size over 1,501 cc. Passenger vehicles also accounted for 54% of total vehicles exported, and exports made up 50-60% of all passenger vehicles produced in the country. The major export markets for passenger vehicles are ASEAN, Australia, the Middle East, and Europe.

Commercial vehicles: 54% of the vehicles distributed to the domestic market are in this category (49% are 1- tonne pickups and 5% are other commercial vehicles including trucks, buses, and vans). Commercial vehicles made up 46% of total exports (Figure 4), mostly 1-tonne pickups (which accounted for 50-60% of all 1-tonne pickups assembled in Thailand). The most important export markets are ASEAN, Australia, and New Zealand. For other commercial vehicles, exports account for 10- 15% of total output for each segment.

While the industry is not at its peak now, the underlying trends suggest that it should be following the upward trend soon. Though Thailand’s dominance in the one-ton pickup truck continues to be the main revenue earner with over 50% of new vehicles produced in this sector. But the country is moving towards a green automotive production base including a focus on eco-cars and SUVs. 

Over the past six decades, Thailand’s automotive industry produced cars, motorcycles, big trucks, buses, tractors, agricultural machinery, and construction equipment, as well as supporting industries such as auto parts, tires, and accessories.

Many OEMs and automotive component manufacturers are seeking to develop stronger revenue streams and this is bringing the after-sales market into greater focus. This market offers significant potential to the industry as a strong revenue stream.

Thailand automotive after-sales market highlights that there will be more than 18 million passenger vehicles in Thailand by 2020, thereby offering an attractive opportunity in the automotive aftermarket arena. Even though parts quality is the most important criterion for selecting the aftermarket channel, the non-OEM parts have a significant share in the market.

Bangkok will remain the key driver of the independent aftermarket, while the North and the Northeast will also be key markets contributing to aftermarket growth in the coming five years. The growth in passenger vehicle ownership, specifically in the Northeast, is expected to be driven by growing cross-border trade between Thailand and Laos.

While consumers still have a clear preference for OEM branded parts, over 50% of consumers are willing to use non-OEM parts if the OEM parts are perceived as too expensive.

Krungsri Research’s projects demand would recover in the following two years, with unit sales rising by an annual average of 3.0-4.0% p.a. in Thailand to 0.62-0.63 million in 2021 and 0.64-0.65 million in 2022. Recovery would be driven by several factors including replacement of existing vehicles, the introduction of new models by prominent manufacturers including EVs, and greater infrastructure development in road networks connecting neighboring countries. At present, the motorization rate in Thailand is only 285 vehicles per 1,000 population, lower than the average for upper-middle-income countries such as Malaysia where it is 478 vehicles per 1,000 population. 

General Motors, or GM, the manufacturer of the Chevrolet brand has an annual production capacity of 50,000 vehicles in Thailand. However, their recent declaration of withdrawal of their production base from Thailand has inflicted a shortage in the supply chain as the manufacturers of GM engines (GM powertrain) and suppliers of parts of GM are forced to either move into OEM production for other carmakers or focus on the REM market, while the authorized distributors are threatened to be out of business unless they divert to other survival strategies. Though the after-sales service will continue until 2030, that is simply not enough for sustenance. Large discounts (up to 50%) by GM to reduce inventory for new cars has also resulted in losses for used-car dealers. 

Great Wall Motors, or GWM, is a Chinese auto manufacturer. They produce SUVs under the Haval brand, luxury cars, SUVs, BEVs, and PHEVs under the Wey brand, BEVs under the Ora brand, and pickups under the GWM brand. The company recently moved into the Thailand market after buying the GM and GM Powertrain plants and have announced they would invest THB 10 billion to expand production capacity to 100,000 vehicles per year (GWM will take over the GM premises in 2021 and start to distribute vehicles in 1Q 22). GWM has its own research & development team and operates 9 factories in China and 7 factories in Ecuador, Tunisia, Bulgaria, Malaysia, Russia, India (it bought Chevrolet’s facilities in 2019), and now Thailand. In Thailand, the company will produce pickups, SUVs, BEVs, and PHEVs for distribution to the domestic market and for export to the ASEAN zone and Australia.

Manufacturers of passenger vehicles and 1-tonne pickups: 

The sudden decline in consumer spending worldwide and disruption in the supply chain due to the pandemic will severely affect Thailand in domestic as well as overseas markets. However, predictions indicate that revenues and the economy would improve in the next two years. In addition, online shopping will boost demand for pickups for delivery companies and releases of new models (especially EVs) will stir greater consumer interest. Exports would also return to growth, especially multi-purpose vehicles (PPVs and SUVs) and large passenger vehicles, which remain a consumer favorite.

Manufacturers of trucks, trailers, and semi-trailers: 

They would benefit from the government’s ongoing infrastructure construction plans, as well as growth in the logistics sector (which will induce demand for trucks). They would get more opportunities to export to neighboring countries to ride on economy and infrastructure growth. 

Manufacturers of buses: 

This segment will see a recovery when the tourism and transportation industries start to improve in 2021 and 2022. Recovery will also be supported by rising demand for public transportation, for example from the Bangkok Mass Transit Authority. Further demand would be boosted by the transition of present commuting vans to microbuses, as initiated by the Thai government. Exports are expected to rise especially in the ASEAN Region.

Dealers of new vehicles (passenger vehicles and pickups) and authorized importers: 

These businesses would face limited earning growth. Although there will continue to be demand for servicing & repairs depending on the age and mileage of the vehicles, there is a risk of vehicle owners switching to cheaper general garages, especially for the 1.1 million vehicles bought under the first-car buyer scheme which would be 7-8 years old now. Additionally, manufacturers also would require dealers to invest in upgrading showrooms and service centers, which would increase operating costs and threaten the profitability of the business. 

Dealers of trucks and other heavy vehicles: 

Projected recovery is estimated by 2021-22 as the market drops in 2020 due to pandemic.  It is projected that a substantial increase in sales will be noticed as the rising demand for the transportation of goods between the neighboring countries, will exist, exploiting the road links and infrastructure developments.  Growth of the online retail and logistics industries will also support additional demand for trucks, especially for two-tonne and six-wheel vehicles. After-sales service, repairs, and spare parts supply could contribute to the overall build of additional revenues in the future times. 

Independent importers (or grey market importers): 

The business environment will be more challenging for these operators. The competition will intensify both authorized and independent importers. The government is imposing stronger measures to control grey imports, normally by pushing up costs to levels where players can no longer compete on price with authorized dealers.

The pandemic has forced such grey importers to scale down their operations and concentrate on selling cheaper vehicles than having a large inventory of high value imported vehicles. 

Used-car dealers:  

Players in this segment will continue to be pressured by strong competition, an oversupply of used cars for sale (which is expected to increase in 2020- 2022), a sluggish economy, and price competition from both dealers of new vehicles and the increasing number of new entrants in the used-car industry (especially overseas players, companies that are part of an auto maker’s commercial network, and online platforms to sell/buy used cars). All these factors will cap profitability in this sector.

Technology in Automotive

The automotive industry has been driving the growth in automation and robotics in Thailand. With Thailand 4.0, the country is heavily investing in the robotics revolution to create an automation-driven future. IFR has identified Thailand as an essential market for robotics. The Thai government has further various aspects to enable easy investment in robotics. The investing in the provinces of Chonburi, Rayong, and Chachoengsao are decided to be granted 13 years of corporate tax exemption. Robotics giants like ABB (Switzerland), KUKA Robotics (Germany), and Nachi Technology (Japan) have already expanded their operations in Thailand.

Thailand offers great investment potential as a leading automotive production base in the Association of Southeast Asian Nations (ASEAN) – a fast-developing region for automotive manufacturing.

Over a period of 50 years, the country has developed from an assembler of auto components into a top automotive manufacturing and export hub. With shipments bound for more than 100 countries, Thailand is the 13th largest automotive parts exporter and the sixth-largest commercial vehicle manufacturer in the world, and the largest in ASEAN. 

The country has an established presence of virtually all of the world’s leading automakers, assemblers and component manufacturers. With a production of about 2 million vehicles in a year, Thailand has its target set to reach a staggering 3.5 million in the next few years. Often called ‘The Detroit of the East’,  most of these manufacturing bases are located on the Eastern side of Thailand like central provinces of Bangkok, Ayutthaya, Pathum Thani, Samutprakarn, Prachinburi, Chachoengsao, Chonburi, and Rayong. The centralized location of Thailand provides easy access to leading markets of ASEAN, China, and India.

Auto manufacturers and investors in Thailand can benefit immensely from the country’s free trade agreements (FTAs). At present, Thailand has six FTAs with Australia, China, India, New Zealand, and the 10 member states of  ASEAN.  The FTAs provide investors an opportunity to expand their supply chain and gain competitive advantages in the importation of raw materials, components, and other production inputs by reducing and eliminating import duties. Apart from that FTAs help in rapid trade traffic as they harmonize customs code and product standards. Auto manufacturers in Thailand can use FTAs to gain greater market access in Southeast Asia and enforce restrictions to protect their investments and intellectual property. Learn more about FTA and its benefits.

Opportunities for foreign investors 

The Board of Industries 

One of the key factors that give a competitive edge to Thailand’s automotive industry is its supportive government policies for any investment opportunities in Thailand. The Thai government offers lucrative tax and no-tax incentives for foreign investments. Few benefits can be classified as :

  • Corporate Income Tax (CIT) exemption for up to eight years;
  • Import duty exemption on machinery;
  • Import duty exemption on raw materials used in manufacturing export products;
  • Permit to bring skilled workers and experts to work in investment promoted activities;
  • Permit to own land; and
  • Permit to take out or remit money in foreign currency.

There are additional benefits available to companies investing in the supercluster automotive zones in Pathum Thani, Ayutthaya, Nakhon Ratchasima, Prachin Buri, Chachoengsao, Chonburi, and Rayong. Explore more about The Thailand Board of Investments.

Thailand’s green initiative 

As the global demand for green vehicles continues to grow with the number of electric vehicles (EV) projected to rise to 35% of all vehicles by 2040, Thailand is also progressing in the production of more fuel-efficient vehicles. 

To support the world’s improved emission standards, Thailand has taken a step forward in bringing next-generation automotive industry to Thailand, in particular, the electronic vehicle (EV) industry through their focused initiative of Eastern Economic Corridor (EEC). Spanning across three eastern provinces of Chonburi, Rayong, and Chachoengsao, the EEC framework is designed to support 10 target industries, including automobiles, to promote emerging technology, innovation, and creativity within each sector through government policies and investment. The aim of the EEC is to expand the value chain of the automotive industry with a particular focus on surface integration design and prototyping. Further, it plans to expand and enhance the manufacturing process of electronic accessories and automotive parts. Read more about EEC and The Thailand Board of Investments.

Currently, there are four types of EVs that have been developed in the world. The first two technology to be developed is hybrid electric vehicles (HEVs) and plug-in hybrid electric vehicles (PHEVs) with two respective systems – electricity-petrol and electricity-diesel. The latest models of EVs available are battery-powered electric vehicles (BEVs), fuelled purely by electricity, and the fuel-cell electric vehicle (FCVs).

In Thailand, locally assembled HEV models were introduced by Toyota Camry, Nissan X-Trail, and Honda Accord, while BMW introduced cars by PHEV assembly and Mercedes-Benz initially started assembling its Blue-TEC hybrid engines to later produce four EV models. 

By 2036, Thailand aims to boost the number of electric cars to 1.2 million and have 690 charging stations operating across the country.

To boost the component industry, the Thai government has recognized 10 components eligible for eight-year CIT holidays. These include batteries, EV smart charging systems, DC/DC converters, traction motors, battery management services, inverters, portable electric vehicle chargers, and electrical circuit breakers.

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