China USA Japan Germany S.Korea India Mexico Spain Brazil Canada France Thailand UK Russia Turkey THAILAND INDUSTRY OUTLOOK 216-18 AUTOMOBILE INDUSTRY July 216 Wanna Yongpisanphob wanna.yongpisanphob@krungsri.com +662 296 4755 s View: Growth of automobile industry and related businesses is held back by weak domestic demand. Sales are projected to shrink in 216 and mild recovery could be seen in 217-218. In other words, earnings prospect of automakers would still be rather uninspiring. In any case, they are expected to increase export sales to partly compensate the weak domestic market, especially the exports of eco-cars which are anticipated to increase further thanks to export target agreed as part of the BOI privilege and the pick-up passenger vehicle (PPV) segment which has gained significant popularity recently. Overview Thailand holds several advantages over its competitors, for instance, located at the center of the ASEAN region, having large domestic market, retaining strong supply chain, and reinforced by various investment promotion policy from the government. These factors have consistently attracted world s leading automobile manufacturers to set up production capacity in Thailand. Japanese automakers, whose productions and sales dominate over 75% of the market, have positioned Thailand as the production base of 1-tonne pick-ups and eco-cars for exports. In addition, Chinese and European manufacturers have shown increasing interests in producing the large cars, as well as, the luxury vehicles in Thailand. In, Thailand s automobile production capacity is approximated to be 3.66 million units (inclusive of planned capacity expansions announced by automakers), while actual production amounted to 1.92 million units which was the world s 12 th rank and ASEAN s no. 1 (source: OICA). 1-tonne pick-ups representing 5-55% of total automobile production are regarded as Thailand s top product champion by major manufacturers like, Mitsubishi, Isuzu, GM, Ford, and Nissan who have invested in Thailand to set up their manufacturing hub for exports. cars accounts for 45-5% share. The prominent product segment is the eco-car which has benefited from the government s investment promotion. Other commercial vehicles include trucks, buses, and vans. In total, they contribute 1-2% of total production. Thai automobile industry has increasingly relied on the export market, which has outpaced the domestic market since 28. Main markets are those in nearby regions such as ASEAN, Australia, and the Middle East. However, market structures of each automobile segment produced in Thailand are different from each other. About 6-7% of passenger car production are exported, while the proportions for 1-tonne pick-ups and other commercial cars are 55-65% and 35-4%, respectively. million units 25 2 15 1 5 Figure 1: World Auto Production Base Source : OICA, Figure 2: Thai Automobile Production Capacity (Year = 3.66 million units) Japanese is the main investor in Thai auto industry. Chevrolet 6.8% Nissan 1.1% Mitsubishi 13.9% 12.3% Honda 11.5% Ford & Mazda (AAT Plant) 8.2% 21.5% Isuzu 1.9% Source: FTI, Thailand Auto Book, compiled by Note: Inclusive of planned capacity expansions announced by automakers Figure 3: Proportion of Thai Auto Production, Sales and Exports in Production Car 48% 1-Ton Pickup 5% 2% Domestic Sales Car 43% <= 1,5 cc. 28% > 1,5 cc. 15% 1-Ton Pickup 51% 6% Exports Car 52% Commercial Car 48% Source : FTI, TOYOTA 1
2 27 21 22 28 Thailand Industry Outlook 216-18 Automobile Industry 23 24 25 26 27 28 Situation Thai automobile industry has documented an extended period of growth, in line with the economy and automobile sales. Production during 2- grew 12% per year, on average. This was mainly a result of expanding export market, as per major manufacturers policy (average growth of 22% per year). However, during the last several years, performance of automobile businesses has been rather volatile, owing to various industry-specific factors: In, two major natural disasters, i.e., tsunami in Japan (March ) and the Great Flood in Thailand (October ), led to serious supply chain disruption. Automobile production in Thailand shrank substantially due to severe shortage of auto parts; outputs dropped to the level recorded in 28. The period of - was the golden years of Thai automobile, thanks to the pent-up demand caused by the Great Flood towards the end of and the government s first-car scheme, leading to an unusual rise in demands. Total annual sales in and were 1.43 and 1.33 million units, respectively. At the same time, major manufacturers were focusing on expanding the export market. Consequently, the number of car exported has gone above 1 million units since. Production also increased substantially to 2.45 and 2.46 million units in and, respectively. During -, the domestic automobile market tumbled badly. The demand brought forward by government s first-car initiative resulted in a rapid rise in household debt and a significant drop in domestic sales after the end of the policy. The sales were only.8-.9 million units per year, as compared to 1.3-1.4 million units per year under the scheme, while the total production reduced to just 2 million units, as compared to 2.4 million units previously. More specifically, the situation of Thai automobile industry in is as followed. Total production amounted to 1.91 million units (+1.76% YoY), supported by the export market whose volume ascended to the record high of 1.2 million units with value of USD17,585m (+6.81% YoY and +5.31% YoY, respectively). Of this, export of passenger cars broke record USD9,18m (+52.96% YoY), mainly because of an expansion of eco-car export to many countries, including Europe, and USA. Particularly in the Australian market, demand has surged after the gradual closure of domestic production bases. Exports of other commercial automobiles amounted to USD8,46m (-21.42% YoY), in line with economic slowdown in trading partners. Besides, exports of pick-ups had slowed, as a main exporter reduced production of the existing line, prior to the launch of a new model. The domestic automobile market in still suffered from frontloading of demand led by first-car scheme for the second year. Together with a slower growth of the Thai economy due to depressed commodity prices and shrinking export income, sales of automobiles hit the lowest point in 3 years at.8 million units (- 9.32% YoY). Meanwhile, imported automobiles totaled USD1,489m (-2.54% YoY). Nonetheless, the excise tax hike (effective on Jan 1, 216), which increases retail car price, has created some demands towards the end of the year. 3, 2,5 2, 1,5 1, 5 Figure 4: Thai Automobile Production and Sales units Source: FTI, TOYOTA Source : MOC Supply Chain Disruptions Subprime crisis Domestic Sales Exports Car Production Figure 5: Thai Automobile Exports 1 st car scheme Commercial Total % YoY 28 5,38. 5,469.9 1,57.9 21.83 3,897.4 3,522.7 7,42.1-29.39 6,757.5 5,812.3 12,569.8 69.4 6,49.4 5,343.5 11,392.9-9.36 4,961.5 11,45.4 16,6.9 4.5 6,28.7 11,14.1 17,42.8 6.47 6,1.7 1,697.2 16,698.9-2.2 9,18.1 8,45.8 17,585.8 5.31 Export Market Share (%) units 8 7 6 5 4 3 2 1 Asean(28.8%), Middle East (18.6%), Australia(2.2%), EU(7.8%), (24.6%) Export Value (Million USD) Asean(18.3%), Middle East (19.8%), Australia(2.2%), EU(7.5%), (34.2%) Asean(23.8%), Middle East (19.2%), Australia(25.1%), EU(7.7%), (24.2%) Figure 6: Thai Automobile Imports USD,m Figure 7: Thailand Domestic Car Sales Car Sales Other Commercial Cars 1/ % YoY 28 1,32.2 45.85 867.2-15.99 1,526. 75.97 1,813.7 18.85 2,57.1 38.23 2,85.5-16.82 1,873.8-1.15 1,489. -2.54 Import Market Share (%) Source: MOC Import Value Asean(26.4%), Japan (28.4%), USA (2.3%), EU(26.3%), (24.2%) 1-Ton Pickup Source : Note: 1/ Other commercial car sales include buses,trucks and vans 2
28 Thailand Industry Outlook 216-18 Automobile Industry 216F 217F 218F cars recorded sales of.299 million units (- 19.7% YoY), out of which the sales of small-sized cars (including ecocars) and passenger cars with engine size of 181-2cc grew by 12.8% YoY. This is mainly a result of the change of car features and introduction of new models to stimulate the market, especially in the cases of Mazda and Suzuki. cars with engine size over 3cc grew by 1.4% YoY which is in line with a continuing growth of European luxury car market. 1-tonne pick ups registered total sales of.369 million units (- 7.63% YoY) because of the depressed farm prices that adversely affected purchasing power of the main target customer. In addition, sales dropped dramatically in the first half of, as some customers were waiting for the introduction of s new models (in May ). Other commercial automobiles grew 22.39% YoY or a sales volume of.112 million units. Particularly, the demand for trucks expanded well, thanks to 1) progresses of government s investment projects and the construction of other public utility systems, and 2) demand for passenger buses increased, due to the robust growth in the tourism sector. Outlook The automobile industry in Thailand is expected to grow only slightly in 216 before accelerating to a higher rate in 217-218. More specifically, production in 216 is forecasted to be around 1.95-2.1 million units or a growth of 2-5% YoY and it could speed up to the growth of 6-8% YoY and 8-1% YoY in 217 and 218, or around 2.1-2.4million and 2.3-2.33 million units of production volumes, respectively. In 216, the domestic automobile market is anticipated to continue to shrink by 3-5% YoY with domestic sales estimated to be approximately.76-.78 million units. This is essentially due to 1) the effects of the first-car scheme and excise tax hike that had already attracted part of the demand that were to be realized this year; 2) high level of household debts; 3) depressed prices of agricultural products and a severe drought; and 4) stricter loans approval by financial intermediaries. However, export of automobiles in 216 would help offset the drag; its growth is forecasted to be 7-9% YoY or a volume of 1.29-1.31 million units. This is mainly led by increases in export of new models of pick-ups and large vehicles particularly the PPVs. During 217-218, the domestic automobile market could register positive growth of 3-5% YoY and 5-8% YoY, respectively. This is partly due to the fact that the cars purchased under the government s first-car scheme are banned from selling the in the first five years. Therefore, car owners who wish to change to a new one could then sell their existing vehicles. At the same time, the economic conditions are projected to begin to recover. In addition, export market could also benefit from the AEC and the eco-car export plan which was agreed as part of the conditions for the BOI tax privileges. Therefore, growth of automobile exports in 217 and 218 are forecasted to be 8-1% and 1-12% YoY, respectively. Figure 8: Market Share of Cars in Thailand Figure 9: Market Share of Commercial Cars 2/ in Thailand Isuzu Mitsubishi Ford Nissan Mazda 8.61 7.71 8.84 4.17 6.1 6.48 3.15 5.59 5.95 3.9 3.63 8.84 14.25 11.58 9.9 36.44 34.17 31.96 29.48 31.31 28.84 Source : Note: 2/ Commercial car sales include pick-ups, buses,trucks, and vans. milliion units 2.5 2. 1.5 1..5. Production Domestic Sales Exports Honda Nissan Mitsubishi Mazda Suzuki Source: 1.39 1. 12.6 7.64 7.15 7.4 6.32 5.21 4.6 4.26 8.77 6.17 4.53 6.3 1. 1.78 11.63 1.65 1.46 Export Sales Car Production 2.45 3.7 35.16 3.6 25.5 26.5 2.46 4.97 1.88 1.91 % share % share Figure 1: Thai Production and Sales Forecast 2.1-2.14 1.95-2.1 2.3-2.33 Domestic Sales 216F 217F 218F units, m 1.91 1.95-2.1 2.1-2.14 2.3-2.33 % YoY 1.8% 2-5% 6-8% 8-1% units, m.8.76-.78.79-.81.84-.86 % YoY -9.3% -5% to -3% 3-5% 5-8% units, m 1.21 1.29-1.31 1.4-1.43 1.56-1.58 % YoY 6.8% 7-9% 8-1% 1-12% Source:, FTI, Forecasted by 3
Thailand Industry Outlook 216-18 Automobile Industry Implications to Thai automobile businesses: The situation of automakers and dealers of new cars is expected to improve gradually. However, the markets for new automobile importers and used-car dealers would remain sluggish. Automobile producers: Earnings would slowly improve. Manufacturers of passenger cars and 1-tonne pick-ups are anticipate to expand production capacity of eco-cars and PPVs for exports which would help partly compensate the expected slower growth of the domestic market. Manufacturers/assemblers of trucks, trailers, and semitrailers would benefit from the speed-up of government spending on infrastructure investment and the improving demand for automobiles for transportation and logistics of industrial or agricultural merchandises. Furthermore, there are opportunities for further export growth in this segment, especially to the neighboring countries. Manufacturers of buses are expected to expand, in line with investments in the tourism and private passenger bus businesses which are enjoy strong growth. In addition, the Bangkok Mass Transit Authority (BMTA) is calling for bidders for 3,183 units of public buses, worth THB13,162m the first lot of 489 units is expected to be delivered in 216. In addition, prospect for exports is also bright, attributable to the adoption of AEC framework. Dealers of new automobile: In spite of a tough competition, prospect for growth would improve further especially from services at repair and maintenance centers and the sales of spare parts, along with increasing number of accumulated domestic automobiles registered. A further examination revealed that the government s first-car scheme will result in a continuing increase of accumulated number of automobiles that are less than five years until 218. This represents an opportunity for dealers to generate earnings from after-sale services which typically accounts for 3-45% of total revenue. Supply Chain of Thai Automobile Industry (by Industry Code) Business/Industry Manufacturer of passenger cars Manufacturer of 1-tonne pick-ups Manufacturer /assembler of trucks, trailers, and semi-trailers Manufacturer of buses (join ventures and large producers) Manufacturer of buses (SME) Dealer of new motor vehicles Dealer of trucks and other heavy motor vehicles Authorized import agent of new automobile Independent import agent of new automobile (gray market) Used-car dealer Note: Based on s industry code Industry Code 29112 29113 29115 29122 29114(a) 29114(b) 45111 48231 48331 45112 45114 48132 48134 48232 48234 48332 48334 48131 (a) Outlook Fair Negative 48131 (b) Negative 45113 48133 48233 48333 Negative Dealers of trucks and other heavy motor vehicles: Income growth is expected to be robust, in line with the strong demand that arises from the government s infrastructure investment and developments in logistics system. However, a strong competition could pressure dealers to shift towards offering integrated services, such as spare parts replacement, repair and maintenance, used-car trade, and leasing. Import agents of new automobile: The business is expected to slow down further. This is mainly a result of increasing production capacity of luxury cars in Thailand, while stricter import regulations will also lead to a delay in importing process particularly for independent importers (gray market). Besides, there were cases of authorized import agents stopping after-sales service; the independent importers would then need to invest in rending such services by themselves. This would increase their operating cost burden. Used-car dealers: They would be under pressure from high competition. Operators would have to manage stock efficiently as it is expected that during 217-218 more used-cars from the first-car scheme would enter the market, after selling prohibition period during the first five years of ownership lapses. At the same time, price competition in the market for new cars would also be stronger, leading to a narrower spread between the prices of old and new automobiles. This could restrict sales and potential price hike for used-cars. 4
Thailand Industry Outlook 216-18 Automobile Industry KRUNGSRI RESEARCH Somprawin Manprasert Phornphan Phoksuphat Advisor and Chief Economist Head of Strategic Research Macroeconomic Team Sarun Sunansathaporn Head of Strategic and Regional Economics Sujit Chaivichayachat Head of Forecasting and Macroprudential Economics Churailuk Pholsri Senior Economist Soison Lohsuwannakul Economist Kongphop Wongkaew Research Assistant Papungkorn Kitcharoenkarnkul Research Assistant Industry Team Chetchuda Chuasuwan Head of Industry Research Jumpon Kluaymai-ngarm Industry Strategist Talublugkhana Thanadhidhasuwanna Industry Strategist (Financial Sectors: Thailand & CLMV) Poonsuk Ninkitsaranont Senior Analyst (Healthcare, ICT, Transportation & Logistics, Modern Trade) Piyanuch Sathapongpakdee Analyst (Industry Risk Ratings Scoring and Reporting) Narin Tunpaiboon Analyst (Power Generation, Biofuel, Chemical & Plastic Products) Puttachard Lunkam Analyst (Tourism Sectors, Real Estate in Upcountry) Niratsai Toomwongsa Analyst (Construction Contractor, Construction Materials) Wanna Yongpisanphob Analyst (Automobile, Electronics & Electrical Appliances, Beverages) Wareerat Petchseechoung Analyst (Agricultural Products, Food) Rachot Liengchan Analyst (Oil & Gas, Petrochemicals, Industry Scenario Analysis) Patchara Klinchuanchun Analyst (Real Estate in BMR) Intelligence Team Arpakorn Nopparattayaporn Analyst Tanatcha Supsin-amnuay Research Assistant MIS and Reporting Team Suratchanee Somprasong Administrator Thamon Sernsuksakul Administrator Chirdsak Srichaiton MIS Officer Wongsagon Keawuttung MIS Officer For research subscription, contact krungsri.research@krungsri.com Disclaimer This document is based on public information believed to be reliable. Nevertheless, would not affirm the accuracy and completeness of this information. The opinions expressed in this document are our own, which are not necessarily the opinions of Bank of Ayudhya. We reserve the right to change opinions or forecast without prior notice. 5