The Thai government in 2007 announced a package of incentives designed to stimulate a new phase of growth in the country’s automotive industry. The incentives package for ‘eco-cars’ has already attracted substantial interest from international OEMs, writes Tony Pugliese.
Go deeper with GlobalData
Through the Ministry of Industry’s Board of Investment (BOI), the Government is offering up to eight years’ corporate tax breaks and duty-free import of related machinery and equipment to companies investing in the manufacture of small cars. The BOI set out the minimum investment requirements and specifications for the car, dubbed “eco-car” due to its low fuel consumption and emissions specifications.
The BOI hopes to repeat the success it had in developing a globally-competitive one-tonne pick-up truck industry in creating a new automotive product niche. By specifying the latest European standards in terms of fuel consumption, emissions and crash-testing, the BOI hopes to secure access for its eco-cars to the world’s largest regional small-car market. Most eco-cars produced in Thailand are expected to be sold in Asia and Australia, however.
Domestic demand for eco-cars expected to be strong
Domestic sales are expected to account for a significant proportion of output. The BOI expects domestic demand for small, fuel-efficient cars in the US$10-12,000 price-range to be significant. Leading sub-compact cars currently available in the Thai market, the Honda Fit and Toyota Yaris, have minimum retail prices of US$14,000 and US$15,500 respectively.
In tandem with the eco-car programme, the BOI in 2007 announced a new package of incentives for prospective manufacturers of large motorcycles (above 500cc) – a segment that has yet to be developed significantly in Southeast Asia. The BOI is also making significant efforts to attract investment in support industries, such as in up-stream steel and other raw materials production and automotive component manufacture.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataThe Government has also launched a number of biofuel incentives in 2008 designed to reduce the country’s dependence on fossil fuels. The timing of these announcements has left vehiclemakers somewhat dismayed, as they came after most companies had already submitted their eco-car investment proposals.
825,000 in new car capacity approved so far
So far, seven global vehicle manufacturers have been granted permission by the BOI to carry out their proposed investments in new eco-car manufacturing plants – each with a capacity of at least 100,000 units per year. A total of 825,000 units of new vehicle production capacity have been approved by the BOI, and an eighth proposal submitted by Volkswagen awaits approval. The eighth project would bring total new small-car capacity to close to 950,000 units – similar to the country’s total pick-up truck production in 2007.
One of the BOI’s specific requirements for eco-car investments is that actual annual production must reach 100,000 units within five years. On the basis that all seven of the already approved eco-car programmes do meet these minimum production stipulations, annual eco-car production would exceed 700,000 units by 2016. Around one-third of output is expected to be sold in Thailand. The first model, from Honda, is expected to be produced at the end of 2008.
While global demand for fuel-efficient cars is rising sharply as oil prices continue to spike, it is conceivable that not all eco-car manufacturers will meet their production and sales targets. Tata Motors looks the weakest of the group, with negligible sales volumes across the ASEAN region, including Thailand, and a poor brand image outside India. All other prospective eco-car manufacturers have strong global distribution networks and will likely do well.
Thai vehicle production forecast at over 2.1m by 2016
Thai vehicle production is forecast to exceed 2.1m units by 2016, provided that most eco-car programmes go according to plan. This would represent a 60% increase on the 1.3m vehicles produced in 2007. Some erosion will occur between vehicle segments, with conventional small cars coming under pressure as the lower-cost eco-cars become widely available across Southeast Asia. Eco-cars are expected to compete closely on price with pick-up trucks, but any sales trade-off is likely to be limited due to the significant difference in specifications and end-user requirements.
See also: Thailand’s emerging eco-car industry – forecasts to 2016 (download)
