3 Things to Know About Thailand's Automotive Market



Thailand is the largest automotive producer in ASEAN. It is the 13th largest automotive parts exporter and sixth largest commercial vehicle manufacturer in the world. Thailand's automotive and auto parts industry accounts for nearly 12 percent of its GDP and employs more than 500,000 people.


It has evolved from importing cars and trucks to being a major automotive force. The industry performance has been impressive over the last 60 years or so. Cars remains Thailand's largest export item, but due to sluggish global economy, exports have dropped in recent years.


 

Background on Thailand's Automotive Industry


In terms of market share, Toyota ranks first with ~30% market share in the passenger cars and commercial vehicles segment, followed by Isuzu, Honda, Mitsubishi and Honda. For passenger cars, Honda and Toyota holds the largest market share (almost equal) followed by Mazda, Nissan and Mitsubishi.


In terms of domestic passenger cars and commercial vehicles sales, there is a drop in 2019 due to more stringent credit policy, high household debt, delay in general election and uptrend in interest rates.


Thailand Automotive Market, Thailand Domestic Automotive, Thailand Automotive, Thailand Automotive Growth
Thailand Automotive Domestic Market (Source: Thai Automotive Industry Association, Letolle Analysis)

Thailand experienced a drop in exports in 2019 due to the US-China Trade War's impact on overall global economy. In the earlier years, exports dropped due to war and volatile oil prices.


Thailand Automotive Export, Thailand Automotive Declines, Thailand Automotive Hub, ASEAN automotive
Thailand Automotive Export Declines (Source: Thai Automotive Industry Association, Letolle Analysis)

A reason for current commercial vehicles export slowdown is due to Middle East being one of the key export base, is suffering a slowdown in the economy due to domestic conflicts and the fall in the price of oil.


Overall, Thailand's automotive industry has been solid. Below we will look at reasons why it currently dominates the ASEAN automotive market.


 

1) It does not have the lowest labour cost in ASEAN but it has amassed critical skill and experience giving it an advantage


Thailand has higher wage rate than Indonesia and Vietnam. But Indonesia and Vietnam still lag behind in both volume and supply chain sophistication (read here on Indonesia automotive market), and therefore, lack the competitive advantage to compete with Thailand.


Thailand, Indonesia and Vietnam produced 2.0Mn, 1.29 Mn and 176,000 automotive vehicles (passenger cars and commercial vehicles) respectively in 2019. Thailand clearly has the economies of scale.

It has an established presence of almost all of world's leading automakers, assemblers and component manufacturers such as Toyota, Isuzu, Honda, Mitsubishi, Nissan and BMW. There are currently about 18 auto assemblers in Thailand, 386 tier-one auto parts makers and 1,700 tier-two and tier-three auto parts makers in the country.


Manufacturers and parts suppliers are mostly located in the central provinces of Bangkok, Ayutthaya, Pathum Thani, Samutprakarn, Prachinburi, Chacheongsao, Chonburi and Rayong.


Additionally, as Thailand expands its automotive manufacturing base, auto part suppliers are increasing their presence - setting up research and development (R&D) departments to better its products.


But Thailand faces some risk for US to impose tariffs on cars and auto parts. It also faces challenges exporting to Vietnam and Indonesia where both countries are protecting their local industries.


 

2) It excels at making commercial vehicles (specifically one-tonne pickup trucks)


Thailand has the highest number of pickup trucks on a per capita basis. Its pickup trucks market is currently dominated by Japanese and American players. Toyota and Isuzu leads the segment. The growth of the market is also due to the expansion in e-commerce businesses, which in turn increased demand for transport and delivery services.


Thailand Pick-up Truck, Thailand Commercial Vehicles, Thailand Automotive, ASEAN Automotive
Pick-up truck in Thailand is used for all purposes (Source: Wikicommon)

Thailand is also seeing itself fast becoming a major ASEAN production hub for medium and heavy commercial vehicles, with Scania the latest global manufacturer to set up a regional production and R&D centre. It intended to produce built-up trucks and bus chassis.


Indonesia has the largest commercial vehicles market in ASEAN, but Thailand's high import tariffs make it essential for vehicle manufacturers to assemble trucks locally. Tariffs in Indonesia are much lower, but it is still more economical to produce in Thailand and export to Indonesia, partly due to the tariff structure.


 

3) It intends to move towards electric vehicles (EV)


The global automotive industry is shifting focus towards EVs, partly due to tighening regulations as tougher emission duty guidelines are set in major economies like the US, Europe and China.


Thailand is pushing for EV. But the lack of infrastructure to support EV such as recharging stations has hindered EV adoption in Thailand. The Government plans to increase number of EVs to 1.2 million units by 2036, which would help cut energy consumption by 30% compared to 2010, according to the energy conservation plan.


According to Thailand's EV action plan (2016 to 2036), it plans to sell 1.2 million HEV/PHEV/BEV per annum by 2036. Over the next 10 years, Thailand is also expected to have 690 recharging stations nationwide. It is also envisaged some of the petrol companies/ stations will take up the bigger challenge and start offering EV charging stations at their current facilities.


Thailand Automotive, Thailand EV, Thailand Green Vehicles, ASEAN automotive, Thailand charging station
EV Charging Station Thailand (Source: Bangkok Post)

It is forecasted that the EV market share has a potential to increase to one-fourth or 240,000 units of total car sales. The eco-hybrid cars and mild-hybrid vehicles are likely to accelerate the transition to full EVs in the early stages.


Thailand is already emerging as a regional base for EV batteries for export to countries such as Japan and ASEAN. By 2023, Thailand is expected to produce at least 170,000 EV batteries for export. However, it still has a long way to go to boost local EV adoption.


Under BOI regulations, automotive manufacturing companies can enjoy reduction in excise taxes for eco cars, but it needs to commit to manufacture 100,000 eco cars per year. The industry is still facing difficulties to embrace new technologies.


 

Thailand leads automotive production in ASEAN. Its market is dominated by Japanese based brands. But Chinese players are fast entering the market, largely due to the US-China Trade War and focus to expand in the ASEAN market. For example, China's Great Wall Motors recently acquired General Motors plant and expects to use it as a base to expand its light vehicle presence in ASEAN.


We opine that EV is the right move forward for Thailand, where it already has some production base such as EV batteries. But Thailand must implement new regulations to facilitate EV adoption locally, where it will help strengthen the country's strategic position as the leading automotive hub in ASEAN.



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References

Bangkok Post, EA eyes 1,000 charging points, https://www.bangkokpost.com/business/1709087/ea-eyes-1-000-charging-points, published 9 July 2019

Just Auto, Thailand Becoming Production Hub for Heavy Trucks, https://www.just-auto.com/analysis/thailand-becoming-production-hub-for-heavy-trucks_id187480.aspx#, published 4 March 2019

Thai Automotive Industry Association, http://www.taia.or.th/, accessed 22 February 2020

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