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Thursday, July 25, 2024

Thai Automotive Production Hits 14-Year Low Amid Economic Challenges

Thailand’s automotive production is projected to reach a 14-year low this year, excluding the pandemic years of 2020-22, with output dipping to 1.65 million units, according to Krungsri Securities (KS). The decline is expected despite a slow improvement in monthly production anticipated in the fourth quarter.

Krungsri Securities attributes the decline to elevated household debt levels and an increase in non-performing loans (NPLs).

In May, car production dropped by 16% year-on-year to 126,000 units. This decline was driven by a 55% decrease in pickup truck production and a 14% dip in passenger car production, reported Naruedom Mujjalinkool, a fundamental investment analyst at KS.

Domestic vehicle sales also suffered, plunging by 23% compared to a year earlier, with only 50,000 units sold. This marks the weakest sales figure for May since 2009, excluding the pandemic year of 2020.

On the export front, there was a slight improvement with a 3% increase to 89,000 units. Electric vehicle (EV) sales saw a modest rise from April to 5,000 units but were still down 8% year-on-year. EVs accounted for 10% of total domestic car sales, the highest share in four months.

The price war among EV manufacturers in Thailand is expected to increase consumer interest, especially since approximately 90% of EVs in the local market are imported. Another price war could emerge in the fourth quarter during the Motor Expo 2024, scheduled from November 29 to December 10, Naruedom noted.

A significant factor dampening car production is the stricter auto loan criteria adopted by banks due to high household debt levels.

“Domestic car sales are unlikely to improve this year based on the high rate of NPLs,” said Naruedom. “This has prompted us to downgrade our forecast for vehicle output this year by 6%, from 1.75 million units to 1.65 million, the second reduction in as many months.” Vehicle output this year is forecast to be 10% lower than last year.

KS also downgraded its projection for domestic car sales in 2024 by 7% to 650,000 units, which is 16% lower than domestic purchases in 2023. The brokerage reduced its projection for car exports by 1% to 1.09 million units, 2% less than last year’s shipments.

The Industrial Production Index has declined over the past 10 months as several factories have reduced working hours or laid off employees, affecting household income and consumer spending, Naruedom explained.

“We predict monthly car production will start to improve slowly in the final quarter, meaning the earnings of listed auto companies could drop year-on-year for two more quarters,” he said. “Downside risks remain for the brokerage’s earnings forecasts for auto companies under its coverage.”

Naruedom Mujjalinkool and Supamas Isarabhakdi were involved in the analysis and policy promotion.

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