The Thai automotive industry has continuously developed for the last 60 years, with tremendous foreign investments making the country a regional manufacturing hub. Thailand and Japan also expect to further their cooperation in the industry, and the recent outlook for the Thai automotive industry has been in great shape.
However, the Thai automotive industry faces new challenges as the automotive world is transitioning into an era of electric vehicles (EVs). Many countries have noticed this trend and started competitive strategies in the automotive market. The challenges become ever clearer for the Thai automotive industry: Which direction will the industry take? What can automakers do to prepare for the coming changes? LiB Consulting, a leading business advisor from Japan, has explored the latest Thai automotive industry and has shared their insights.
Changes occuring in the automotive industry
According to LiB Consulting's analysis of the overall landscape of the Thai and overseas automotive industries, the company found that the automotive world is moving towards electric vehicles (EV), resulting in three automotive trends as follows:
Internal combustion engine (ICE) vehicles will likely lose their place to EV and fuel cell vehicles. The changes are constantly happening; some signs are already visible as many countries have started to see lower ICE production. At the same time, the ecosystem for the EV market expanded, including parts manufacturing ecosystem, electricity generating for EV charging, and carbon regulations in favor of EVs.
Thai automotive businesses will inevitably face higher competition from foreign companies. Thailand has been an important manufacturing hub for Japanese carmakers in the past years, giving it an advantage in the ecosystem. However, the ecosystem is also a weakness for Thailand; while European and American carmakers are rapidly developing to serve the new EV market, Japanese carmakers have slower EV plans. Thailand has felt the impact, as the country couldn't adapt to the rapidly changing market.
At the same time, competitor markets such as China and Indonesia enjoy better advantages as their ecosystems are less deep-rooted. They also possess battery minerals, making an EV transition easier and faster, and their manufacturing costs are cheaper than Thailand's.
At present, the proportion of exports and domestic automotive production in Thailand is around 50:50. If Thai automotive businesses fail to follow the EV trend, the possibility of Thailand losing its export proportion is very high, risking 50% of its automotive production. Although many Chinese carmakers are interested in expanding their investments in Thailand. However, the proportion of Chinese-backed productions is minimal compared to ICE production for exports. This means the outlook for the Thai automotive industry is still concerning. Thailand is currently a regional manufacturing hub; however, after an EV transition, Thailand may become one of many regional EV hubs. The country's automotive revenue can sharply decline if it has to share the 'manufacturing hub' title with neighboring countries.
Solutions and adaptations for sustainability in Thai automotive industry
The changes that are happening in the global automotive industry are signaling Thai automotive businesses to accelerate their adaptation to the changes. LiB Consulting introduces three suggestions for adapting to the coming situation:
The Thai automotive industry needs to adjust its competition strategies. A strong infrastructure is one of its advantages, but production and workforce costs are high, and solutions to these problems must be accelerated.
Firstly, Thai automotive businesses must admit that ICE exports will decline following the decline in global demand. However, the demand for ICE and hybrid vehicles will not completely deplete as demand will persist in the global markets. For this reason, Thailand should maintain its status as an ICE manufacturing hub to take advantage of becoming the last ICE manufacturing hub in the region.
Cost leadership is another great strategy for cost competition. It is undeniable that costs in Thailand are more expensive than in China. Nonetheless, Thailand can come up with a strategy to become a co-manufacturing hub or a second manufacturing hub for China, according to the China + Alpha policy.
Ultimately, Thailand needs to control overall costs at the same level as China. This strategy will help the Thai automotive industry retain its ICE manufacturing hub status. Extra budgets from cost control attempts will enable businesses to invest and develop in other areas.
After the country successfully retains its ICE manufacturing hub status, Thailand should start transforming to focus on serving the global demand by simultaneously manufacturing EV vehicles. Manufacturing base diversification will help attract interest from new EV-focused carmakers, who may choose Thailand as their manufacturing base. The country will be able to reduce risks by solely focusing on ICE manufacturing.
Amidst current challenging times, businesses can change crisis into opportunity by transforming and developing for "new business." Thai automotive businesses can leverage their existing resources and expertise to enter new markets. Businesses can cooperate with private sectors and research institutes from both domestic and overseas levels to develop new products such as MaaS (Mobility as a Service), BaaS (Battery as a Service), Agtech (Agricultural technology), etc., satisfying demands in and outside the industry. Leveraging existing potential is another way for businesses to move forward sustainably.
These new challenges are moving ever closer to Thai automotive businesses. Change can be concerning, but from another perspective, businesses can take the challenges as opportunities to adjust and develop diverse capabilities.
As such, businesses should eliminate unnecessary workflow to improve flexibility and competitiveness. They should develop long-term plans to deal with uncertainties, such as investing in new business early or using existing potential to develop new products to satisfy industrial markets.
For example, a Japanese automotive parts manufacturer has developed a new navigation system for taxis and food delivery vehicles. One company leveraged existing tire technologies to produce insoles for sports footwear, and another utilized its automotive sensor technology to develop health-check products for older people.
These adaptations must be conducted simultaneously with new developments for businesses to maintain their positions in the supply chain and, in turn, maintain the stability and sustainability of the Thai automobile industry.