Automotive Electronics Sector Wide Open for New Investment
Sophisticated electronic components are the next great phase of emphasis in Thailand’s robust automotive industry. As consumers demand increasingly smarter vehicles, the R&D and production activity in the country’s automotive electronics sector continues to expand, with unlimited high-tech investment opportunities. Still, most such components currently used in Thailand are sourced abroad, meaning there is ample space for entrepreneurs to come in and start up production facilities that would reduce the import dependency. A sector wide open for business growth, Thai automotive electronic components can be concentrated in several categories: systems for controlling power or engine and transmission electronics, safety systems, chassis and suspension electronics, driver assistance such as collision avoidance warning and night vision sensing, passenger comfort, information systems and in-car entertainment. As technologies converge, a modern car now has more than 100 electronic control units, each with the potential to function better and better through constant innovation.
As one example, for higher and higher levels of reliability and functionality, breakthroughs in power performance can involve better fuel injection, shift changes, emission control and lubrication. Safety is also ripe for investment by developers of improved anti-lock braking, traction control, air bags, hill descent control, blind spot detection, automatic wipers and headlamp beams that adjust on their own. Amid the exploding demand for intelligent vehicles, Thailand’s automotive electronics entrepreneurs with superlative R&D teams can virtually write their own future. Investors can consider new technologies for everything from tire pressure monitoring to voice interfacing to crime detection. Moreover, innovators could provide superior kinds of component testing and quality assurance. With local society moving toward “greener” transport, environment-friendly batteries are another quick inroad for investors seeking a share of Thailand’s prosperous automotive industry. Many companies have already found Thailand to be the perfect location for actualizing new solutions and technologies in automotive electronics. Among the vast range of components, Toyota Tsusho produces embedded software for automotive applications. Other prominent local manufacturers of advanced components are Omron, Valeo and Mizuki.
Thai-Made Parts Best in ASEAN Complementary to Thailand’s 14 carmakers and seven motorcycle assemblers, there are approximately 700 Tier 1 auto parts suppliers and 1,700 Tier 2 and 3 suppliers in the country. Generally, the Tier 1 suppliers make engines, drivetrains, steering, suspension, braking, wheels, bodywork and interiors, as well as the electronic systems. At Tiers 2 and 3, companies provide stamping, plastic and rubber parts, machining, casting, forging and trimming. Local parts manufacturers supply virtually 100% of the requirement used in the assembly of motorcycles, about 85% of parts for pickup truck assembly, and nearly 70% of those for passenger cars. Since most major automakers have opened production sites in Thailand, many of their parts suppliers have already followed suit and established factories here to serve customers without complication. Auto parts companies with local facilities include France’s Valeo and Michelin; Germany’s Bosch; U.S.-based TRW, 3M and Goodyear; Britan’s GKN; and Japan’s Denso, Mitsuba, Mitsubishi, Omron, Sumitomo, Toyota Boshoku, Hitachi, Bridgestone, Alpine and Pioneer, among many others. To date, 50 of the top 100 global OEM parts suppliers manufacture in Thailand. According to the Japan Automobile Manufacturers Association, the quality of auto parts made in Thailand is the highest of any country in the Association of Southeast Asian Nations (ASEAN). Automotive Helps Drive the Economy Characterized by production brawn and innovation vigor, Thailand’s impressive automotive industry is a key driver of the country’s economy, accounting for a hefty 12% of GDP. Automotive is also the nation’s third-largest export sector. Thailand’s annual exports of vehicles and auto parts total about US$25 billion, with parts accounting for 55%. Reaching all continents, Thailand ships automotive products to more than 170 countries. Asia is a major market, currently absorbing 32% of exports. Japan is the No. 1 single-country destination, and Indonesia, Australia, the Philippines and Malaysia round out the export top five. Thailand is still importing about US$8 billion worth of auto parts annually. As this substantial figure suggests, investors that set up new projects to instead manufacture some of these items locally have a chance to reap very handsome profits.
The many segments of the Thai automotive industry include 1-ton pickup trucks, motorcycles, small passenger cars, eco- cars, natural gas vehicles (NGVs), electric vehicles, medium to large cars, luxury automobiles, SUVs, vans and buses, and aftersales service, as well as parts and the cutting-edge electronic components sector. The country boasts a long history in automotive. It was about 50 years ago when Japanese carmakers decided through their research that Thailand was the best place for establishing factories outside of Japan. From that starting point, assemblers in America and Europe would eventually select Thailand their base in Asia. Experts in the industry are telling auto parts suppliers far and wide to launch investments in Thailand. It makes good sense, they emphasize, to be located in proximity to the Japanese, European and U.S. automakers who are their customers and which operate plants here. Nearly every Japanese carmaker now has manufacturing facilities in Thailand, including Toyota, Nissan, Honda, Isuzu, Mazda, Suzuki and Mitsubishi, as do major U.S. automotive companies such as Ford and General Motors, and the German firms Mercedes-Benz and BMW.
Rising steadily year after year, Thai automotive has matured into a world-class industry. Thailand reached the milestone of 2 million units in annual production in November 2012, marking the first time that the country has surpassed the 2-million mark in annual production. With its strong fundamentals and rock-solid production infrastructure, the country is on track to break into the global top 10 when output climbs to a projected 3 million units in 2017. Thailand is also a leading motorcycle hub, producing about 2.5 million units in 2012. Family models make up 94% of output and sports models constitute a lesser line. Honda accounts for the lion’s share producing 68%, followed by Yamaha at 23%, Kawasaki with 5% and Suzuki at 4%. The domestic market absorbs most motorcycles produced in Thailand, with exports going mainly to Indonesia, the Philippines, Laos, Myanmar and Australia. To promote the sector, the government in 2012 lifted the minimum annual capacity that previously was set at 50,000 units on manufacturers of so-called “big bike” (over 500cc) 4-stroke motorcycles. Pickup trucks, led by 1-ton models, are actually the largest single product category in the Thai auto industry. In fact, Thailand remains the world’s foremost producer and exporter of pickups, which account for 61% of local automotive output. Popular models recently introduced to the domestic market include the Toyota Hilux Vigo, Nissan Navara, Isuzu D-Max, Chevrolet Colorado, Mazda BT-50 Pro, Ford Ranger and Mitsubishi Triton.
Attractive Menu of Advantages Multinational corporations are drawn to Thailand for its many profitable features as an investment site. For one, growth in coming decades is virtually ensured for investors because of the Thai government’s consistent and reliable support of the automotive industry. Under an inspired concept that has become the envy of competing production centers worldwide, the Thai government encouraged the formation of auto parts clusters in Thailand. Over the years, the clusters have fostered outstanding productivity and efficiency in the local industry. This is because proximity between automakers and their input suppliers enables better communication, streamlines operations, and improves the flow of products to reduce costs. Thailand’s industrial estates that focus on the automotive industry provide state-of-art facilities for manufacturers. The country’s infrastructure in general is a strength that benefits investors, as the welldeveloped road networks, seaports and international airports make the shipping of automotive products efficient and fast. The Thailand Board of Investment (BOI) grants a range of fiscal and non-tax incentives to automotive investors. Fiscal benefits include exemption or reduction of import duties on machinery and raw materials, and corporate income tax exemptions and reductions. Non-tax incentives include permission to bring in foreign workers, own land, and take or remit foreign currency abroad. Additionally, foreign businesses are entitled to 100% ownership. As innovation is the key to the industry’s ongoing success, new projects engaged in the manufacture of automotive electronic components and other high-tech vehicle products are considered priority activities by the BOI. This entitles them to exemption of corporate income tax for as much as eight years, among other special measures. Private sector efforts contribute substantially to the prosperity of the sector. Bringing together hundreds of local and overseas exhibitors, the Thailand Auto Parts & Accessories Show is an event that underscores the country’s importance as a sourcing hub in Asia. The Thailand Automotive Institute also promotes the industry by serving as a cooperation bridge between the government and the private sector. Boasting 100 employees and a membership of several thousand vehicle and parts producers, the independent organization does everything from recommending national policies to consulting makers on product testing, personnel training and R&D. A lively domestic vehicle market makes Thailand fertile ground for automotive investment. And as carmakers launch new models to meet rising demand, local auto parts producers are increasing capability to accommodate the upswing.
Continued success by the eco-car project is further animating sales in the domestic market as more Thai consumers seek vehicles that are fuel-saving and cleaner. The BOI introduced measures for the manufacture of fuel-efficient and environmentally safe eco-cars in Thailand back in 2009. So far, there are five BOI-promoted companies of eco-car manufacturing. Nissan was the first, introducing its March model and later offering the Almera. Today those compete for Thai market share with the Honda Brio, Suzuki Swift and Mitsubishi Mirage. Toyota is to launch eco-cars in 2013. It is possible that new players might become players sometime down the road. Among the BOI’s requirements on eco-cars, such vehicles need fuel economy of at least 20 kilometers per liter, must meet the Euro 4 emission standard, and should have UNECE 94 and 95 safety levels. Four of the five main components (cylinder head, cylinder block, crankshaft, camshaft and connecting rod) must be produced in Thailand. By the third quarter of 2012, over 200,000 eco-cars had been sold locally. According to the BOI, once each of the five manufacturers including Toyota reach production of 100,000 units per year, investment in the eco-car project would have exceeded 200 billion baht. Brisk expansion is likewise anticipated for the electric vehicles market in Thailand. The next step under the eco-car project is to make the country a hub of electric car production. As such, the government aims for electric vehicles to become the third “champion” of Thailand’s automotive industry, after the tremendously successful pickup truck and eco-car projects. Investors should see the birth of the local electric vehicles sector as a lucrative opportunity. To spur development, the BOI is offering tax incentives for investment in the manufacture of the high-tech batteries that are the heart of the electric vehicle. Industry experts pointed out that once mass production commences, local demand for electric cars will increase as economies of scale push down sticker prices. Mitsubishi Motors Thailand is among the enterprises to have already expressed interest in the project. The company said it could launch production of an electric version for its Mirage eco-car in two years as long as the appropriate batteries are available. The potential of such cars certainly paints a rosy future for timely entrepreneurs in Thailand. The Thai Automotive Industry Association predicts that, with their lower energy consumption than gasoline-powered or hybrid vehicles and high level of material recycling, electric vehicles could constitute 10% of global automobile output by 2020.
“Go green” is clearly a movement being embraced with enthusiasm in Thai society. To accelerate the cause of keeping pollutants out of the environment, the government has provided duty exemptions on fuel-efficient NGVs and vehicles using the clean E85 ethanol fuel blend. Under a fuel-efficient transportation initiative, thousands of natural gas-powered taxicabs are going into use. As of September 2012, Thailand’s number of NGV service stations had risen to 479. The BOI provides incentives for investments in NGV production, including engines, tanks, other parts, and machinery for service stations of such vehicles. Besides the government support and excellent infrastructure, a large pool of skilled yet affordable labor is another factor encouraging automotive enterprises to set up facilities in Thailand. The country’s deep background in manufacturing has cultivated a workforce experienced in all aspects of parts and vehicle production. As a result, today Thailand is home to 400,000 auto employees. The country also gives manufacturers abundant raw materials, including rubber and steel. With Thailand situated at the gateway to economies across Asia, geographic proximity is similarly a valuable benefit of investing here. Collectively, Asia is touted as the world’s fastest-growing market.
Thailand will become even more attractive as an investment location when nations of the surrounding region launch the ASEAN Economic Community (AEC). The 10 member countries of ASEAN are scheduled to form the AEC in 2015 as a massive single market and production base. Thailand, Singapore, Malaysia, Indonesia, Vietnam, Cambodia, Laos, Myanmar, Brunei and the Philippines will drop trade tariffs among them and liberalize investment sectors, enabling the free flow of goods, services, capital and people in the regional bloc. This will open doors for automotive enterprises in Thailand to enjoy easy access throughout a seamless AEC market of 600 million consumers.
Thailand’s attractiveness is praised by international organizations as well as entrepreneurs. In its latest report, the World Bank rates Thailand very high as the 18th easiest country in which to do business, out of 180 nations surveyed. Investor Confidence as Firm as Ever New projects are springing up virtually every month, an indication of investor confidence in Thailand as a business center. In November 2012, Thai Auto Tools and Die announced plans to pour 1 billion baht over two years into setting up a new factory in Chonburi Province and upgrading its existing facility in Pathum Thani Province. The company said these projects would enable it to turn out high-volume products that serve the enlargement of local makers. In May 2012, Ford celebrated the opening of its US$450 million plant in Rayong Province. With an initial production capacity of 150,000 vehicles, the factory increases Ford’s annual capacity in Thailand to 445,000 units. Since 2007, the company has invested more than US$1.5 billion in its Thai operations. Other major projects in 2012 came from GM, Mitsubishi, Nissan, Isuzu, Bosch, Dana, Bridgestone, Honda, Mazda, Denso and Toyota. Celebrating its 50th year in Thailand, Toyota aims to increase to building 1 million vehicles annually in the Kingdom. The company’s most recent project is a 16 billion baht expansion of its diesel engines production here. Expansion in the industry is also creating a need for more R&D, design and testing centers. Even though Yamaha, Isuzu, Toyota, Bridgestone, Nissan, Honda, Maxxis and Michelin already operate such facilities here, there is plenty of room for new high- tech analysis centers. Even with its achieved global prominence and prospects of growth, the Thai automotive industry faces challenges. One important task is to make sure that the number of technicians keeps up with the local industry’s vigorous unfolding. In addition, educators are striving to boost the country’s skills in speaking English, the global business language, especially with the coming of the AEC and opportunities presented by greater internationalization.