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After its good run in the production of one-tonne pickup trucks, Thailand is now focused on becoming a major hub for economical, eco-friendly cars through its two phases of the Eco Car project. The million dollar question, however, is: where are the buyers?
Green ambitionMind you, the six vehicle makers who have received approval from Thailand’s Board of Investment for Eco Car phase 2 are confident of manufacturing 100,000 vehicles apiece by the fourth year of production. In total, the approved projects amount to planned investments of close to $2 billion.
The ones which have got the green signal are Chevrolet, Ford, Mazda, Mitsubishi, Nissan and Toyota while approval is still awaited for Honda, SAIC-MG, Suzuki and Volkswagen.
With build of these vehicles likely to start in circa 2015-16, we are looking at an output of 600,000 Eco Cars by circa 2020, not counting the production of the original five participants of Eco Car 1. The list included Honda, Mitsubishi, Nissan, Suzuki and Toyota.
It is, however, still unclear whether output under both phases of Eco Car can be combined to meet the 100,000-units production criteria. After all, the Government’s biggest concern is not the production quota, but the new investments the automakers are bringing into the country. This is particularly significant with neighbouring Indonesia starting to gain prominence and attracting more investments in the last couple of years.
It is also important to note here that Thailand announced its Eco Car Phase 2 project not long after Indonesia finalised its own Low-Cost Green Car (LCGC) programme, which in itself was an inspired version of Thai Eco Car 1. Thailand’s announcement, therefore, served as a stopgap measure for investments swiftly pouring into Indonesia, forcing OEMs to reconsider and weigh the kingdom’s benefits against those of the island nation.
The ploy was successful as OEMs considered Thailand’s better infrastructure and an advanced supplier network as advantages. More importantly, the fact is in spite of the changing political landscape, Thailand’s investment policies have been fairly untouched. Subsequent governments have realised this is a winning formula and changing it would be bad for business.
Demand mattersAs we consider Thailand’s increased Eco Car output over the next five to six years, it is difficult to put a finger on the markets for these vehicles. Certainly, there is not enough local demand to meet the higher production.
Hence, exports would remain a critical part of the equation. Again, the bigger small car markets such as India or Brazil are serviced by domestic production. Europe can be a potentially larger export market, but even so more output to meet demand is going to Eastern Europe. North America is also emerging as a significant market but cannot absorb all of the output on its own.
This is why we believe the participants would have to sacrifice production at an existing line in favour of Thailand to meet the output criteria.
A global balance is required, as new demand of up to 600,000 units over the next five years is unlikely to be generated in lieu of the global economic and political risks. For now, it is anybody’s guess how the global strategy will play out.
The writer is Senior Market Analyst (ASEAN & India), LMC Automotive
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