Thailand fast translating into a major SE Asia production hub for heavy trucks
Published On Oct 15, 2019
Our friends following the two and four-wheeler part of the automotive industry would tell you how significant Thailand has become in recent years. The tiny South East Asian country has established itself as a major production and assembly hub for a number of highly regarded brands in both two and four-wheeler space, the likes of Ducati, Kawasaki, Honda, and a lot more are servicing their South Asian markets from their Thailand facilities only. It has been largely supported by the fact that Thailand itself has FTA (Free Trade Agreements) with a number of countries in the region. Now, benefiting from this sort of unique positioning in the region, Thailand is also seeing itself become a major South East Asian hub for the production and assembly of medium and heavy trucks as well.
Among the latest big-ticket CV manufacturers to join the Thai revolution in the region is Scania that opened up its regional production hub along with a R&D centre in the country, earlier this year. Interestingly, Thailand, in terms of CV market size, (especially M&HCV segment) is significantly smaller than its neighbour Indonesia. To get a picture of size difference, the total sales of Commercial vehicles with a of GVW over 4.5 tons in Indonesia stood at around 125000 units, while for the same period Thai market generated only 32000 units in the same market segment.
The new USD 26m Scania facility at Thailand started operations this February and it manufactures built-up trucks as well as bus chassis that are destined to be sold across the markets of entire Asia-Pacific region. Alongside this production facility, Scania also has established its new R&D centre that has been tasked to respond faster to incoming customer requirements in the region. To control the entire process, Scania has opened up its new regional headquarter just across the pond at Hong Kong.
That’s not all, this new Scania facility arrives just after Hino Motors, a Japanese CV giant made a much larger USD 100m in the country. Hino is building its own production hub that will be manufacturing its range of M&HCV that will be sold in markets across Asia-Pacific. With construction that was scheduled to begin from mid-2019, Hino expects the plant to be operational by 2021. This brand-new Hino Motors facility is also an integrated affair that has a manufacturing unit alongside a R&D centre and will be the company’s biggest of its kind outside Japan. It is said to be able to manufacture 30000 units per year of its M&HCV truck range per year by 2024, when the exports are scheduled to begin from the factory.
Other significant CV manufacturers that have invested in Thailand during recent years is Isuzu Motors, that announced its plans in 2017 for the country. The plan is to double up its existing production capabilities of built-up medium and heavy trucks at its existing plant in Thailand located at Chachoengsao. The target is producing 26,000 units a year after expansion. It has been planned to cater export sales to markets like Indonesia, Philippines, and Vietnam alongside rest of the major South Asian markets.
If that’s not all, Volvo has also chosen to set up its production hub at Thailand for the region. This included production of Volvo trucks as well. Volvo has made an investment of around USD 65m back in 2013 to initiate this plan. Now this plant can produce 20000 units of Volvo’s heavy trucks per year. It mainly caters to the demand of Volvo’s Japanese subsidiary UD Trucks translating into this Thai facility being UD’s first production centre outside Japan
Furthermore, in last 2018, Mitsubishi-Fuso also announced its plans to invest USD 15m in Thailand to establish an assembly plant for medium and heavy truck. This was done to take over the local assembly of the company products in the segment that were previously carried out by Thai distributor Tan Chong International. This new Mitsubishi-Fuso plant will have an annual capacity of 4000 units of CKD assembly a year and would majorly serve local Thai market requirements. It is interesting to note that the company already has a major production facility at Indonesia, a market where it is leader in the segment. Those of you who don’t know this, Mitsubishi-Fuso is owned by Daimler which has its major production facility in India (based out of Chennai) where is produces Bharat Benz products for local market.
Interestingly, MAN also had its operations in India, but now the production facility is targeted only for the export markets with local sales being discontinued by the brand. As such, MAN just like Fuso might also be tempted to set up its own CKD operations in Thailand to cater Thai local market and expand its presence.
Among the major reasons why Thailand has arrived on this production scene big time over the years is its interesting geo location and also its import tax structure that is rather quite high. These high tariffs make it important for vehicle manufacturers to assemble their trucks locally. Or they could both establish their facility in the other ASEAN region markets and benefit from the aforementioned FTA’s that are in place.
It is also interesting to note that Indonesia, even after being a much larger market and also having much lower import tariffs, still lags behind Thailand in inspiring companies to invest in it. A major reason behind it is the lower spec (less stringent) emissions regulations and lower fuel quality in Indonesia. This has a sort of an adverse effect on Indonesian market which finds itself a little bit ring fenced because lower fuel and emission standard nullifies export potential. Indonesia has been slow in improving its emission standards and it was only recently that it implemented Euro 4 standards and that too only for Petrol-powered light passenger vehicle. Add to it, the low quality of diesel fuel that is sold across the Indonesian market means that the country’s CV market is still working with the age-old Euro 2 or at best Euro 3 standards.
Thailand, on the other hand, has been much more receptive and proactive in aligning itself with the better emission standards and policy making, it has recently made agreements with its local oil refineries to start working towards having Euro 5 from current Euro 4 diesel on or before 2023. Like already discussed, Thailand has been proactively changing its ease of business environment and companies find its economic policy getting much more stable. It is also evident that this policy structuring does not really get hampered regardless of the political environment of the country, which has been far from stable in recent years.
And like we already mentioned, Thailand finds itself located in a very interesting point in the whole region and it can bring access to companies that want to serve the Indo-China markets such as Burma, Myanmar and Laos. And let’s not forget there is a growing road network between Thailand and other close by nations (An India to Thailand road started operations only recently) will promote haulage between these countries. This also means that investing companies see Thailand to have a significant potential for future sales growth for the industry. And last but not the least, Thailand already has a well oil component supplying industry that makes it that much easier for incoming companies to find right suppliers with right global experience in the country itself.