Overview of Thailand automotive production landscape

Image courtesy of KPMG Phoomchai Audit Ltd.

Automobile manufacturing has long been the pillar industry of the Thai economy. The Thai’s automotive market is dominated by the Japanese automakers that have established Thailand as the production base of one-ton pick-up trucks and eco cars for exports. American and Europeans are gaining ground as the manufacturers of large, luxury cars.

Thailand's automotive industry is export-oriented. In the past five years, over one million automobiles were exported to ASEAN countries, Australia, the Middle East and Europe every year. The import volume is less. However, the import tariff on automobiles is expected to be lowered as Thailand signs more free trade agreements in recent years.

Thailand's Eastern Economic Corridor initiative proposes to develop 10 target industries including the automotive industry in the eastern region. And the free trade agreements with Australia, China, India, New Zealand and other ASEAN countries will facilitate the development of overseas markets for Thailand's automotive industry.

The reduction of import tariffs will also provide a price advantage for automobiles. New energy vehicles will grow rapidly in Thailand with the expiration of the lock-up period of the First-Time Buyer Program, more automobiles beyond the warranty period, and the government's efforts to develop new energy vehicles. It is expected that in the next few years, the increase in residents' income will promote automobile consumption in Thailand. And the exemption of import tariffs on automobiles in ASEAN countries will boost Thailand's automobile exports.

The researchers expect that automobile production will continue to grow in Thailand from 2019 to 2022. It will exceed 2.4 million units in 2022, of which over 1.1 million units will be sold in Thailand and over 1.3 million units will be exported.

The country has an established presence of virtually all of the world’s leading automakers, assemblers and component manufacturers. Companies such as Toyota, Isuzu, Honda, Mitsubishi, Nissan, and BMW together account for a lion’s share of the approximately two million vehicles produced in the country each year.

Most of these manufacturers and parts suppliers are located in the central provinces of Bangkok, Ayutthaya, Pathum Thani, Samutprakarn, Prachinburi, Chachoengsao, Chonburi, and Rayong, offering easy access into leading markets of ASEAN, China, and India.

Thailand's automobile industry as a key market

Roland Merz, Head of Sales for Asia at CHIRON Werke GmbH & Co. KG, is convinced of Thailand's role as a key market. In line with the company’s Metalex fair participation this year, he said: “We are again increasing our interest in South East Asia, after a period of greater activity in other regions. Here, Thailand is considered the pioneer in automobile production. Other South East Asian countries, such as Indonesia, Malaysia and Vietnam, are also coming into focus for the international supplier industry. At Metalex 2019, we primarily expect visitors from automobile suppliers at our trade fair stand. At the same time, we look forward to welcoming interested persons from the aerospace sector, medical technology, and employees from university laboratories.”

Andreas Hafner, Senior Area Sales Manager Cutting Tools at CeramTec GmbH, also sees participation at Metalex as a positive factor for strengthening the company's market presence and increasing sales: “ASEAN and especially Thailand's economy has stabilised, letting us anticipate good development for the
long term. Impetus for growth comes from exports; the investment activity in Thailand will also increase at a faster rate thanks to a program for the targeted promotion of ten industrial clusters with great export potential. We see very good market potential in the ASEAN region, especially in Thailand, as here all important car manufacturers and their suppliers produce on location, and there is also a very good infrastructure.”

For Andrew Parkin, Chief Representative Asia at Gebr. Heller Maschinenfabrik GmbH, the development potential in South East Asia is beyond question: “Thailand and south-east Asia are often underestimated with regard to their market potential. However, we have already recognised the current and future
potential. At present, the market situation for us is stable.” The market opportunities are reason enough for Metalex to be a firm feature in the trade fair calendar of E. Zoller GmbH & Co. KG: "The Thai and south-east Asian market has huge development potential for us. Not without reason has Germany now also become the partner country of Metalex in Bangkok, and supports German companies from the metalworking sector,” reports Atepat Tungkatacha, Director Zoller Thailand Co. Ltd.

Opportunities from the EEC

Given the world’s tightening emission standards, Thailand is keen to expand its automotive manufacturing industry to produce green vehicles. Supporting this vision is the Eastern Economic Corridor (EEC) initiative that places a great importance on bringing next-generation automotive industry to Thailand, in particular, the electronic vehicle (EV) industry.

Located in the three eastern provinces of Chonburi, Rayong, and Chachoengsao, the EEC framework is designed to support 10 target industries, including automobile, 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 particular focus on surface integration design and prototyping. Further, it plans to expand and enhance the manufacturing process of electronic accessories and automotive parts. Some of the benefits available to automobile investors in the EEC include corporate income tax exemption up to 15 years; financial incentives for investment in R&D, innovation or human resources development; permit to own land used for BOI promoted projects; and facilitation of foreign workers’ visas and work permits.

Electric vehicle trends

The popularity of EVs are still low, although hybrid electric vehicles (HEVs) have been launched since around 2009-2010.  According to statistics from the Land Transport Department, the number of registered HEVs and plug-in hybrid electric vehicles (PHEVs) were at 84,236 units, while only 63 units were battery electric vehicles (BEVs).

However, the incentives of Board of Investment (BOI) may encourage Thai manufacturers to start production of HEV parts in the initial phase. Commercial EVs are expected to be launched in the Thai market by 2025. By 2036, the Thai government aims to have 690 charging stations and 1.2 million electric vehicles nationwide.

“The technological advances in power storage together with the urgent need to improve air quality in the cities to compensate for the consequences of urban development will fuel the growth of EV’s popularity tremendously. It can be anticipated that the market penetration of EV in Thai society is undeniable and inevitable. Auto industry and power industry have to reassess their business model and prepare for the technological and behavioral changes. It is an example of disruption at its best,” remarked Paul Flipse, Head of Climate Change and Sustainability Services, KPMG in Thailand.