Continued success breeds innovation for Thailand’s Automotive Industry
THAILAND: THE DETROIT OF ASIA
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.
Auto companies and their suppliers have looked to Thailand for decades as a hub for the Asian markets. With the largest vehicle assembling capacity in Southeast Asia and over 1,800 suppliers, Thailand’s long history in the auto industry has created a well-developed infrastructure and knowledgeable workforce that attracts the world’s leading companies like Toyota, BMW, Honda, Mercedes-Benz, GM and Ford.
AUTOMOTIVE INDUSTRY OVERVIEW
According to the Ministry of Commerce, Thailand’s automotive industry export value in 2011 was US$17 billion, the second-largest 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 cell-powered models, along with the introduction of special reduced excise tax rates for those vehicles.
As the world’s largest producer of one ton pickup trucks, and only second to Detroit in truck manufacturing, Thailand is one of the top 10 largest automotive exporters in the world and ships to over 130 countries. On average, auto companies invest over $1 billion each year in order to produce around 1.6 million vehicles annually.
The Thai government provides a range of incentives for investors, including corporate income tax holidays of between 5 and 7 years.
Eco-Cars for a Sustainable Future
Always looking to develop its competitive edge, the government has instituted high emissions standards for its Eco-Car program that offers automakers incentives for producing cars with smaller engines and better fuel economy. With Nissan, Honda, BMW, Chevy, Suzuki, Mitsubishi, Hyundai and Toyota already taking part in the program, and production already passing 585,000 vehicles a year, Thailand is on track to become an influential leading player in the auto world.
Incentives for the Eco-Car programs include
- Maximum incentives, including an 8-year corporate income tax holiday and duty-free importation
- Reduced excise tax of 17% on cars with petrol-powered engines smaller than 1,300cc
- 90% reduction on import duties of eco-car raw materials and parts that cannot be sourced locally
- 3-year exemption on the import duties of foreign auto parts and reduced excise taxes for E85 ethanol vehicles
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.
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.
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
|Robert Bosch||Denso||Continental||Aisin Seiki||Magna International|
|Faurecia||Johnson Controls||ZF Friedrichshafen||TRW Automotive||Delphi Automotive|
|Yazaki||Lear||Sumitomo Electric||BASF||Toyota Boshoku|
|Tenneco||NHK Spring||Koito Manufacturing||TS Tech||Takata|
|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
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.
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.
For more informations about Automotive Electronics, continue reading at http://www.boi.go.th/index.php?page=opp_automotive
Why Thailand for Automotive Business
Thailand has been dubbed the “Detroit of Asia” because of the consistent government policies that promote automobile assembly and automotive manufacturing capacity.
Nearly every Japanese carmaker has manufacturing facilities in Thailand, as do major U.S. automotive firms such as Ford Motors and General Motors, and the German companies Daimler (maker of the Mercedes-Benz) and Bayerische Motoren Werke (better known as BMW).
Apart from 100,000 workers in the brand automotive factories, Thailand has a robust 1,700 factories and more than 420,000 skilled workers in the automotive supporting industry. Thai laborers have the advantage of high skill levels and quality compared with most countries in the region.
As the country’s economic performance has been strong, many of the world’s leading automotive manufacturers have production facilities based in Thailand. The growth prospects of domestic demand for locally manufactured auto parts are high. The country’s strategic location as a gateway to Asia makes for easy access to regional markets. All of these factors contribute to the evident opportunities for foreign investors to enter the market.
In addition to the policies on tax reduction, there are non-tax incentives that the Thai government offers to manufacturers of vehicles and vehicle parts, and for automotive R&D and testing. These include land ownership rights for foreign investors, permission to bring in foreign experts and technicians, and work permit and visa facilitation for foreign expat employees. The government also does not impose export requirements, local content requirements, location requirements or foreign equity restrictions on manufacturers.
For more informations about Incentive structure on Automotive structure, continue reading at http://www.boi.go.th/index.php?page=opp_automotive
FOR FURTHER INFORMATION:
Thailand Board of Investment: www.boi.go.th
Thailand Automotive Institute: www.thaiauto.or.th
Thai Automotive Industry Association: www.taia.or.th
Thai Autoparts Manufacturers Association: www.thaiautoparts.or.th
ASEAN Supporting Industry Database: www.asidnet.org