The Board of Investment (BoI) recently announced that Nissan Motor Thailand will sustain its investments in the country, signaling a shift in the Thai automotive landscape amid reports of closures at three overseas factories by the parent company.
Automakers are navigating not only the transition to electric mobility technology, heavily endorsed by the government, but are also facing a prolonged decline in domestic car sales and production.
This considerable dip in car production raises alarms about Thailand’s position within the global manufacturing sector.
Ranked 10th worldwide for vehicle production in 2023 and 5th in Asia, Thailand may struggle to retain these standings if the automotive industry does not rebound this year, according to the Federation of Thai Industries (FTI).
In 2023, total automotive manufacturing in the country plummeted by 19.9% year-on-year to 1.46 million units, driven largely by dwindling domestic sales and escalating loan rejection rates due to high household debt.
Addressing the auto market’s challenges is crucial to restoring production levels, remarked a spokesperson from the FTI’s Automotive Industry Club.
DECLINING OUTPUT
Thailand’s automotive output has seen a downturn since 2023, a trend that appears set to continue without market improvements, states the FTI.
Manufacturing figures stood at 1.88 million units in 2022, but geopolitical tensions, particularly from the Russia-Ukraine conflict, further complicated the global semiconductor shortage as both nations are key neon gas exporters critical in chip production.
Production slightly dropped to 1.84 million units in 2023, hindered by tightened lending criteria as consumers faced increased loan rejections.
Banks and financing firms adopted stricter lending policies to mitigate non-performing loans, a cautious stance that led the Automotive Industry Club to revise its production targets downward on two occasions.
In July 2024, the FTI adjusted its manufacturing forecast to 1.7 million vehicles, and again to 1.5 million units in November.
Ultimately, Thailand fell short of its adjusted output targets, producing about 1.46 million vehicles last year—1 million for export and 459,856 units for the domestic market, representing 12.1% and 33.1% year-on-year decreases, respectively.
Concerns persist regarding Thailand’s status as a leading automotive manufacturer, with industry leaders calling attention to potential competitiveness loss.
SLUMP IN SALES
2023 was notably challenging for the Thai automotive market, with declines across nearly all segments, including the premium car sector aimed at affluent consumers.
Domestic vehicle sales plummeted by 26.1% year-on-year to 572,675 units, marking a 14-year low.
In December alone, car sales declined by 20.9% year-on-year, primarily due to stringent lending requirements amidst high household debt levels.
The Bank of Thailand reported a household debt-to-GDP ratio of 89% in Q3 2024, a slight decrease from the previous quarter but still alarmingly high.
Auto loan application rejection rates were estimated at 30-40% last year, contributing to a 22.8% year-on-year rise in non-performing loans in the automotive sector.
With fewer loans being approved, sales faltered, impacting even the luxury car segment, which typically attracts high-net-worth buyers.
Both Mercedes-Benz and BMW recorded significant sales drops, with Mercedes-Benz reporting a 30% year-on-year decrease to 9,189 vehicles—the lowest in three years—while BMW Group Thailand saw a 10% decline to 13,659 vehicles.
Newly registered premium cars totaled 33,472 last year, as reported by Mercedes-Benz Thailand.
SHIFT IN MARKET RANKING
By the end of Q1 2024, Thailand lost its title as the No. 2 automotive market in Southeast Asia, overtaken by Malaysia.
Malaysia’s sales increased by 5% year-on-year to 202,245 vehicles in the same quarter, in sharp contrast to Thailand’s decline of 24.5% to 163,756 vehicles, according to industry reports.
Last year, Malaysia saw its vehicle sales rise by 2.1% to 816,747 vehicles, setting a new record, according to the Malaysian Automotive Association.
Despite this performance, Chinese manufacturers continue to invest in Thailand, viewing it as a crucial hub for both internal combustion engine (ICE) vehicles and potential growth in the electric vehicle (EV) sector.
Industry leaders assert that Thailand remains a vital player and should safeguard its reputation as the “Detroit of Asia.”
The government’s EV3.0 initiative is expected to boost domestic EV production and sales, offering substantial subsidies for eligible electric cars and motorcycles to stimulate market activity.
TAX INCENTIVES HELP
To further assist the automotive sector, stakeholders believe that tax incentives, such as excise tax reductions, are essential for reviving vehicle sales.
Nissan Motor Thailand is planning to take advantage of the BoI’s investment promotion strategies, including excise tax cuts for businesses focusing on hybrid EVs.
The excise tax rate is set to decrease significantly, which is anticipated to bolster auto manufacturers, particularly those specializing in ICE vehicles, against the backdrop of rising EV competition.
Industry experts state that the excise tax reductions could help Japanese automakers retain their production frameworks in Thailand.
Under the National EV Policy Committee’s decision, the ICE sector will benefit from support for up to seven years, creating a pathway for a gradual shift towards EV production.
The outcomes of these policies are yet to be fully realized, with manufacturers cautious but hopeful for a revival in car sales spurred by government assistance programs.
FUELING PICKUP SALES
To stimulate demand, particularly in the pickup truck segment, the Automotive Industry Club is calling on the government to introduce more supportive measures.
Proposals for establishing a significant fund aimed at boosting consumer auto loans for pickups have been presented to the Prime Minister to tackle stagnant sales.
Significant reductions in pickup sales have led to substantial production cuts, negatively impacting local auto parts suppliers.
With pickups accounting for a large share of domestic auto parts utilization, reviving this segment could enhance overall industry performance and worker income.
As Thailand’s automotive landscape continues to navigate these challenges, targeted stimulus measures may be pivotal in regaining its competitive edge in the regional market.
