THAILAND AND MALAYSIA are neck and neck in the competition to attract automotive companies to participate in their respective energy-efficient and environmentally friendly car assembly and manufacturing programmes this year.

With political stability returning to Thailand after its military grabbed power in May, it will not be long before the country attracts more investments into the industry, says an automotive analyst.

“Thailand is pushing harder than us for automotive investments and it is growing the industry’s critical mass. The Thais are getting both investments for expansion from carmakers which have been there for a long time as well as new investments,” says the analyst, who declines to be named.

Since taking over Thailand’s administration in a coup d’état, the military government has been expediting investment approvals to clear backlogs caused by uncertainty due to the political stalemate in Bangkok last year.

Under Thailand’s Eco-car Phase 2 programme, THB52.7 billion (RM5.3 billion) in investments has been approved by the Board of Investment (BOI) between June and September. This figure does not include existing assembly programmes, which do not qualify as eco-car.

Meanwhile, Malaysia approved RM6 billion worth of automotive assembly investments from January to September, according to the Malaysian Investment Development Authority (Mida). This does not include investments in autopart manufacturing and other related services.

The most notable investments include Perusahaan Otomobil Kedua Sdn Bhd’s new manufacturing plant worth RM2 billion, and Go Automobile Manufacturing Sdn Bhd’s RM2 billion investment, together with China’s Great Wall Motors.

Nevertheless, Thailand is still ahead in terms of total automotive assembly and manufacturing investments this year, which include expansion of car assembly plants that do not fall under the Eco-car Phase 2 programme.

On Oct 3, the BOI announced that Ford Motor Co, General Motors, Mitsubishi Motors Ltd, Nissan Motor Co Ltd and market leader Toyota Motor Corp would be investing in new capacity to produce eco-cars in Thailand.

Eco-cars are defined as those that travel more than 20km on a litre of fuel, do not emit more than 120g of carbon dioxide per km and meet other criteria, including crash-test standards.

Manufacturers must also invest at least THB5 billion, which should include car assembly as well as engine and parts production. Qualified manufacturers will in turn receive incentives, including an excise duty rate of 12% compared with the average 30% on conventional cars.  

Apart from participating in Thailand’s Eco-car Phase 2, Toyota is also ramping up production of its pick-up trucks there with an investment of THB51.5 billion. Auto Alliance (Thailand) Co Ltd, a joint venture between Ford and Mazda Motor Corp, is also investing THB9.73 billion.

Even Chinese automotive company SAIC Motor Corp Ltd is investing THB9.2 billion to manufacture cars with an approximate production capacity of 52,000 units per year, according to BOI’s announcement.

“Global manufacturers are favouring Thailand over Malaysia to set up their bases in the region. This is because despite the recent liberalisation of the industry, we still have a bit of interest to protect the local car companies as well as the approved permit holders,” says the analyst.

“To attract the big guys, we have to open up. But our government seems to be dragging its feet. Thailand is already so much ahead of us in the automotive industry, and with the Asean Economic Community coming in next year, it will continue to attract investments.”

After decades of trying to nurture the local automotive companies, Malaysia has tried to attract investments by opening up the industry for the manufacturing and assembly of energy-efficient vehicles (EEV), as outlined in the National Automotive Policy 2014 (NAP).

The policy has been criticised for not including other aspects that support the growth of an automotive industry, such as the quality of fuel and engine technology. Malaysia is still using Euro 2 fuel standard while Thailand is already on Euro 4, a cleaner fuel.

A better fuel standard will allow carmakers to introduce new technologies. Many global carmakers are developing engines that only run on better fuel than the Euro 2 standard.

For example, Isuzu Motors Ltd is investing THB5.13 billion to expand its diesel engine manufacturing plant in Bangkok. Isuzu’s diesel engines are being used by General Motors and Renault-Nissan Alliance.

Despite the shortcomings of the NAP, Mida is focused on attracting new quality investments and encouraging existing players to shift towards higher value-added activities.

“We are looking at new and innovative technologies, which are necessary for us to achieve this target. The number of investors and absolute value of investments should not be the only yardsticks of success,” it says in an emailed reply to The Edge.  

The NAP has set a target to produce 1.25 million cars by 2020 — from the current 570,000 — with 250,000 units to be exported. Malaysia Automotive Institute (MAI) CEO Madani Sahari says a minimum 500,000 units of new production capacity have to be created to achieve this goal.

“The investments so far have created an additional 280,000 units of production capacity. We hope to achieve the balance of 220,000 units by end-2017. This should total RM12 billion to RM13 billion in additional investments required.

“This does not include investments from across the supply chain resulting from the additional production capacity. As a rule of thumb, manufacturing investment has a multiplier effect of between three and fourfold,” he says, pointing to an additional RM35 billion to RM52 billion worth of investments.

Mida and MAI say negotiations with several global carmakers are ongoing. These companies are expected to come in together with their parts and component suppliers as part of their investment plan, especially for the EEV and hybrid segments, says Mida.

As the government targets to at least double the production of cars and boost exports through the NAP, a lot more effort is needed to woo more carmakers to set up plants here, market players say. Support for local manufacturers should not be the only strategy to beat Thailand at its own game.

This article first appeared in The Edge Malaysia Weekly, on October 20 - 26, 2014.