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Thailand’s emerging eco-car<br />
industry – forecasts to 2016<br />
2008 edition
Page i<br />
Thailand’s emerging eco-car<br />
industry – forecasts to 2016<br />
2008 edition<br />
By Tony Pugliese, www.asiamotorbusiness.<strong>com</strong><br />
September 2008<br />
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Page iv<br />
Contents<br />
Contents<br />
Single-user licence edition............................................................................................................. ii<br />
Copyright statement.................................................................................................................. ii<br />
Incredible ROI for your budget – single and multi-user licences............................................... ii<br />
just-auto.<strong>com</strong> membership........................................................................................................iii<br />
Contents.......................................................................................................................................... iv<br />
List <strong>of</strong> tables ................................................................................................................................... vi<br />
Executive summary ........................................................................................................................ 1<br />
New automotive niche being created........................................................................................ 1<br />
Domestic demand for eco-cars expected to be strong ............................................................. 1<br />
825,000 in new car capacity approved so far ........................................................................... 2<br />
Thai vehicle production forecast at over 2.1m by 2016 ............................................................ 2<br />
Chapter 1 Domestic vehicle market .............................................................................................. 3<br />
Market growth after two years <strong>of</strong> decline .................................................................................. 3<br />
Growth led by E20-<strong>com</strong>patible cars .......................................................................................... 3<br />
Pick-up share in decline............................................................................................................ 4<br />
Eco-cars to drive sales from 2009 ............................................................................................ 5<br />
Toyota dominates the Thai market ........................................................................................... 5<br />
Chapter 2 Vehicle production and exports................................................................................... 7<br />
Ten-fold increase in output since Asia crisis............................................................................. 7<br />
World-class pick-up truck industry ............................................................................................ 7<br />
Shortage <strong>of</strong> skilled workers anticipated .................................................................................... 9<br />
Chapter 3 Thai investment policies............................................................................................. 10<br />
Ministry <strong>of</strong> Industry’s Board <strong>of</strong> Investment .............................................................................. 10<br />
Chapter 4 <strong>Auto</strong>motive investment programmes........................................................................ 11<br />
Success with pick-up trucks.................................................................................................... 11<br />
Large motorcycle sector.......................................................................................................... 11<br />
Chapter 5 Eco-car incentives and standards ............................................................................. 13<br />
Eco-car technical standards and tax incentives...................................................................... 13<br />
Eco-car programme investment requirements........................................................................ 13<br />
Technical specifications .......................................................................................................... 14<br />
Chapter 6 Bi<strong>of</strong>uel incentives........................................................................................................ 15<br />
Bi<strong>of</strong>uel subsidies ..................................................................................................................... 15<br />
Incentives extended to E85..................................................................................................... 16<br />
Fuel crops encouraged ........................................................................................................... 16<br />
© 2008 All content copyright Aroq Ltd. All rights reserved.
Page v<br />
Contents<br />
Chapter 7 Manufacturer eco-car programmes ........................................................................... 18<br />
Companies pledge 825,000 units in new capacity.................................................................. 18<br />
Tata could struggle to meet targets ........................................................................................ 18<br />
VW could lift eco-car capacity to over 950,000 units .............................................................. 19<br />
Honda eco-car production from end-2008 .............................................................................. 19<br />
Asian Honda Motor Co Ltd...................................................................................................... 20<br />
Siam Nissan <strong>Auto</strong>mobile Assembly Co Ltd............................................................................. 21<br />
<strong>Auto</strong> Alliance (Thailand) Co Ltd .............................................................................................. 21<br />
Suzuki Motor Corporation (Japan) .......................................................................................... 22<br />
Mitsubishi Motors (Thailand) Co Ltd ....................................................................................... 23<br />
Tata Motors Ltd....................................................................................................................... 23<br />
Toyota Motor (Thailand) Co Ltd .............................................................................................. 24<br />
Volkswagen AG....................................................................................................................... 24<br />
Chapter 8 Outlook for Thai vehicle production.......................................................................... 26<br />
Competition from eco-cars from 2009..................................................................................... 26<br />
Pick-up truck output under pressure ....................................................................................... 26<br />
Eco-car production to pass 700,000 units by 2015................................................................. 27<br />
Volkswagen may help lift Thai output further .......................................................................... 27<br />
Chapter 9 Supply-chain investment ............................................................................................ 29<br />
Steel sector investments......................................................................................................... 29<br />
Steel demand set to soar ........................................................................................................ 29<br />
New incentives announced ..................................................................................................... 29<br />
Components sector................................................................................................................. 30<br />
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Page vi<br />
List <strong>of</strong> tables<br />
List <strong>of</strong> tables<br />
Table 1: Thai domestic vehicle sales by type, 2006-2008 (no. <strong>of</strong> vehicles)...................................... 4<br />
Table 2: Thai vehicle sales by brand, 2005-2008 (no. <strong>of</strong> vehicles)................................................... 6<br />
Table 3: Vehicle production in Thailand by type, 2005-2008 (no. <strong>of</strong> vehicles).................................. 8<br />
Table 4: Thai CBU vehicle exports, 2000-2008 (no. <strong>of</strong> vehicles)...................................................... 9<br />
Table 5: Excise tax rates on passenger cars by type and fuel <strong>com</strong>patibility, January 2008 (%) .... 15<br />
Table 6: Current and proposed eco-car programmes (THB bn, No. <strong>of</strong> cars and %)....................... 19<br />
Table 7: Thai vehicle production forecasts by type, 2007-2016 (‘000s).......................................... 27<br />
Table 8: Thai eco-car production forecasts by manufacturer, 2008-2016 (‘000s)........................... 28<br />
© 2008 All content copyright Aroq Ltd. All rights reserved.
Page 1<br />
Executive summary<br />
Executive summary<br />
New automotive niche being created<br />
The Thai government in 2007 announced a package <strong>of</strong> incentives designed to<br />
stimulate a new phase <strong>of</strong> growth in the country’s automotive industry. Through<br />
the Ministry <strong>of</strong> Industry’s Board <strong>of</strong> Investment (BOI), the Government is<br />
<strong>of</strong>fering up to eight years’ corporate tax breaks and duty-free import <strong>of</strong> related<br />
machinery and equipment to <strong>com</strong>panies investing in the manufacture <strong>of</strong> small<br />
cars. The BOI set out the minimum investment requirements and specifications<br />
for the car, dubbed “eco-car” due to its low fuel consumption and emissions<br />
specifications.<br />
The BOI hopes to repeat the success it had in developing a globally<strong>com</strong>petitive<br />
one-tonne pick-up truck industry in creating a new automotive<br />
product niche. By specifying the latest European standards in terms <strong>of</strong> fuel<br />
consumption, emissions and crash-testing, the BOI hopes to secure access for<br />
its eco-cars to the world’s largest regional small-car market. Most eco-cars<br />
produced in Thailand are expected to be sold in Asia and Australia, however.<br />
Domestic demand for eco-cars expected to be strong<br />
Domestic sales are expected to account for a significant proportion <strong>of</strong> output.<br />
The BOI expects domestic demand for small, fuel-efficient cars in the US$xxxxxxxx<br />
price-range to be significant. Leading sub-<strong>com</strong>pact cars currently<br />
available in the Thai market, the Honda Fit and Toyota Yaris, have minimum<br />
retail prices <strong>of</strong> US$xxxxxx and US$xxxxxx respectively.<br />
In tandem with the eco-car programme, the BOI in 2007 announced a new<br />
package <strong>of</strong> incentives for prospective manufacturers <strong>of</strong> large motorcycles<br />
(above xxxcc) – a segment that has yet to be developed significantly in<br />
Southeast Asia. The BOI is also making significant efforts to attract investment<br />
in support industries, such as in up-stream steel and other raw materials<br />
production and automotive <strong>com</strong>ponent manufacture.<br />
The Government has also launched a number <strong>of</strong> bi<strong>of</strong>uel incentives in 2008<br />
designed to reduce the country’s dependence on fossil fuels. The timing <strong>of</strong><br />
these announcements has left vehiclemakers somewhat dismayed, as they<br />
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Page 2<br />
Executive summary<br />
came after most <strong>com</strong>panies had already submitted their eco-car investment<br />
proposals.<br />
xxxxxxx in new car capacityapproved so far<br />
So far, seven global vehicle manufacturers have been granted permission by<br />
the BOI to carry out their proposed investments in new eco-car manufacturing<br />
plants – each with a capacity <strong>of</strong> at least xxxxxxx units per year. A total <strong>of</strong><br />
xxxxxxx units <strong>of</strong> new vehicle production capacity have been approved by the<br />
BOI, and an eighth proposal submitted by Volkswagen awaits approval. The<br />
eighth project would bring total new small-car capacity to close to xxxxxxx<br />
units – similar to the country’s total pick-up truck production in 2007.<br />
One <strong>of</strong> the BOI’s specific requirements for eco-car investments is that actual<br />
annual production must reach xxxxxxx units within five years. On the basis<br />
that all seven <strong>of</strong> the already approved eco-car programmes do meet these<br />
minimum production stipulations, annual eco-car production would exceed<br />
xxxxxxx units by 2016. Around one-third <strong>of</strong> output is expected to be sold in<br />
Thailand. The first model, from Honda, is expected to be produced at the end<br />
<strong>of</strong> 2008.<br />
While global demand for fuel-efficient cars is rising sharply as oil prices<br />
continue to spike, it is conceivable that not all eco-car manufacturers will meet<br />
their production and sales targets. Tata Motors looks the weakest <strong>of</strong> the group,<br />
with negligible sales volumes across the ASEAN region, including Thailand,<br />
and a poor brand image outside India. All other prospective eco-car<br />
manufacturers have strong global distribution networks and will likely do well.<br />
Thai vehicle production forecast at over xxxm by 2016<br />
Thai vehicle production is forecast to exceed xxxm units by 2016, provided that<br />
most eco-car programmes go according to plan. This would represent a xx%<br />
increase on the xxxm vehicles produced in 2007. Some erosion will occur<br />
between vehicle segments, with conventional small cars <strong>com</strong>ing under<br />
pressure as the lower-cost eco-cars be<strong>com</strong>e widely available across<br />
Southeast Asia. Eco-cars are expected to <strong>com</strong>pete closely on price with pickup<br />
trucks, but any sales trade-<strong>of</strong>f is likely to be limited due to the significant<br />
difference in specifications and end-user requirements.<br />
© 2008 All content copyright Aroq Ltd. All rights reserved.
Page 3<br />
Chapter 1 Domestic vehicle market<br />
Chapter 1 Domestic vehicle market<br />
Market growth after two years <strong>of</strong> decline<br />
After peaking at an all-time high <strong>of</strong> over xxxxxxx units in 2005, the Thai<br />
domestic vehicle market experienced two years <strong>of</strong> decline as economic growth<br />
slowed to around xxx% over the subsequent two years. Political uncertainty<br />
was a key factor affecting domestic sentiment, following the military coup in<br />
September 2006. Significant uncertainty persists despite parliamentary<br />
elections being held in December 2007.<br />
Vehicle sales rose by xx% in the first half <strong>of</strong> 2008 to over xxxxxxx units, with<br />
strong demand for fuel-efficient passenger cars driving overall sales. The<br />
popularity <strong>of</strong> pick-up trucks, which typically have engines ranging in size<br />
between xxxxcc and xxxxcc, is in decline – seemingly in direct relation to the<br />
rising cost <strong>of</strong> fuel.<br />
Imports represent a small part <strong>of</strong> the market, despite the country’s participation<br />
in regional and bilateral free trade agreements. The Federation <strong>of</strong> Thai<br />
Industries’ (FTI) <strong>Auto</strong>motive Club expects CBU car imports to reach xxxxx<br />
units <strong>this</strong> year – or close to x% <strong>of</strong> the total sales. Most imports are niche<br />
vehicles – either luxury models such as recreational vehicles, luxury and<br />
sports cars, or small cars, according to the association.<br />
Growth led by E20-<strong>com</strong>patible cars<br />
Since the beginning <strong>of</strong> 2008 passenger car demand has been boosted by a cut<br />
in excise tax from xx% to xx% on models <strong>com</strong>patible with ethanol-based E20.<br />
Bi<strong>of</strong>uels, including the diesel-vegetable oil D2, are also a bit cheaper than<br />
conventional fuels – further increasing the attraction <strong>of</strong> <strong>com</strong>patible car models.<br />
As more and more E20-<strong>com</strong>patible models were made available in the<br />
marketplace during the first half <strong>of</strong> 2008, a significant shift in consumer<br />
demand has taken place.<br />
In the first half <strong>of</strong> 2008, a total <strong>of</strong> xxxxxx passenger cars were sold in<br />
Thailand, equivalent to xx% <strong>of</strong> total vehicle sales. This <strong>com</strong>pares with a xxxx%<br />
share in 2006 and xx% in 2007. Around xxxxxxx <strong>of</strong> these were E20-<br />
<strong>com</strong>patible models, according to the Thai <strong>Auto</strong>motive Institute.<br />
© 2008 All content copyright Aroq Ltd. All rights reserved.
Page 7<br />
Chapter 2 Vehicle production and exports<br />
Chapter 2 Vehicle production and<br />
exports<br />
Ten-fold increase in output since Asia crisis<br />
Thai vehicle production has staged a strong recovery since falling to a low <strong>of</strong><br />
xxxxxxx units at the height <strong>of</strong> the Asia crisis in 1998. Ten years on, output is<br />
expected to be close to ten times that amount – forecast at around xxxx-xxxxm<br />
units in 2008 by the Thai government, thanks to a sharp increase in domestic<br />
demand and rising exports.<br />
The Government succeeded in helping to steer the automotive industry out <strong>of</strong><br />
the Asia crisis thanks to the timely introduction <strong>of</strong> incentives and legislation,<br />
including a relaxation in foreign ownership regulations. This helped the<br />
industry transform itself into an export-oriented, globally-<strong>com</strong>petitive vehicle<br />
and automotive <strong>com</strong>ponent manufacturing base. This year, around xx% <strong>of</strong><br />
vehicle output is expected to be exported.<br />
World-class pick-up truck industry<br />
Thailand has created the world’s second-largest market for one-ton pick-up<br />
trucks after that <strong>of</strong> the US, thanks to low excise taxes <strong>of</strong> x%. This has allowed<br />
the country’s pick-up truck manufacturers and their <strong>com</strong>ponent suppliers to<br />
develop the economies <strong>of</strong> scale necessary to <strong>com</strong>pete globally. In the last ten<br />
years, the quality <strong>of</strong> pick-up trucks has increased dramatically and all pick-up<br />
plants now supply world markets.<br />
Pick-up-based vehicles, including trucks and passenger pick-up vehicles<br />
(PPVs), accounted for just short <strong>of</strong> xx% <strong>of</strong> total output last year, or over<br />
xxxxxxx units. Passenger cars made up xx% <strong>of</strong> output, but <strong>this</strong> is expected to<br />
rise sharply in the next five years thanks mainly to the Government’s eco-car<br />
programme.<br />
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Page 10<br />
Chapter 3 Thai investment policies<br />
Chapter 3 Thai investment policies<br />
Ministry <strong>of</strong> Industry’s Board <strong>of</strong> Investment<br />
The Thai government, through the Ministry <strong>of</strong> Industry’s policy arm – the Board<br />
<strong>of</strong> Investment – <strong>of</strong>fers incentive programmes to attract investment in sectors<br />
which it regards as having significant potential for growth and, therefore, the<br />
potential to provide significant benefit to the Thai economy.<br />
Projects are approved on a case-by-case basis and tax privileges and micropolicies<br />
have varied significantly over the years. Investment programmes are<br />
awarded different levels <strong>of</strong> priority and tax incentives depending on scale and<br />
the potential benefits to the Thai economy.<br />
The BOI requires a minimum initial investment <strong>of</strong> THBxm (US$xxxxxx),<br />
excluding working capital and land purchase costs, for a manufacturing project<br />
to be considered by the BOI. In order to be considered for special tax<br />
privileges, other key requirements need to be met. These include minimum<br />
standards <strong>of</strong> corporate governance, minimum value added (usually around<br />
xx%), the use <strong>of</strong> modern production processes, modern/effective machinery<br />
and the meeting <strong>of</strong> minimum environmental protection standards.<br />
Requirements and incentives differ significantly between investments <strong>of</strong> up to<br />
THBxxxm (US$xxm) and those above THBxxxm, and vary according to<br />
economic development zone.<br />
Key industries that have been developed in Thailand with the support <strong>of</strong> the<br />
BOI include:<br />
○ food and food processing;<br />
○ textiles and textile products;<br />
○ electronic products and parts;<br />
○ electrical products and parts;<br />
○ petrochemicals;<br />
○ rubber; and<br />
○ vehicles and equipment.<br />
© 2008 All content copyright Aroq Ltd. All rights reserved.
Page 11<br />
Chapter 4 <strong>Auto</strong>motive investment programmes<br />
Chapter 4 <strong>Auto</strong>motive investment<br />
programmes<br />
Success with pick-up trucks<br />
The BOI has been successful in the past in promoting the development <strong>of</strong> a<br />
world-class one-tonne pick-up truck industry based on incentives and low<br />
domestic taxation to stimulate domestic demand. Today, the Thai one-tonne<br />
pick-up industry and market is second only to that <strong>of</strong> the US. The country<br />
produced xxxxxxx pick-up-based vehicles in 2007, <strong>of</strong> which close to xxxxxxx<br />
units were sold domestically.<br />
Large motorcycle sector<br />
At a meeting <strong>of</strong> the BOI held in October 2007, the Thai government reduced its<br />
investment requirements for prospective manufacturers <strong>of</strong> large motorcycles,<br />
as it pushes on with its efforts to develop a new two-wheeler industry niche.<br />
The improved <strong>of</strong>fer reflects a lack <strong>of</strong> response to the previously-announced<br />
programme.<br />
With its revised policy, the BOI has scrapped its minimum annual capacity<br />
requirements <strong>of</strong> xxxxx units for <strong>com</strong>panies proposing to produce large, fourstroke<br />
motorcycles with engines capacities <strong>of</strong> xxxcc and over. Restrictions on<br />
foreign ownership have also been lifted <strong>com</strong>pletely, instead <strong>of</strong> the previous<br />
limit <strong>of</strong> xx%.<br />
Incentives include corporation tax waivers for an amount not exceeding the<br />
total investment value and duty free importation <strong>of</strong> machinery, regardless <strong>of</strong><br />
plant location within Thailand.<br />
To promote motorcycle engine manufacture, starting with the machining <strong>of</strong> key<br />
parts such as cylinder heads and crankcases, the corporate in<strong>com</strong>e tax<br />
holiday has been extended to between three and eight years, depending on<br />
plant location.<br />
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Page 13<br />
Chapter 5 Eco-car incentives and standards<br />
Chapter 5 Eco-car incentives and<br />
standards<br />
Eco-car technical standards and tax incentives<br />
The Thai government <strong>of</strong>fers vehicle manufacturers that qualify for its eco-car<br />
programme exemption from relevant corporate taxes for eight years, provided<br />
that the amount does not exceed the initial investment, and duty-free<br />
importation <strong>of</strong> related machinery and manufacturing equipment, regardless <strong>of</strong><br />
the plant’s location.<br />
To encourage domestic sales <strong>of</strong> these vehicles, the excise tax will be set at<br />
xx%, <strong>com</strong>pared with xx% for conventional passenger cars and xx% for cars<br />
<strong>com</strong>patible with bi<strong>of</strong>uels. The tax rate will be much higher than the x% excise<br />
tax currently applied to pick-up trucks, however.<br />
Eco-car programme investment requirements<br />
To qualify for Thai eco-car tax incentives, a minimum investment <strong>of</strong> THBxbn<br />
(US$xxxm) must be made within the first five years – excluding the cost <strong>of</strong><br />
land and working capital. Investors also must make the following<br />
<strong>com</strong>mitments:<br />
○ a minimum annual production level <strong>of</strong> xxxxxxx vehicles within five<br />
years.<br />
○ local assembly <strong>of</strong> engines; and<br />
○ local production <strong>of</strong> at least four <strong>of</strong> the following five items: cylinder<br />
heads, cylinder blocks, crankshafts, camshafts and connecting rods.<br />
Initial production <strong>of</strong> cylinder blocks and heads must be at least at the<br />
machining stage.<br />
Although the Government is not allowed to specifically require minimum local<br />
content levels under WTO regulations, <strong>com</strong>ponent manufacturing and sourcing<br />
plans must be submitted for approval. The BOI assesses these plans and<br />
makes an arbitrary ruling based on merit.<br />
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Page 15<br />
Chapter 6 Bi<strong>of</strong>uel incentives<br />
Chapter 6 Bi<strong>of</strong>uel incentives<br />
Independent <strong>of</strong> developments in the eco-car segment, in January 2008 the<br />
Thai government reduced excise taxes on cars <strong>com</strong>patible with E20 gasohol<br />
and B2 biodiesel to xx% for cars with an engine smaller than xxxxcc, from the<br />
xx% applied to similar-sized, non gasohol-<strong>com</strong>patible cars. The overall excise<br />
tax range has been reduced from xxxxx% to xxxxx%, depending on engine<br />
size (see Table 5, below).<br />
E20 <strong>com</strong>prises xx% ethanol and xx% petrol, while B2 is xx% diesel and x%<br />
vegetable oil. As a result <strong>of</strong> the January cut in excise taxes, vehicle<br />
manufacturers were able to reduce the price <strong>of</strong> gasohol-<strong>com</strong>patible passenger<br />
cars by between THBxxxxxx to as much as THBxxxxxxx for top-<strong>of</strong>-the-range<br />
cars. Government policy looks set to continue in <strong>this</strong> direction as it tries to slow<br />
the country’s rising dependence for fossil fuels.<br />
Table 5: Excise tax rates on passenger cars by type and fuel <strong>com</strong>patibility, January 2008<br />
(%)<br />
Engine size (cc) Standard fuel E85 gasohol E20 gasohol/B2 Eco-cars<br />
< 2000 xx xx xx xx<br />
2001-2500 xx xx xx -<br />
3501-3000 xx xx xx -<br />
Larger than 3000 xx xx xx -<br />
Sources: Thai government<br />
Bi<strong>of</strong>uel subsidies<br />
Further tax subsidies are applied to the bi<strong>of</strong>uel itself, making E20 and B2 a few<br />
percentage points cheaper than conventional fuels. It has been argued that<br />
these benefits are <strong>of</strong>fset by the higher consumption rates <strong>of</strong> the fuel.<br />
Nevertheless the Thai state-owned petroleum <strong>com</strong>pany, PTT Plc, is struggling<br />
to produce and distribute enough E20 to keep up with the growing demand, as<br />
more and more E20-<strong>com</strong>patible cars are sold in the country. The Federation <strong>of</strong><br />
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Page 18<br />
Chapter 7 Manufacturer eco-car programmes<br />
Chapter 7 Manufacturer eco-car<br />
programmes<br />
Companies pledge xxxxxxx units in new capacity<br />
The Thai Board <strong>of</strong> Investment has approved seven eco-car proposals involving<br />
<strong>com</strong>bined investments in the region <strong>of</strong> THBxxbn, or close to US$xbn. The<br />
seven new plants will add xxxxxxx units in new vehicle production capacity in<br />
the country and are expected to produce a <strong>com</strong>bined total <strong>of</strong> at least xxxxxxx<br />
eco-cars per year, within five years <strong>of</strong> <strong>com</strong>pletion, if they are to <strong>com</strong>ply with the<br />
Government’s eco-car investment requirements.<br />
The Thai government has adopted advanced European technical<br />
specifications as the main standards for the eco-cars, mainly because Europe<br />
is the largest and most developed regional small car market in the world. The<br />
Government is trying to steal a march on rivals from India and China and<br />
encourage participants to ultimately target Europe as a key export destination<br />
in addition to Asia-Pacific.<br />
Tata could struggle to meet targets<br />
While most <strong>of</strong> the <strong>com</strong>panies investing in eco-car plants are well established in<br />
the Thai market, two <strong>of</strong> these – Suzuki Motors and Tata Motor – have a very<br />
limited presence in the country. Tata Motors, in particular, will likely struggle to<br />
meet the minimum volume requirements set out by the Thai government’s<br />
incentive guidelines as well as its own domestic (Thai) sales targets. The<br />
<strong>com</strong>pany also has a negligible presence in other major Asian markets outside<br />
India, and overall it is expected to struggle to find buyers for its Thai-made<br />
cars.<br />
Suzuki’s Thai sales targets are more conservative even though it is making<br />
significant progress in building up its sales network in Thailand. The <strong>com</strong>pany<br />
also has a strong presence in other Asian markets.<br />
© 2008 All content copyright Aroq Ltd. All rights reserved.
Page 26<br />
Chapter 8 Outlook for Thai vehicle production<br />
Chapter 8 Outlook for Thai vehicle<br />
production<br />
Competition from eco-cars from 2009<br />
Thai vehicle production growth is forecast to slow sharply in 2008, rising by<br />
just xxx% to xxxxm units, up from just over xxxm units in 2007. Passenger car<br />
production is expected to continue to outperform <strong>this</strong> year thanks to buoyant<br />
domestic sales and strong demand in key export markets. Output is expected<br />
to weaken significantly from 2009, however, due to slowing economic growth<br />
in the region, with rising interest rates and inflation begin to affect consumer<br />
spending.<br />
The launch <strong>of</strong> Honda’s new eco-car, which is scheduled to go into production<br />
later <strong>this</strong> year, will help lift overall volumes, but demand for existing cars will<br />
inevitably begin to suffer. As <strong>com</strong>petition from the eco-car segment intensifies<br />
in the next few years, conventional passenger car production is expected to<br />
<strong>com</strong>e under further pressure – particularly small cars such as the Toyota Yaris<br />
and the Honda Fit. With fuel prices unlikely to fall significantly in the medium<br />
term, consumer preference is likely to shift increasingly towards more fuelefficient<br />
vehicles.<br />
Pick-up truck output under pressure<br />
After a strong first half <strong>of</strong> 2008, pick-up truck output is expected to weaken<br />
significantly in the second half with slowing economic growth in key overseas<br />
markets expected to affect export demand. Domestic sales have already<br />
slowed sharply in recent months. Pick-up truck output is expected to remain<br />
under pressure for some time, as high fuel costs exacerbate an already weak<br />
demand environment both domestically and overseas. Vehicle life-cycles are<br />
likely to be extended as economic pressures mount and potential buyers may<br />
also opt for lower-cost means <strong>of</strong> transport.<br />
© 2008 All content copyright Aroq Ltd. All rights reserved.
Page 29<br />
Chapter 9 Supply-chain investment<br />
Chapter 9 Supply-chain investment<br />
In order to successfully promote a new expansion phase <strong>of</strong> the Thai vehicle<br />
industry, the country’s Board <strong>of</strong> Investment needs to attract new investment in<br />
key upstream sectors, particularly in the manufacture <strong>of</strong> high-quality steel and<br />
automotive <strong>com</strong>ponents. The BOI is actively promoting investments in these<br />
areas with incentives and other support initiatives.<br />
Steel sector investments<br />
The country’s automotive and other key industries such as domestic<br />
appliances and electronics currently rely heavily on steel imports from South<br />
Korea and China. The BOI is encouraging investment in high-quality upstream<br />
steel production, with the aim not only <strong>of</strong> eliminating the country’s dependence<br />
on imports, but to also supply steel to other manufacturers in the region.<br />
With automotive sector production set to rise sharply in the medium term, as<br />
the above-mentioned eco-car programmes get under way, the country’s steel<br />
demand is expected to rise sharply in the next few years. The Government has<br />
identified an urgent need for substantial investment in smelting capacity.<br />
Steel demand set to soar<br />
The Thai government expects annual domestic demand for high-quality steel<br />
to double in the next ten years to xxm tons per year, from xxxxm tons at<br />
present. It currently imports xxxm tons <strong>of</strong> steel per year from Japan and South<br />
Korea, worth over THBxxxbn (or close to US$xxxbn). Other ASEAN countries<br />
import a <strong>com</strong>bined xxxm tons <strong>of</strong> steel per year, worth just under US$xbn,<br />
according to data released by the BOI.<br />
New incentives announced<br />
In November 2007, the Government signed <strong>of</strong>f a package <strong>of</strong> incentives with<br />
related guidelines designed to promote investments in high-quality steel<br />
production. The Government also <strong>of</strong>fers assistance to help secure optimum<br />
locations for steel production and to ensure that appropriate infrastructure is<br />
available, including deep-sea port facilities and adequate water supply.<br />
© 2008 All content copyright Aroq Ltd. All rights reserved.
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