Thai Motorcycle Industry

The motorbike is the most important mode of transportation in Thailand. All across the country one can find motorbikes of every type being driven on paved streets and dirt roads. Almost every single Thai home has one to two motorbikes that are used by the entire family for either short-distance or long-distance commuting purposes. Running errands, going to work, heading to school, visiting relatives and friends, the motorbike is ubiquitous in Thailand today and it has great economic and social value. Motorbikes connect small villages to towns and towns to mid-sized cities; communities being linked to each other by a two-wheeled vehicle. A motorbike in Thailand not only serves as an indicator of status but also is a basic necessity.

The motorcycle industry established itself in the Kingdom of Thailand back in 1964. It was a small consumer market with potential and a promising production base. Fast forward to 2014 and there are four main players in the market, which include Honda, Yamaha, Kawasaki, and Suzuki. Even though there are not many companies in Thailand that manufacture and sell motorcycles, the competition amongst them is fierce. Indeed, the Thai motorcycle industry is in its maturity stage, thereby obligating Thailand's key players to use strong strategies to possess market share. Nowadays, the dominant force in this industry is Honda.
According to a global management consulting and market research firm Lucintel, "The market witnessed splendid growth during 2006-2011 but is likely to grow with reduced pace to reach an estimated $93.67 billion by 2017." They further note that in developing regions "which perceive two-wheelers as a basic mode of transportation, are expected to remain the most promising markets for scooters, light motorcycles, and mopeds. A combination of factors such as demographic condition, economic condition, and environmental regulations is seen to have important impact on market dynamics." Chiaki Kato, president of AP Honda Co Ltd., has stated that the motorcycle industry in Thailand was affected by the bumpy economy last year. The economic fluctuations started with the slow exports at the beginning of the year resulting from the appreciation of the baht. Then came the domestic political crisis and the fluctuating prices of agricultural products towards the end of the year. All these factors pulled economic growth down to 2.8% from its original forecast of 5.5%. Furthermore, new motorcycle registration was affected, dropping 6 per cent year on year to 2,004,000 units.

A careful examination of the figures for 2013 shows that the motorcycle industry in Thailand experienced a significant downturn owing to the political turmoil that gripped the country for much of Q4. Indeed, the numbers were lower for total production (2,218,625 units) and total domestic sales (2,004,498 units) when compared with the records set in 2012. Still, the export column showed real growth for the industry in 2013 as both CBUs and CKDs registered higher figures of 333,780 units and 601,967 units, respectively, for a combined value of 50.15 billion baht.

Honda chose Thailand as its production center for big bikes because Thai suppliers are able to provide as much as 95% of parts, which dramatically lowers the production cost when compared to manufacturing in Japan and then exporting them to Thailand. In that case, the motorcycles would have to be assessed a high import duty as the lifting of the import tax as stipulated by the Japan-Thailand Economic Partnership Agreement will take effect in 2017. Furthermore, Italian motorcycle manufacturer Ducati already has set up a big-bike assembly plant in Thailand with a production capacity of 17,000 units per year. Ducati's Monster 795 is produced locally and is an indicator that there is a demand for Western-type motorcycles. Likewise, German manufacturer BMW is another brand that is active in the Thai market.

According to the size of the engine, motorcycles can be classified into four types: small (50-250 cc), medium (251-750 cc), large (751-1199 cc), and heavy (1200 cc or more). Regarding usage, there are also four categories: standard motorcycle (small, simple, economical and easy to use), performance motorcycle (normally equipped with an engine of more than 251 and mostly for racing), styling/touring/luxurious motorcycle (normally with medium or large engine), and an individually customized motorcycle (normally with large engine). Also, motorcycle units can be classified into two types: completely built units (CBUs) or completely knock-down units (CKDs), which are a complete set of all parts ready for assembly.

In terms of production, the industry is recovering from the impact of the global recession. The overall picture shows total production for 2014 (January to May) stands at 772,732 units, an increase of 22% y-o-y. A clear indicator that market demand continues to exist!

In April 2014 a total of 131,147 motorcycles were sold, 22.41% lower than the 169,033 units sold in April 2013. This drop was caused by lower sales of family-type and scooter-type motorcycles. Accordingly, the m-o-m sales of family-type, scooter-type, and sport-type motorcycles went down 15.95% in April 2014. Nonetheless, the total sales figure for 2014 (January to May) shows that 718,755 units have been bought domestically, an increase of 21% y-o-y. Categorized by manufacturers, Honda currently leads the pack with sales of 571,231 units, a market share of 79.5%; followed by Yamaha with sales of 94,049 units or a 13% share. Suzuki stands in third with sales of 18,017 units, or 2.5%; followed by 17,452 units from Kawasaki, or 2.4%; and another 18,006 units from other brands.

Nonetheless, exports of completely built units (CBUs) increased 18.68% y-o-y in April 2014, from 20,709 units to 24,577 units. This upsurge was caused mainly by a growth of exports to the UK, the US, and Japan. Additionally, export volume was up by 2.27% m-o-m, primarily to Japan, France, and Belgium. The motorcycle industry is expected to slow in 2014, but there should be an expansion of output towards the end of the year as confidence in the Thai economy by both investors and consumers grows. Production should be 88% for domestic sales and 12% for exports.

Recognizing the changing trends concerning the consumer tastes of the local market, the Board of Investment (BOI) promotes Large-Sized Motorcycle Manufacturing, by offering exemption of import duties on machinery, regardless of plant location, and corporate income tax exemption for projects with engine production. In such cases, corporate income tax exemption is to be permitted, according to BOI Announcement No. 1/2543 (dated 1 August 2000), as follows:
  • For production of motorcycles with an engine size higher than 248cc but not exceeding 500cc must have die castings or forging or machinery production process of 4 out of 6 parts including cylinder block, cylinder head, crank case, crankshaft, camshaft, and connecting rod.
  • For production of motorcycles with engine size higher than 500cc, the production process must start from machining of major engine parts including cylinder head and crank case.
  • Other rights and benefits shall be granted according to the Board of Investment Announcement No. 1/2543 dated 1 August 2000.
But conditions do apply. For instance, such large-sized motorcycles must be types that utilize 4-stroke engines with a minimum size of 248cc. Also, the production process must include body frame welding and painting, a plan for parts manufacturing and sourcing must be proposed and approved by the BOI, and lastly, the investing company is not entitled to additional corporate income tax exemption under the STI (skill, technology, and innovation) scheme.Tag: Honda Yamaha Kawasaki Suzuki Manufacturing Thailand Labor BOI
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