The analysts of one of Thailand’s biggest banks predict that Thailand’s automobile sector will achieve 3-4% growth in 2021. The growth in the sector saw a dip due to the COVID-19 pandemic. This growth is due to the increase in overseas demand resulting in a high volume of exports. With an increase in demand for any commodity, the industry seeks more active participants in the process. Therefore, now is the right time to invest in Thailand in the automobile sector.
Commercial vehicle sales will be particularly high in the next two years. According to the Krungsri Research Center, this is due to expansion in the construction sector, online retail firms, and logistics businesses.
Thailand’s automobile industry plays a vital role in the country’s economy. Additionally, the nation has the strength and diversity of car investment and manufacturing. Moreover, these initiatives are largely by top international automakers. Owing to this reason, the Kingdom got the name “the Detroit of Asia.”
Thailand’s automobile sector is currently moving to electric vehicles. These initiatives are becoming a rapidly developing market segment.
COVID-19 pandemic had a great impact on car manufacturing, sales, and exports last year. However, Krungsri Bank forecasts domestic sales to climb at a rate of 3 to 4% over the following two years. Additionally, the industry is in line with improving economic conditions.
According to Krungsri Bank, the carmakers are confident enough in an economic rebound to launch new models. Moreover, this is applicable both in traditional combustion engines and electric vehicles.
The global economy is improving and trade relations are expanding in Southeast Asia’s free trade zone. This network includes the ten member countries of the Association of Southeast Asian Nations (ASEAN). Analysts estimate exports to rise by 4 to 5% in this region.
How Thailand Became Detroit of Asia?
It’s likely that a vehicle you bought in Southeast Asia or Australia was made in Thailand.
Thailand has long been a powerhouse for the automobile industry. It coined the label “the Detroit of Asia,” which stayed for good reason. It is currently the world’s 12th most productive automaker and the largest in Southeast Asia.
Since the 1960s, Japanese automakers such as Toyota and Mitsubishi have had operations in Thailand. Following closely behind were General Motors, Ford, Mercedes-Benz, and BMW. According to a GM representative, the factory serves as a significant production hub for the Asia-Pacific region and Africa. Moreover, the region has the capacity to sell vehicles to 15 countries including Australia and New Zealand.
How did Thailand become an automaking giant?
Thailand is placing an import tariff of 80% on vehicles and 60% on motorcycles. The Kingdom is doing so over the past three decades in order to keep manufacturing in the nation. For international investors, the government gives property ownership rights in the nation. Additionally, there are provisions of simplification in visa and permit formalities for foreign auto advisers.
Meanwhile, Thailand’s government offers a number of tax breaks for international investors. For the first eight years, companies relocating to Thailand are immune from corporate income tax. Thailand has cut-off corporate tax rates by up to 50% in various sections of the country. Moreover, such sections include the automaking powerhouse of Rayong, from where GM and Ford operates.
Thailand has a strategic location, with convenient ports and airports, making exporting a breeze. Most car parts are created and obtained internally in Thailand, unlike in Indonesia and other rival countries, with roughly 1,500 vendors now, thus there is little need for import. A free trade deal with the Association of Southeast Asian Nations’ nine other members is an added plus.
Thailand’s automakers pay no or very low taxes when exporting vehicles within the region.
Labor is less expensive than in Western countries and China, but not as cheap as in neighbouring Southeast Asian countries. However, the fact that the labour force has accumulated knowledge and experience is crucial.
The Boom of the Thai Automobile Industry
The Thai Automotive Institute unveiled a six-year plan in 2002 to turn Thailand into “Asia’s Detroit.” Thailand’s auto output increased by 383% between 2000 and 2017.
Despite the fact that exports account for about 60% of Thai manufacturing, the domestic market is showing signs of development, thanks in part to the country’s growing middle class. According to the Nielsen Global Survey of Automotive Demand, only 18% of households did not own a vehicle in 2013.
According to the Organization for Economic Cooperation and Development, Southeast Asia’s middle class will more than double to 400 million people by 2020. This presents a significant opportunity for Thailand’s automakers.
Thailand is known for its commercial vehicles, particularly one-ton pickup trucks like the Chevrolet Colorado and Ford Ranger. After the United States, Thailand is the world’s second-largest pickup market. Because so much of the country is rural, pickup trucks serve as cost-effective transportation for big families, with children frequently riding in the open rear.
In Thailand, GM only produces two vehicles, i.e., the Colorado and the Chevy Trailblazer SUV. In Thailand, pickup trucks account for 42% of the market, according to the report. “GM has invested more than $2 billion in the production facilities in Rayong since 2000,” according to a GM spokesman. “Through our dealers, products, and services, we continue to invest in Thailand.”
Current Market Scenario: Automobile Industry in Thailand
Vice President and Spokesperson for the Automotive Industry Group, Mr Surapong Paisitpatanapong According to the Federation of Thai Industries (FTI), finished car exports in May 2021 totalled 79,479 units, up 165.87% from May 2020 and with a strong growth rate due to a low base last year. And a 50.30% gain from April 2021, when trading partners began to enjoy greater domestic car sales. For example, in May of last year, car sales in Australia surged by 68.3%. Vietnam’s domestic sales grew 34.1%, whereas Japan sold 46.3% more, Indonesia sold 1,443% more, and so on. However, exports fell 16.63% in May 2019 compared to the previous month.
Exports in May 2021 soared by more than 100% over the same month the previous year, owing to the fact that May 2020 was the first wave of the Covid-19 outbreak, which coincided with the country’s lockdown, leaving the export market with a low base. Australia and ASEAN, where the economy is beginning to revive, have been added.
The total output of automobiles in May 2021 was 140,168 units, up 150.14% from May 2020, thanks to a 126.01% rise in export production and a 193.39% gain in domestic production from the previous year’s low base of 93,496 units. The showroom stock of cars remained big due to a lockout in April 2020 and a motor show ban at the end of March 2020.
The Bottomline
As part of its ambitious new $45 billion Eastern Economic Corridor initiative approved in February, the government aims to lure eco-friendly and electric automobile production to Thailand to help keep the wheels moving in the future.
It includes a slew of trade and development measures aimed at bolstering Rayong’s industrial core and the surrounding regions. Thailand will continue to offer investors tax incentives and expedited visas, as well as the option to rent land for up to 99 years.
As a result, several businesses did not manufacture automobiles in May 2020, yet output in May 2021 was up 34.32% from April 2021. The export graph is showing an increase in the trends. This is a clear indicator that the automobile manufacturing graph in Thailand is also having an increasing trend. This makes the automobile industry further eligible for you to invest in Thailand.
Due to strong export prospects, the Federation of Thai Industries (FTI) has boosted its total automobile production target for this year to 1.55-1.6 million units. This creates a great probability of BOI announcements for foreigners to Invest in Thailand.
Such an expansion in the production volume always seeks the involvement of more stakeholders in the economy. That is one of the greatest truths applicable for any economy in the world. If you are looking to invest in a business in Thailand, the automobile industry can be a great option. For all details, assistance and guidance in the process of setting up a company in Thailand, mail us at [email protected].
