COVID-19 causes Thai auto industry to plunge to a 9-year low… leading to supply chain adjustments and new parts production processes (Current Issue No.3107)

               The ongoing COVID-19 global crisis has affected the Thai automobile industry in many different aspects, as the economic recession which is playing out in Thailand and at the international level remains the key factor impacting purchase orders for cars, both domestically and in export markets. As a consequence, this year has seen the volume of car production in Thailand plunge to a 9-year low. In view of the current pandemic situation, KResearch has made a preliminary projection that the volume of car production is likely to experience a considerable contraction in an estimated range of 21 to 25 percent, or only 1.52 to 1.59 million cars produced. This projected steep drop in production is the result of the anticipated plunge in exports that could fall to a range of 750,000 to 780,000 units, or a contraction of 26 to 29 percent from the export volume of 1,054,103 units in 2019. Meanwhile, domestic sales could plummet to the level of 800,000 to 820,000 units, or a decli​ne of 19 to 21 percent from the 1,007,552 units sold in the preceding year. Meanwhile, any recovery of the automobile industry is not expected until mid-2021 or perhaps early 2022 should the global economy gradually revive during 2021.

                 Furthermore, the crisis exposed one major issue regarding current production processes, which is an evident over-reliance on a single production base, for which car and auto parts manufacturers may have to consider readjusting their production to augment flexibility going forward, by diversifying the risk of acquiring auto parts in the supply chain. KResearch expects that the methods which car and auto part manufacturers could implement henceforth could be divided into two elements, namely the downgrading of the just-in-time production system, and reduced reliance upon a single production base by relocating production bases to strategically-positioned countries within the region. This strategy could lead to a clearer direction for a new form of supply chain management in manufacturing, such as use of a shared platform for varied car models and auto parts under the same brand and between brands, as well as the increased merging of certain types of tasks from different tiers together under a single conglomerate, especially the same entities as the auto parts manufacturers in Tier 1, thereby shortening the supply chain.

           While Thailand has good prospects in attracting foreign investment, a suitable course of action, especially the move to encourage more domestic auto parts manufacturers to switch to automated production processes, should give Thailand a better chance in competing against production bases in other countries, especially in the ever-expanding electric vehicle industry.