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15 Jun 2007

Industry

Eco-Cars: New Segment for Thai Automotive Industry (Business Brief No. 2001)

The Cabinet resolved to grant approval for an investment promotional plan on eco-friendly car manufacturing, and to lower the excise tax rate on eco-cars to 17 percent, effective October 1, 2009. By then, fuel-efficient cars are expected to be available in the market. The specifications of eco-cars are summarized below:
1. They must have engine displacements not exceeding 1,300 cc. for gasoline engines, or not exceeding 1,400 cc. for diesel engines.
2. Fuel consumption must be at least as good as 5 liters per 100 km–20 km/ltr.
3. They must meet Euro 4 exhaust emission standards and must not exceed carbon dioxide emissions of 120 grams/km.
4. Cars must meet UNECE (United Nations Economic Commission for Europe) auto safety standards.
KASIKORN RESEARCH CENTER (KResearch) takes the view that the approval of this investment promotion plan for eco-car production with the preferential excise tax rate of 17 percent – compared to rates of 30-50 percent imposed on conventional passenger cars – will pave the way for the emergence of a new segment in the Thai automotive industry. Currently, no passenger cars with engine sizes less than 1,400 cc. here meet the exhaust emission or safety standards. However, how much the local auto market will embrace the new segment depends on the following key factors:
1. Auto prices: Eco-cars will be subject to an excise tax rate of 17 percent, comparing favorably with the rates of 30 percent and 25 percent levied on standard passenger cars and E20 gasohol-powered small cars, respectively. As a result, the production cost and retail prices of eco-cars will be comparatively low, which would likely appeal to both carmakers and consumers. It is expected that eco-cars will be sold for around THB400,000 each, making them a new segment in the local auto industry.
2. Oil prices: The long term direction on oil prices domestically and in the world market, plus fluctuations and already high prices will drive consumers to use more energy-saving cars. That factor will support eco-cars earning a place in the Thai market.
In the opinion of KResearch, eco-cars will become a new segment in Thailand's market with numerous positive effects:
Consumers
The availability of eco-cars in Thailand's market will provide another alternative for customers. Moreover, the government sector has set specifications for eco-cars that are high in standards, and would provide a chance for all customers to own a well-rounded car, including energy-savings, environmental friendliness and high standards of safety at a lower price.
The Car Industry
Eco-cars would support the expansion of car production in Thailand, and drive the car industry and parts suppliers to higher growth.
The Society and General Public
With respect to the set high standards for eco-cars, they support the government's energy saving policies, help control pollution and protect the environment, which would benefit the society and well-being of the general public.
However, KResearch views that eco-cars, which could become a new segment in the Thai market, might have some undesirable impacts; particularly with the eco-car stimulating many formerly car-less citizens to buy their own vehicles. In addition, they might attract those who own a car already to buy an eco-car as a second car. As a result, the project might not really reduce energy consumption, as expected. Hence, the government sector should urgently press ahead with mass transportation development plans, particularly with the extensions to mass rapid rail transit routes, in order that they serve all of Bangkok and areas nearby. Moreover, the transportation network and public buses should be developed to gain higher efficiency and offer convenient alternatives to all people.
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Disclaimer: This research paper is arranged for public information, which has been obtained from sources believed to be reliable. KResearch does not warrant its completeness, reliability or accuracy for commerce or fitness for a particular purpose. The information contained herein may be subject to change at any time without notice. Reliance upon any information contained herein shall be undertaken at a user's own risk KResearch shall not be liable to any user, or anyone else for any damage occurring from the use of any content herein. Nothing in this research paper shall be counted as containing any advice, recommendation or opinion for decision making in business.

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