Automotive Industry

Published on November 2009

Thailand’s automotive industry to see growth accelerate Supported by a hard-work ethic, steady investment and

for automotive applications. Thailand, in fact, is the only

generous

automotive

country outside of the 30-nation Organization for Economic

Currently

Co-operation and Development in which Toyota has such

industry

government is

poised

incentives, for

Thailand’s

accelerated

growth.

employing more than 300,000 people and generating 12% of

sophisticated facilities.

the national GDP, the auto industry is respected as one of the biggest manufacturing sectors in the country.

Optimism and Opportunity

Thailand’s industry has attracted virtually all of the world’s

The automotive industry in Thailand is looking to further

major automakers, assemblers, and parts and component

growth and development. Such optimism stems largely from

manufacturers, and many are planning further investment.

free-trade agreements (FTAs) with countries such as Japan,

Ford, General Motors, BMW, DaimlerChrysler, Mitsubishi,

China, South Korea, Australia, New Zealand and India, and

Mazda, Toyota, Isuzu, Honda and Nissan all have an

the prospect of rising exports to ASEAN member nations. As

established presence in the country, together accounting for

the industry contributes significantly to the local economy,

the lion’s share of the nearly 1.4 million vehicles produced

the Thai government is also offering support in the form of

here in 2008. That is a far cry from when Thailand had just

tax incentives and various other measures, making Thailand

one automotive assembly plant in 1961.

fertile ground for investors.

Truly a global player, the Thai industry has expanded from its

In June 2009, the Thailand Board of Investment expanded its

days as strictly an assembler into a major automotive

automotive incentive scheme to cover automobiles that have

production center. Automotive exports totaled 775,652 units

high technologies that are new to Thailand, such as hybrid

in 2008. With shipments steaming to 130 countries, Thailand

drive, brake energy regeneration and electronic stability

is currently the world’s largest producer of one-ton pickup

control. The BOI’s new policy, which is designed to attract

trucks and the seventh-largest automotive exporter overall.

international automakers looking to restructure by relocating

It is the top manufacturer in all of Southeast Asia, with

production facilities overseas, provides a range of incentives,

measures in place for expansion.

including corporate income tax holidays of between 5 and 7 years. To be eligible, projects must involve a minimum

And it’s not just production. More foreign makers now

investment of 10 billion baht.

appreciate Thailand as a prime location for R&D investment as well. For example, in recent years Toyota has established

Among

a technical facility here to conduct R&D work on product

automotive

design, testing and evaluation. Moreover, Toyota Tsusho

promoting fuel- efficient transportation through a natural gas

Electronics (Thailand) Co., Ltd. was established in 2005 as a

vehicle initiative. Growth opportunities also exist with E85

joint venture between Toyota Tsusho Electronics Co., Ltd.

ethanol. Thailand’s Ministry of Finance is offering a 3-year

and the Toyota Tsusho Group to develop embedded software

exemption on the import duties of foreign auto parts used to

the

many

programs

industry,

aimed

Thailand’s

at

Ministry

developing of

Energy

the is

make vehicles E85- ready. The ministry has also reduced the excise taxes on cars using E85 to 25%, 30% and 35%, depending on engine size.

Published on November 2009

Expect to see more environment-friendly cars coming down

There are many other reasons, hundreds in fact, why

the road. In perhaps one of the most exciting stimulus

Thailand

measures, the BOI and the Ministry of Finance are offering

production. Of the more than 3,000 parts and components in

maximum incentives to eco-car manufacturers in Thailand.

a typical vehicle, many of them still have to be sourced from

Under the new program, the BOI offers an 8-year corporate

overseas.

income tax holiday and duty-free importation of machinery to

manufacture fuel injection pumps, transmissions, injection

eco-car part projects that have a minimum investment value

nozzles, anti- lock braking systems, and central locking

of 10 million baht. The Finance Ministry allows makers to pay

systems, among numerous other products. More R&D, design

a reduced excise tax of 17% on cars with petrol-powered

and testing centers are also needed, even though Yamaha,

engines smaller than 1,300cc and diesel-powered engines

Bridgestone, Maxxis and Michelin already operate such

below

facilities here.

1,400cc. As the excise tax

levied

on

standard

is

an

attractive

Opportunities

base

exist

for

for

automotive

foreign

parts

suppliers

to

passenger cars is currently 30 to 40%, the tax reduction on eco-cars amounts to a US$2,000 drop in the sticker price.

Demand for Thailand-made automotive parts is growing. In

That is a juicy incentive for consumers and manufacturers

response,

alike.

suppliers in the country, of which about 700 are OEMs or

there

are

already

approximately

1,800

such

original equipment manufacturers. Since all major Japanese auto

automakers have opened manufacturing sites in Thailand,

assemblers have already proposed investments totaling an

many of their parts manufacturers, such as France’s Valeo,

annual production capacity of 675,000 eco-cars. The first

Germany’s Bosch, U.S.-based TRW, Britan’s GKN and Japan’s

made-in-Thailand eco-cars are expected to roll off assembly

Denso, Mitsuba and Mitsubishi have followed suit to serve

lines in early 2010.

their customers.

The eco-car sector in Thailand promises growth opportunities

According

for parts and component manufacturers as well. In July 2009,

Association, the quality of automotive parts in Thailand is the

the BOI announced a 90% reduction on the import duties of

highest of any ASEAN nation. Local parts manufacturers

eco-car raw materials and parts that cannot be produced

supply nearly all the requirement used in the assembly of

locally. Again, this will benefit manufacturers and consumers

motorcycles, about 85% of parts used in pickup truck

by lowering production costs and retail prices. Granted for a

assembly, and as much as 70% of those for passenger cars.

Early

response

has

been

impressive.

Six

global

to

the

Japan

Automobile

Manufacturers

period of two years and subject to annual review, the 90% import duty reduction should spur investment in eco- car

Thailand’s exports of auto parts more than quadrupled

parts manufacture in Thailand, making the local industry

between 2003 and 2008, as locally produced vehicles and

more competitive globally.

components continue to gain global acceptance. The value of auto parts exported from Thailand exceeded US$4.6 billion in 2008, the fifth consecutive year of

Published on November 2009

Thailand’s FTA with Australia calls for the elimination of tariffs on commercial vehicles, passenger cars, and their parts and accessories in 2010. The Early Harvest Scheme with India provides for lifting tariffs on hydraulic systems, speedometers and gear boxes next year as well. The majority of China’s and New Zealand’s tariffs on auto parts and accessories are scheduled to be cancelled in 2010.

The

Thailand-Japan

Economic

Partnership

Agreement

increases the market potential for local parts producers.

Under the JTEPA, tariffs on all but five automotive parts will double-digit growth. Growth will continue as the government

be lifted by 2012.

works to push Thailand into the top 10 of automotive The Thai people are a plus as well, as the country boasts a

producers.

skilled workforce. Labor costs here are lower than in many In 2008, most of the automotive electronics used in the cars

other areas of Asia. The land and facility costs are also

made in Thailand were imported from Malaysia or Japan.

competitive. Moreover, the government is encouraging the

These imports were valued at US$4 billion. Given this market

development of so-called auto parts clusters, where proximity

size, the currently limited number of automotive electronics

between manufacturers and suppliers will result in further

producers in Thailand presents an excellent investment

cost and efficiency benefits.

opportunity, particularly for value-added systems.

There are also many industrial estates that focus on the automotive industry and provide state-of-art facilities for

Attractive Investment Site

manufacturers. Exporting automotive parts in Thailand is a But why choose Thailand? With many of the world’s leading automakers

manufacturing

here

and

the

economy

breeze with the country’s extensive road networks, welldeveloped seaports and several international airports.

rebounding, the country’s automotive industry is expected to continue to expand in coming years. Consequently, demand

In addition to the policies on tax reduction, there are non-tax

for

well.

incentives that the Thai government offers to manufacturers

Currently, passenger cars are seeing the highest growth in

of vehicles and vehicle parts, and for automotive R&D and

total industry sales.

testing. These include land ownership rights for foreign

locally

produced

auto

parts

will

increase

as

investors, Geography is also a benefit. A gateway to Asia, Thailand provides easy access to regional markets. The country’s

technicians,

permission and

work

to

bring

permit

in

foreign

experts

and

and

visa

facilitation

for

expatriate employees.

many FTAs include terms advantageous to local auto parts producers. In particular, the agreement with ASEAN opens

As additional assistance, the BOI provides the Unit for

the door to a collective market of 585 million people in the

Industrial Linkage Development and also maintains the

association’s member nations. Auto parts exported to ASEAN

ASEAN Supporting Industry Database, a comprehensive

nations are currently subject to a tariff of less than 5%, and

online database of more than 20,000 ASEAN suppliers.

the tariff will be eliminated entirely in 2010.