Research firm LMC Automotive is hailing the government's policy to promote local production of electric vehicles (EVs), saying the initiative will help create strengths and opportunities for Thailand's automotive industry and maintain Asean's strategic edge as a vehicle production hub in the long run.
Titikorn Lertsirirungsun, LMC's manager for Southeast Asia, says Thailand's automotive sector would face tougher challenges if the government had not launched the EV promotion policy, as other Asean countries such as Indonesia, Malaysia, the Philippines and Vietnam are hard at work upgrading their own automotive industries.
"Indonesia, in particular, has the capability to compete with Thailand in terms of million-vehicle output and the largest sales market," Mr Titikorn says.
The government started backing the Thai automotive industry in 1960 with an ambitious strategy to attract foreign direct investment in vehicle assembly and related parts manufacturing, aiming to reduce vehicle imports and create more local jobs.
The making of one-tonne pickup trucks won Board of Investment (BoI) incentives during 1980s and 1990s, leading Thailand to become known as a global production hub for pickup trucks. The country made 1.10 million pickup trucks last year, equivalent to 56.7% of total vehicle output.
In another effort, Thailand embarked on the first phase of the eco-car scheme in 2007 in a move to strengthen the competitiveness of the domestic automotive industry, drawing five manufacturers: Nissan, Honda, Mitsubishi, Suzuki and Toyota.
The government in late 2013 launched the second phase, drawing 10 carmakers to officially apply. Both phases carry BoI privileges.
The five newcomers are Mazda, Ford, General Motors, SAIC Motor-CP and Volkswagen. Mazda was the first player to produce second-phase eco-cars, while General Motors withdrew in 2015.
BoI regulations require each carmaker to make a minimum 100,000 eco-cars annually from the fifth to the eighth year after kicking off production, while the second phase's regulations are tighter, requiring them to make 100,000 cars from the fourth to the eighth year.
For the first phase, only Mitsubishi and Nissan have honoured the commitment.
Under the second phase, which requires all applicant carmakers to roll out their new automobiles by 2019, only Mazda has kicked off its eco-car operations in Rayong late 2014.
The latest development saw the BoI approve this March promotional privileges for EVs, including tax holidays of five to eight years. The privileges focus on production of hybrid electric vehicles (HEVs), plug-in hybrid electric vehicles (PHEVs) and battery electric vehicles (BEVs).
The promotions include passenger cars, pickup trucks and buses, with different rates of privileges based on production technology.
HEVs are entitled to a tariff exemption for imported machinery, while PHEV investment is eligible for a corporate income tax exemption for three years and import tariff exemptions on machinery.
PHEV investors who manufacture more than one key EV part will be entitled to an additional year of corporate income tax exemption per piece, but the combined tax exemptions cannot exceed six years.
BEV investment is entitled to five to eight years of corporate tax exemption. BEV investors who manufacture more than one key EV part will be entitled to another year of corporate income tax exemption per piece, but the combined tax exemption cannot exceed 10 years.
Battery electric buses will be entitled to tariff exemptions for imported machinery and a three-year corporate tax exemption. They are also eligible for an additional year of corporate income tax exemption per piece, with the combined tax exemption not to exceed six years.
The BoI added 10 more important EV parts that will enjoy corporate income tax exemption for eight years. They include batteries, traction motors, battery management services, DC/DC converters, inverters, portable electric vehicle chargers, electrical circuit breakers and EV smart charging systems.
The government announced last month the new excise tax incentives in the Royal Gazette.
Under the next tax regime, the excise tax for the HEV and PHEV passenger cars under a BoI promotion will be cut from a range of 25% to 5% based on CO2 emission, while BEVs will be taxed 2%, a sharp drop from 10%.
Passenger pickup vehicles and double-cab pickup trucks that release less than 175 grammes of CO2 per kilometre under the HEV platform will be taxed at 23% and 10%, down from 25% and 12%, respectively.
However, this tax privilege will be given only under government measures to promote EV production locally, which are due to expire in late 2025.
Mr Titikorn says the EV privileges are quite attractive because there is no limitation for minimum volume, which is a key barrier for manufacturers, as EV sales volume in Thailand is very small and the BoI has now opened wide various EV investment platforms that create more opportunities for the Thai automotive industry.
"EVs are a global vehicle trend and every country and industrial sector are focusing on the environment and zero emissions," he says.
Kunat Tharasrisuthi, a senior analyst at LMC, says the firm will wait and see over the next two years how many manufacturers join the EV scheme.
LMC has yet to see any dominant EV subsidy given to buyers, unlike other countries where governments offer extensive cash rebates or tax discount, he says.
"Consumers in Thailand have only seen an excise tax reduction and it is uncertain how attractive future EV prices will be," says Mr Kunat.
Mr Titikorn says Thailand's EV policy is very similar to Malaysia's efficient energy vehicle (EEV) programme, announced in 2014, which focuses on all types of eco-friendly vehicles.
"The EEV is a customised investment scheme developed from talks between the Malaysian government and carmakers, not only for Japanese mass-segment brands but also Mercedes-Benz, BMW and Volvo," he says. "There is a worrying issue that once luxury carmakers have invested in our neighbouring countries, it will be hard for them to invest more in Thailand."