the drop in tourism numbers. The dour outlook for thedomestic market has resulted in automakers scalingback their domestic production.High tariffs in the automotive sector remain animpediment to access the Thai auto market. Ad valoremtariffs can be as high as 80 percent, for imports thatcompete with domestically produced automobiles andparts. In addition, excise taxes on automobiles inThailand are based on various vehicle characteristicssuch as engine size, weight and wheelbase. The taxcalculation remains complex and heavily favorsdomestically manufactured vehicles. Excise taxes onpassenger vehicles range from 30 to 50 percent, whilepickup trucks, mostly produced in Thailand, are taxed ata rate of three percent. Small passenger cars using E-20gasoline and “eco” cars face reduced excise taxes of 25percent and 17 percent, respectively.Opportunities for U.S. CompaniesDespite the recent decrease in vehicle sales andproduction, Thailand is still an export hub in SoutheastAsia, with the most advanced production facilities in allof Southeast Asia. Thai exports of automotivecomponents will do well for two major reasons: 1) aweakening of the Thai baht has increasedcompetitiveness of auto component exports, and 2)auto component manufacturers still rely on Thailand asan optimal base for manufacturing because of the highskill level of the workforce, and available technology.However, Japanese automakers are well entrenched inSoutheast Asia, which will impact U.S. automotive partssuppliers hoping to increase market share in Thailand.Thailand’s auto component market will remain a brightspot for the auto sector, as exports of components toregional markets will continue to grow. For the first ninemonths of 2014, the value of auto component exportsfrom Thailand grew 5.2 percent year-on-year to $1.2billion, while passenger car exports declined by 5.6percent y-o-y to $533 million over the same period.As the ASEAN Economic Community (AEC) movestowards implementation in 2015, we see a greaterpotential for free trade in the region. While Japanalready has an Economic Partnership Agreement withASEAN, which removes most duties in the auto sectortrade between them, the AEC will allow its membercountries to negotiate effectively as a trading block withother trading partners to lower tariffs and boost tradein key sectors such as automotive.Furthermore, the onset of AEC will see inter-countrytariffs between ASEAN countries removed, which wouldthen see automakers taking advantage of severalmarkets from one hub. This trend would further attractauto sector investment in Thailand, as new investmentwill benefit from the strengths of the country as well asfrom the clustering effects of nearby markets.In 2007, Thailand announced an investment promotionscheme for Eco-Car manufacturing, whereby maximumincentives were offered for integrated car assembly andkey parts manufacturing projects. Under the incentiveprogram, projects, which must have a minimuminvestment value of approximately $144 million, wereoffered a corporate income tax exemption of eightyears, regardless of the projects’ location in the country,along with duty-free importation of machinery. Tenautomakers have applied for the second phase of theeco-car scheme.Thailand’s aim is to increase car production to threemillion units and further strengthen its presence inASEAN. It hopes to rival North America and Europe inthe production of eco-cars. The manufacturers thathave applied to the second phase of the scheme areToyota, Suzuki, Honda, Nissan, Mitsubishi, Ford, Mazda,General Motor Company, Volkswagen and MG.Companies are also looking to Thailand as a hub fortheir vehicle maintenance network in Southeast Asia.For example, Toyota has been working with affiliatecompanies, Denso and Aisin Seiki, to open auto repairshops in Thailand and Indonesia in 2014. Both countrieshave large domestic vehicle fleets (20 million forIndonesia and 15 million for Thailand), which make theafter-sales market very attractive. These vehicles willrequire regular servicing and maintenance. There areother vehicle-servicing opportunities in the frontiermarkets such as Burma and Cambodia.The presence of more than 690 Tier 1 and 1,700 Tier 2and 3 suppliers lends support to vehicle production andfurther encourages investment from other componentmanufacturers, which enjoy lower costs from beingclose to their suppliers and customers. Furthermore, agreater number of recent auto industry investmentshave been gravitating towards higher value-added2015 ITA <strong>Automotive</strong> <strong>Parts</strong> Top Markets Report 28
projects. As Thailand slowly moves up the value-chain ofproduction, more high tech investments are expected.<strong>Automotive</strong> ElectronicsInnovation in electronic systems is driving theautomotive parts industry in Asia. Most of theautomotive electronics used in cars produced inThailand are imported from Malaysia and Japan.Because of the current limited number of automotiveelectronics producers in Thailand, there are a number ofgood opportunities for U.S. suppliers. These includeelectronic fuel injection systems, substrates for catalyticconverters, CVTs, electronic stability controls, andregenerative braking systems, among numerous otherproducts. Makers of high technology auto parts canlocate anywhere and still receive maximum incentivesand tax breaks.NGV VehiclesThe Ministry of Energy supports fuel-efficienttransportation through a natural gas vehicle (NGV)initiative. This initiative includes the introduction ofover 10,000 natural gas-powered taxicabs, natural gassubsidization through PTT Public Company Ltd., areduced import duty on NGV tanks from 17 percent to10 percent, and a reduced import duty on NGV controlsystem parts and components from 35 to 10 percent.Eco-Car <strong>Parts</strong>Eco-car parts continue to receive incentives to promotethe growth of the eco-car market locally and abroad.The incentives will be applied exclusively to materialsthat cannot be produced locally. Opportunities existespecially in electric vehicle batteries.E85The Ministry of Finance is offering three-year exemptionon import duties of foreign auto parts used to makevehicles E85-ready. The Ministry has also reduced theexcise tax on cars using E85 to 22, 27, and 32 percent,depending on engine size.2015 ITA <strong>Automotive</strong> <strong>Parts</strong> Top Markets Report 29
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