Thailand’s Automotive Industry

THAILAND: The Detroit Of Asia

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Thailand’s economy has shown record impressive growth over the past decade. The combination of a sound economic foundation and renewed growth makes this vibrant Southeast Asian economy fertile ground for future automotive investments. The automotive industry is a vital sector for the country’s economy as it contributes greatly to exports and trade inflows. It is Thailand’s second-largest export industry, after computer parts and components. Thanks to continuous government-led support, automotive has evolved into an industry with vibrant foreign original equipment manufacturer (OEM) competition and an extensive network of supporting industries. Thailand’s long experience with automotive manufacturing has equipped the country with a comparatively low-cost yet experienced labor force for the sector.

Assembler Foreign J/V

Foreign Majority 54 %

Thai Majority 23 %

(1,700 companies) 175,000 workers

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Pure Thai 23 %

Tier 2, 3 Local Suppliers

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LSEs Large Scale Enterprises

Tier 1 (Total 690 companies) 250,000 workers

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Structure of Thai Automotive Industry (14 car makers, 7 motorcycle makers) 100,000 workers

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SMEs Small & Medium Enterprises

Source: Thai Autoparts Manufacturers Association

Thailand has approximately 690 Tier 1 auto parts suppliers and 1,700 Tier 2 and 3 suppliers. More than half of the Tier 1 suppliers are foreign-majority companies. Of the top 100 auto parts manufacturers in the world, 50% have factories in Thailand. The country’s manufacturing base is strong enough to supply all of the necessary parts, from engine parts to interior and body parts. Major multinational automotive industry leaders in Thailand include Toyota Motors, Isuzu, Honda Automobile, Nissan Motors, General Motors, Mitsubishi Motors, Suzuki Motors, BMW Manufacturing, Tata Motors, Ford Motor and Mazda.

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Big Industry Drivers In early 2012, many Japanese automotive enterprises announced their intentions to continue investments in Thailand. After the devastating flood in Thailand at the end of 2011, up to 80% of Japanese investors still have full confidence in investment in Thailand, based on the growth prospects of the country’s economy. Toyota continues to invest US$273 million in 2012. Most of the budget will be spent on a new plant in Chachoengsao’s Gateway City Industrial Estate and an existing plant in Samutprakarn, to produce fuel-efficient cars at an annual capacity of 100,000 units. The additional facilities are expected to start production in July 2013. Suzuki Motor has invested US$250 million to build its first factory for the production of fuel-efficient cars. Isuzu will increase its investment by US$217 million to build a new plant in the Gateway City Industrial Estate, with annual capacity estimated at 200,000 units. The plant is expected to open in October 2012. Thai Summit, one of the largest auto parts makers, has allocated US$167 million to expand its factories in Rayong and Chonburi provinces. Ford Motor has opened a US$450 million plant in Thailand, with capacity of 150,000 units per year, expanding its export capability to meet rising demand in neighboring countries. Jatco, a Japanese maker of automobile transmissions, invested US$255 million in a new plant to produce continuously variable transmission (CVT) units in Thailand. It is the first company to produce CVTs in the country. The plant is planned to open in mid2013.

Automotive Industry Overview According to the Ministry of Commerce, Thailand’s automotive industry export value in 2011 was US$17 billion, the secondlargest export value after computer parts and components. Thailand’s exports last year benefited from a free-trade agreement (FTA) that went into effect with major economies of the Association of Southeast Asian Nations (ASEAN). In the same period, auto parts imports totaled nearly US$6.5 billion. The major factors that attract investors to enter the Thai automotive market include the large pool of skilled labor at affordable cost and the abundant supply of rubber. The country is also moving toward production of more fuel-efficient vehicles, including hybrids, plug-in hybrids, and electrical and fuel cellpowered models, along with the introduction of special reduced excise tax rates for those vehicles.

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Global Automotive Production, 2011

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Source: International Organization of Motor Vehicle Manufacturers

Units Produced (millions)

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In 2011, 1.46 million vehicles were manufactured in Thailand, ra n k i n g T h a i l a n d 1 4 t h a m o n g t h e wo r l d ’s a u to m o t i ve manufacturing countries. According to the Thai Automotive Institute, production is predicted to reach 2.2 million units in 2012, 50% produced for domestic sale and 50% for export.

Thailand’s Motor Vehicle Production by Unit, 2005-2011 2005

2006

2007

2008

2009

2010

2011

Change 20052011

Passenger Cars

277,603

298,819

329,223

399,435

313,442

554,267

537,987

94%

Commercial Cars (excluding one-ton pickups)

24,846

22,592

23,556

17,791

15,202

24,278

20,608

-17%

One-ton Pickups

822,867

872,474

948,370

974,502

670,734

1,066,759

899,200

9%

1,125,316

1,193,885

1,301,149

1,391,728

999,378

1,645,304

1,457,795

30%

6%

9%

7%

-28%

65%

-11%

Total Y-O-Y Growth (%)

Source: Thai Automotive Institute

Units

Thailand’s Automotive Industry Growth, 2005-2011 1,800,000 1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0

2005

2006

Exports

2007

2008

Domestic Sales

2009

2010

2011

Production

Source: Thai Automotive Institute

The top 10 destinations of Thai automotive exports accounted for 63% of exports worldwide. Australia and Indonesia are the major destinations of Thai-manufactured automotive products.

Top 10 Vehicle Export Destinations in 2011 Country

Value (US$)

%

Australia

2,264,385,667

21.5%

Indonesia

1,251,496,333

11.9%

Malaysia

572,750,667

5.4%

Saudi Arabia

558,118,667

5.3%

Philippines

527,428,000

5.0%

Japan

458,259,000

4.3%

Russia

378,630,667

3.6%

Oman

224,666,000

2.1%

Chile

217,057,667

2.1%

UK

193,111,667

1.8%

6,645,904,333

63%

Total top 10 countries

Source: Thai Automotive Institute

Thailand is expected to produce 2 million cars in 2012 and is expected to achieve 3 million units by 2015 – placing it among the world’s top 10 auto producing countries. The economic opening of Myanmar could propel Thailand’s ascension into the world’s top 10 auto producing countries even faster by increasing regional demand as it looks to upgrade its older cars. -Dr. Patima Jeerapaet, President of Thailand Automotive Institute-

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Thailand’s Auto Parts Industry Demand for Thailand-made automotive parts is growing. There are approximately 1,800 automotive suppliers already in the country, of which 709 are OEMs. All of the major Japanese automakers have opened manufacturing sites in Thailand. Many of their parts manufacturers, such as France’s Valeo, Germany’s Bosch, US-based TRW, Britain’s GKN and Japan’s Denso, Mitsuba and Mitsubishi, have followed suit to serve their customers. According to the Japan Automobile Manufacturers Association, the quality of automotive parts in Thailand is the highest among ASEAN countries. Local manufacturers supply 80-90% of the parts used in pickup truck assembly, and as much as 70% of those for passenger cars. Moreover, the country produces nearly 100% of the parts used in the assembly of motorcycles.

Thailand’s Auto Parts Exports, 2011 9%

1%

15%

OEM Parts Engine Spare Parts Other

75%

Source: Thai Automotive Institute

The majority of Thailand’s automotive parts exports are OEM parts (US$4,757 million), comprising 75% of all exports. This is followed by engines (US$889 million) at 15% and spare parts (US$551 million) at 9%.

53 of the Top 100 Global OEM Parts Suppliers in Thailand

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Robert Bosch

Denso

Continental

Aisin Seiki

Magna International

Faurecia

Johnson Controls

ZF Friedrichshafen

TRW Automotive

Delphi Automotive

Yazaki

Lear

Sumitomo Electric

BASF

Toyota Boshoku

CalsonicKansei

JTEKT

Hitachi Automotive

Valeo

Visteon

Autoliv

Mahle

Dana

Toyoda Gosei

DuPont

BorgWarner

Schaeffler

NTN

NSK

Mitsubishi Electric

Tenneco

NHK Spring

Koito Manufacturing

TS Tech

Takata

Federal-Mogul

Bridgestone/ Firestone

Michelin

IAC

Tokai Rika

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GKN Driveline

Goodyear

Showa

TI Automotive

Mitsuba

TE Connectivity

Draexlmaier

Asahi Glass

American Axle

Stanley Electric

Akebono Brake

Philips Electronics

PPG Industries

Source: Automotive News as of June 13, 2011

Automotive Electronics Electronics have ascended to an important position within the automotive industry. The growth of electronics continues across automobile systems with the increasing focus on performance, safety, comfort, efficiency and alternative-fuel vehicles. The global demand for automotive electronic systems is estimated at US$187.1 billion in 2012. The market forecast is US$287.6 billion in 2018. Innovation in electronic systems is driving today’s automotive parts industry. The emerging Asian market will play a central role in this growth, both as a producer and a consumer. In addition to being the site of much automotive production, Asia is one of the regions with the strongest demand for automotive electronics. Most of the automotive electronics used in cars produced in Thailand are imported from Malaysia and Japan. The market value of automotive electronics in Thailand was approximately US$6.3 billion in 2011. Given the market size, the current limited number of automotive electronics producers in Thailand presents an excellent investment opportunity. Local suppliers could capitalize on the sizeable local demand. Such opportunities and the considerable investment in R&D make Thailand an attractive place for investors.

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Opportunities There are many other reasons why the Thai automotive industry is an attractive base for investors in automotive parts production. Of the more than 3,000 parts and components in a typical vehicle, a sizeable portion is still sought from overseas. Opportunities exist for foreign suppliers to manufacture electronic fuel injection systems, substrates for catalytic converters, CVTs, electronic stability controls and regenerative braking systems, among numerous other products. More R&D, design and testing centers are also needed, even though major players Yamaha, Bridgestone, Maxxis and Michelin are already operating such facilities in Thailand.

Hi-Tech Vehicle Parts and Components

P ro j e c t s i n h i g h - t e c h ve h i c le p a r t s a n d co m p o n e n t s manufacturing are considered priority activities by the Thailand Board of Investment (BOI), which means they are exempt from machinery import duties and from corporate income tax for eight years, regardless of location.

NGV Vehicles

The Ministry of Energy supports fuel-efficient transportation through a natural gas vehicle (NGV) initiative. This initiative includes the introduction of over 10,000 natural gas-powered taxicabs, natural gas subsidization through PTT Public Company Ltd., a reduced import duty on NGV tanks from 17% to 10% in 2012, and a reduced import duty on NGV control system parts and components from 35% to 10%.

Eco-Car Parts

Eco-car parts continue to receive incentives to promote the growth of the eco-car market locally and abroad. The incentives will be applied exclusively to materials that cannot be produced locally. Duty reduction will be granted up to 90% for two years with annual review. The measure is intended to help eco-car manufacturers by lowering their production costs and reducing their burden in sourcing parts that are not available locally or produced in Thailand. This measure also encourages more investment in ecocar parts production, providing the country with economies of scale and a greater competitive advantage in the global eco-car production business. Currently, there are five BOI-promoted companies for eco-car manufacturing: Nissan March, Honda Brio, Suzuki Swift and Mitsubishi Mirage, and Toyota which will launch its model in 2013.

Passenger Cars

Although Thailand has a strong focus on pickup trucks, passenger cars receive similar favorable treatment in manufacturing promotion. The requirement for the promotion of passenger car manufacturing includes a minimum capacity for the approved models of 100,000 units per year within five years and a minimum investment, exclusive of land cost and working capital, of US$500 million (THB 15 billion). Projects that meet these criteria are eligible for a five-year corporate income tax holiday and exemption from import duties on machinery, regardless of location.

E85

The Ministry of Finance is offering three-year exemption on import duties of foreign auto parts used to make vehicles E85-ready. The ministry has also reduced the excise tax on cars using E85 to 22%, 27% and 32%, depending on engine size.

Big-Bike, 4-Stroke Engine Motorcycles (Over 500cc)

Under the new scheme, a minimum annual capacity will not be required, whereas previously it was set at 50,000 units/ year. In addition, there are no restrictions on foreign ownership, compared to a minimum of 60% Thai ownership previously required. Regardless of the plant location, big-bike motorcycle manufacturing activities will be eligible for exemption from import duties on machinery. For projects that include engine manufacturing starting from machining key parts, such as cylinder heads and crankcases, the corporate income tax holiday may be extended for three to eight years, except for those located outside an industrial estate in BOI Zone 1.

Vehicle Tires

Companies manufacturing vehicle tires are exempt from machinery import duties and corporate income tax for eight years, regardless of zone.

Automotive Excise Taxes Passenger Car