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24 Feb 2006

Industry

Hybrid Cars: Fuel-Efficient Cars ... Trend for World's Automotive Industry

The oil crisis has stirred an awareness toward energy conservation and efficient use of fuels around the globe. Inevitably, it has also affected the world's automobile industry and market. Of late, large, high fuel-consumption passenger cars have become less popular with consumers, while fuel-efficient small cars have emerged among the most sought-after vehicles in the market. Scores of public initiatives have been announced in several countries to support efficiency in fuel consumption, as well as the use of alternative energy sources for vehicles, which is playing a more important role in the car markets of each country. For instance, the US government has launched campaigns for efficient use of energy, particularly for those vehicles using motor fuels, by its citizens. Other tax incentives have also been implemented to encourage motorists to use cars equipped with advanced technology that can be applied to alternative energy to ensure fuel consumption efficiency and environmental friendliness.

The latest technological innovation in automotive circles is the hybrid car, a development of interest to both automotive manufacturers and consumers. The US government has implemented various tax incentives to urge motorists to turn to these innovative vehicles. Among the incentives are tax credits for buyers of hybrid cars, making the car prices tax deductible. At this time, most hybrid cars in the US market are manufactured by Japanese carmakers, especially, Toyota and Honda. However, hybrid cars from American automakers, i.e., Ford and General Motors have recently gained greater shares of the market.

A hybrid vehicle, or a gas-electric hybrid powered vehicle, uses a fusion of two technologies, i.e., internal combustion engines (ICEs) and electric motors. As a result, they are efficient in fuel consumption and reduce air pollution; and they are, of course, environmentally friendly. Since the launch of the first batch of hybrid cars into the global market in 1997 from Japanese automakers, especially Toyota taking the lead, the technology of hybrid vehicles has been improving continuously. Currently, several large automakers have put a variety of hybrid models onto the market.

Evidently, the oil crisis that erupted staring in 2004, and on into 2005, made hybrid cars more popular in the US. Their sales volume in 2003, totaling only a few tens of thousands of units per year, previously, jumped to 212,000 units in 2005. This year, it is expected that the sales volume of hybrid vehicles in the US market will total at least 280,000-300,000 units, rising by more than 30-40 percent, year-on-year. This sales volume is expected to double by 2010. Aside from the US, a key market for hybrid cars, their popularity has also become widespread in other countries. According to Toyota -- the market leader in hybrid vehicles -- sales of hybrid cars globally are expected to leapfrog to over 400,000 units in 2006, rising from some 250,000 units in 2005.

KASIKORN RESEARCH CENTER (KResearch) takes the view that if this popularity continues in the midst of oil price volatility, automakers may be able to boost outputs whilst also cutting the unit cost of production for them, thanks to the economies of scale. Moreover, the government's support in boosting production through tax incentives will encourage consumers to turn to hybrid cars, also helping to lift demand. In so doing, hybrid vehicles will be mass-produced on a larger scale, thus reducing their prices in the future.

In Thailand, the government's motor vehicle excise tax revamp was instituted on July 27, 2004, aimed at supporting a policy of national energy-saving programs. Hybrid electric cars are levied an excise tax of only 10 percent. However, despite the excise tax restructuring, the popularity of hybrid vehicles in Thailand remains low due to their prices that are twice as high as conventional cars of the same size. This is because Thailand has to depend on imported completely-built-up (CBU) units for hybrid vehicles, with import tariffs as high as 80 percent or more. If including import charges, duty-related burdens rise over 100 percent. Under these circumstances, KResearch believes that additional support from the public sector is needed.

Industry