Thailand is an important automobile production base in the world, which is reflected in the fact that Thailand's annual automobile production is as high as 1.9 million units, the highest in ASEAN; more importantly, the total export volume of Thailand's auto parts industry will reach 1.31 trillion baht in 2022, an increase of 8.2%, approximately Accounting for 12.3% of GDP; the export volume of parts and components is the highest in ASEAN, ranking 14th in the world, and the export volume of automobile tires ranks second in the world. It can be said that the automobile parts manufacturing industry has promoted Thailand to become a modern automobile industry production base. In this article, DiDi Research Institute will introduce to you the development status and future trends of Thailand's auto parts industry, as well as the impact of the electrification process.
basic situation
Since 1963, the Thai government has continuously promoted the development of the auto parts industry. Initially, the Thai government departments focused on introducing measures to support investment in the production and use of domestic auto parts, especially the increase in import tariffs on complete vehicles (CompleteBuilt-Up: CBU) and complete sets of parts (CompleteKnock-Down: CKD). Subsequently, the Board of Investment (BOI) issued measures such as corporate income tax exemption and machinery import duty exemption to attract foreign investors to set up production bases in Thailand.
In addition, the Thai government has also determined the application proportion of locally produced auto parts in automobile manufacturing (local content requirement: LCR). Currently, this requirement has been cancelled, but the production of Thai passenger cars uses locally produced parts. The proportion of the total value of auto parts is still as high as 60-80%; environmentally friendly cars and pickup trucks account for 90%, and motorcycles almost all use locally produced parts. The current free trade agreements between Thailand and other countries such as the ASEAN Free Trade Agreement (AFTA), the Thailand-Japan Economic Partnership Agreement (JTEPA), the Thailand-Australia Free Trade Agreement (TAFTA), etc. have resulted in higher tariff rates and a decrease in CBU and CKD imports.
Thai and foreign investors continue to invest in Thailand's parts and components industry. Important local companies and joint ventures in Thailand include Thai Summit Auto Parts Co., Ltd., Sammitr Auto Parts Co., Ltd., Somboon Advance Technology Plc., Thai Auto Pressparts Co., Ltd., etc. World-renowned auto parts suppliers that have set up production bases in Thailand include Bosch, Denso, Magna, Continental, ZF Friedrichshafen, and Aisin Seiki. Among the important products are:
1) Parts set made of rubber:
Relying on the supply of natural rubber raw materials in Thailand, such as hoses, belts, fiberglass rings, automobile tires and other products that require high-level production technology;
2) Powertrain and engine parts:
Among them, the supply chain is complex and the value exceeds 1/3 of the cost of producing an internal combustion engine (ICE) car. It is also a group that the Thai government promotes the production of pipes, fuel supply systems, fuel tanks, ignition systems, gears, etc. in the entire supply chain such as radiators and exhausts. ;
3) Electric vehicles:
The Thai government promotes electric vehicle investment in a package, so automakers are gradually applying for investment to promote the production of electric vehicles and parts in Thailand. Especially batteries, which account for up to 30% of the cost of electric vehicles.
Product and export structure
Thailand's auto parts manufacturing industry mainly relies on its domestic market, with sales accounting for 60-70%. It is divided into vehicle assembly (original equipment manufacturer OEM) and auto parts replacement (replacement equipment manufacturer REM).
OEM: accounting for 30-40% of the total output value of Thailand's parts market
Expanding with the growth of automobile production, more than 80% of it is produced domestically in Thailand, and the rest requires the parent company or overseas parent company suppliers to provide advanced technology products, such as electronics for automobile control systems imported from Japan. components (microcontroller chips: MCU), internal combustion engine parts and electric vehicle parts imported from China.
REM: accounts for 60-70% of the total value of Thailand's domestic parts market
The REM market is growing in line with the cumulative number of registered vehicles, based on age and demand for replacement parts (spare parts). REM has a variety of distribution channels, including dealers/auto dealers' repair service centers, auto parts wholesale retail stores, and general repair shops. In terms of the value of imported parts, REM accounts for 10-20% of the total value of imported parts, most of which are from Japan (43% of total REM parts imports) as well as China (17%) and the United States (8%) imported.
Parts exports account for 30-40% of the total revenue of the parts manufacturing industry, of which OEM parts account for 80-85% of total exports and REM parts account for 15-20%. The main components exported from Thailand are engines, wire harnesses, bodies, rearview mirrors, gear units, tires and rubber parts.
Thailand is considered to be a highly competitive country in the world of auto parts. It uses the supply chain to achieve economies of scale, and the quality of the parts it produces is recognized by automakers. In addition, Thailand also has location advantages for parts production. , making it an important parts production base in the world. In 2021, Thailand has the highest export value of parts (all types) in ASEAN and ranks 14th globally. The main export parts are automobile tires (second in the world) and other motorcycle parts (excluding engines and vehicle tires) (ranked 3rd), engines (ranked 13th) and other auto parts (excluding engines and tires) (ranked 15th). Most of Thailand's auto parts are exported to ASEAN auto production bases, namely Indonesia, Malaysia, Vietnam and the Philippines, accounting for 22% of total auto parts exports, followed by the United States (accounting for 22%) and Japan (accounting for 9%) .
Industrial structure
Currently, according to data from the Thailand Automotive Research Institute, the number of manufacturers in Thailand's auto parts industry exceeds 2,200, which are specifically divided into:
1) Tier 1 auto parts manufacturer
It sets high quality standards based on automobile manufacturers and operates in some parks of automobile assembly plants (OEM market) and replacement markets (REM market), with a total of 720, of which foreign-invested enterprises account for 47% and joint ventures account for 30%. Thailand Local companies account for 23%. In terms of products, auto parts companies account for 54%, motorcycle parts companies account for 28%, and 18% produce both auto and motorcycle parts.
2) Tier 2 and Tier 3 auto parts manufacturers
Its big country is Thailand's small and medium-sized enterprises, whose production level is lower than that of first-tier manufacturers, resulting in a disadvantage when entering the OEM market. Therefore, they are only raw material suppliers, providing parts and components for first-tier manufacturers or manufacturers in the REM market. There are currently 1,500 second- and third-level parts manufacturers in the Thai market. They mainly produce genuine parts and replacement parts. Among them, replacement parts are often lower in quality than genuine parts because they are not controlled by the car manufacturer's standards and are mainly targeted at the low-end market.
Development status
Thailand's parts production will continue to grow in 2022 but at a slower pace. The production index of Thailand's auto parts industry will grow by 3.5% in 2022, a significant slowdown from the 25.3% growth rate in 2021. Although the parts market will continue to expand with the high growth of automobile production, judging from the global chip shortage, the entire automobile production supply chain will be periodically disrupted, including Thai chips and some important parts that still rely on imports. The Russia-Ukraine war has exacerbated the problem, as both countries are major sources of neon and palladium, raw materials for chip production.
In 2022, automobile and auto parts production will still face supply chain disruptions from time to time. In 2022, the United States enacted the "Chip and Science Act" and allocated US$5.2 million to support American manufacturing and prevent Chinese chip manufacturers from obtaining machines and equipment from leading American companies. On August 12, 2022, it announced the implementation of the "Chips and Science Act" against Chinese chip manufacturers. Multilateral export controls prevent China and more than 150 other countries from accessing advanced U.S. electronic design automation (EDA) software, hampering the development of high-tech chips in China.
As the demand for chips in some electronic products such as personal computers (PCs) and mobile phones continues to decline in 2022, Gartner reports that global PC and mobile phone sales will decrease by 16.0% and 11.0% in 2022. At the same time, as rising energy and raw material costs lead to reduced purchasing power, starting in the third quarter of 2022, Thai manufacturers will have easier access to some automotive chips to support the production of vehicles and parts.
Thailand's domestic market continues to expand
The demand for OEM parts has not increased much in 2022. After automobile production increased by 3.0% year-on-year and motorcycle production contracted by 7.1% year-on-year, automobile and motorcycle production increased by 20.5% and 39.5% year-on-year in the second half of the year, achieving accelerated growth. As the global economy stagnated in the second half of the year, demand for chips in some electronic products such as personal computers and mobile phones began to slow down, while demand for REM parts continued to expand well. Because some consumers postpone the purchase of new cars and turn to repair/maintenance of old vehicles, the output of automobiles and motorcycles will increase by 11.7% and 13.2% respectively in 2022, and the overall demand for auto parts continues to expand.
Export market shrinks slightly
Thailand's auto parts exports contracted by 0.3% to US$22 billion in 2022 (up 24.3% in 2021) as accelerating inflation suppressed demand for durable goods including cars and parts, leading to a decline in global purchasing power. Specific product details are as follows:
(1)Engine:
Exports will increase by 0.01% in 2022, reaching US$4.2 billion (15.6% growth in 2021), including Hong Kong (+5,140.9%), China (+63.0%), the United States (+31.3%), Malaysia (+34.7%), the Philippines, etc. (+32.8%) and Argentina (+11.4%) grew well in the main markets, mainly exporting to Japanese car manufacturers such as Toyota, Honda, Isuzu, Mitsubishi, Suzuki, and Nissan.
(2) Vehicle tires:
Exports are expected to grow by 4.8% to US$6.9 billion in 2022 (up from 20.4% in 2021), in line with growth in major markets such as the United States. Despite U.S. anti-dumping duties, exports increased 2.3% to $3.2 billion. Since May 27, 2021, the United States has imposed taxes on passenger car tires and light truck tires from Thailand, but Thailand's tax rate (from 14.62% to 21.09%) is still lower than competitors that also impose anti-dumping duties, such as South Korea (from 14.72% to 21.09%-27.05%), Taiwan (from 20.04% to 101.84%), etc. In addition, the cumulative number of registered vehicles in the United States continues to increase, and some consumers actively postpone the purchase of new cars, increasing the demand for replacement tires (REM). S&P Global Mobility estimates that the average life of vehicles on U.S. roads will increase to a record 12% by 2021, which will benefit the growth of Thai automotive tire exports to the U.S. market. At the same time, ASEAN, the second largest export market, continued to grow by 18.0%, with exports reaching US$876.7 million; the EU increased by 23.2%, reaching US$748.6 million.
(3)Other parts:
Exports in 2022 will fall by 3.4% to US$11 billion. This was mainly due to the economic slowdown in trading partners such as the European Union, Japan and the United States, which caused other auto parts to shrink by 3.3%, with exports of US$9.8 billion. Other motorcycle parts shrank by 4.4%, with exports reaching US$930.1 million. Mainly due to the pressure from Japan, the third largest export market (accounting for 10.8% of motorcycle parts exports), it increased by 81.3% compared with the previous year and shrank by 33.4% in 2022, while other major export markets such as ASEAN and the United States (the total share is 51.0%) continued to grow by 4.4% and 1.8% respectively.
future trends
According to Krungsri Research, the output value of Thailand's auto parts industry is expected to grow at an average annual rate of 3.5%-4.5% from 2023 to 2025. Specifically, the chip shortage trend will remain stable in 2023; from 2024 to 2025, as the United States, Germany, Japan and other countries set up funds to support domestic chip production, chip supply is expected to increase by US$52 billion and €10 billion respectively. and US$6.8 billion, and TSMC's accelerated investment in production capacity is expected to increase by US$12 billion (Source: Reuters). This will support demand for OEM parts, while REM parts are also expected to continue to grow as vehicle registrations increase.
Domestic demand in Thailand grows steadily
It is expected that demand for auto parts in Thailand's domestic market will continue to grow from 2023 to 2025. Krungsri Research predicts that during 2023-2025, the average annual growth rate of automobile and motorcycle production will be 3.5-4.5% and 2-3% respectively. By 2025, Thailand's automobile production may return to the level before the outbreak of the new crown epidemic, which will Boost demand for OEM parts. The main reasons are as follows:
1) The economy gradually recovers after COVID-19 concerns subside;
2) Oil prices gradually declined after tensions in the Russia-Ukraine war began to ease;
3) Basic public network construction and government infrastructure networks may accelerate the development of commercial vehicle demand to support the Eastern Economic Corridor (EEC) second phase (2023-2027) investment plan.
4) The growth of online retail business drives the development of logistics, so the demand for REM is expected to continue to grow. The cumulative number of cars and motorcycles older than 5 years is growing at an average annual rate of 5%-6% and 9%-10% respectively, so the demand for parts replacement is increasing.
