The Federation of Thai Industries (FTI) has reported a year-on-year decline of 38.76% in vehicle production in Thailand over the past nine months. Analysts at GlobalData say the annual output tally is heading for a 25-30% reduction on 2019.

Bakar Sadik Agwan, Senior Automotive Consulting Analyst at GlobalData, says that Thailand, a key automotive production hub in Asia, is struggling hard to recover from the slumped vehicle production output under weight of the global economic slowdown, shutdown of some local production facilities, weak domestic demand and the US-China trade war.

"The significant decline in production output raises eyebrows over the future of the Thailand automotive sector, which aims to emerge as a leading production hub in the Asia region," Agwan says.

"Though Thailand's vehicle production and sales have been recovering month-on-month, the existing big-gap in year-on-year volumes raises major concerns over recovery to pre-COVID-19 levels," he points out.

Agwan also notes that weak overseas demand due to the impact of COVID-19 has been a major factor in this year's automotive output decline. On a month-on-month basis, production for domestic sales increased by 5.41% while exports declined by 25.41% in September 2020. Cumulative January-September 2020 production for both domestic sales and exports declines at 40.13% and 37.49%, respectively, from the previous year.

"Thai auto sector needs government support to stimulate the domestic demand and production output," he says. "The government and OEMs are trying to shore up domestic demand with tax breaks and new vehicle launches. A possible scrappage policy is also on the cards, and can be implemented soon, which in turn will support domestic production.

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"The government needs to attract more investments from global OEMs to establish their facilities in the country for exports. Thailand can also grab export opportunities in ASEAN markets, including Indonesia and the Philippines, where some key OEMs have recently shut their plants and in Vietnam, where the government eased import restrictions. However, in the near-term, recovery to pre-COVID-19 level, which was 2.01 million units produced in 2019, will remain a key challenge for Thailand. GlobalData expects Thaiand vehicle production to decline between 25-30% year-on-year in 2020."