INVESTMENT OPPORTUNITIES IN THAILAND: AUTOMOTIVES

Thailand Board of Investment Mr. Vittaya Praisuwan Executive Investment Advisor September 2006

1 Thailand: Geared for Excellence Building the Automotive Hub of Asia

• Detroit of Asia & investment opportunities • BOI incentives for auto investments

2 InvestmentInvestment OpportunitiesOpportunities inin thethe DetroitDetroit ofof AsiaAsia

3 ThailandThailand AutoAuto FactsFacts

• Auto sector: 12% of GDP • World’s 2nd largest consumer, producer of pickup trucks (after U.S.) • Largest auto producer in Southeast Asia, expanding at a rate of 24% in 2004

4 AutoAuto ExportsExports && ImportsImports 20042004

Top 10 Exports Value Top 10 Imports Value US Mil. US Mil. 1 Computers & 8,855 1 Crude Oil 10,214 components 2 Elect. Machinery, Parts 9,041 2 Autos & parts 5,408 3 Industrial Machinery 9,001 3 Integrated circuits 4,735 4 Chemicals 7,731 4 Rubber 3,267 5 Integrated Circuits 7,004 5 Radios, TVs 3,074 6 Iron and Steel 5,550 6 Plastic pellets 2,982 7 Computers, Parts, 4,619 7 Garments 2,944 Accessories 8 Rice 2,565 8 Metal Manufactures 3,268 9 Gems and jewelry 2,520 9 Jewelry, Silver Bars, Gold 2,840 10 Iron and steel 2,396 10 Auto Parts & Accessories 2,704

5 AutomotiveAutomotive IndustryIndustry inin ThailandThailand

1,200,000 Thousand Units Production Domestic Export 1,125 1,000,000 Ave.Ave. GrowthGrowth 35%35% perper yearyear 928 800,000 (1998(1998 –– 2005)2005)

750 703 600,000 589 584 571 626 485 559 459 525 411 533 400,000 389 440 434 327 409 363 296 332 158 262 200,000 180 233 218 152 175 144 130 42 66 0 21 8 14 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

6 Production Capacity in 2004 / 2005

Company PC 1 TON P/U CV TOTAL 1. 126,000 170,000 38,000 334,000 2.MITSUBISHI 50,000 100,000 20,200 170,200 3. - 150,000 20,000 170,000 4. AUTO ALLIANCE 2,700 132,300 - 135,000 (Ford& Mazda) 5. 120,000 - - 120,000 6. 33,200 66,400 2,400 102,000 7.GENERAL MOTOR 60,000 40,000 - 100,000 8.HINO - - 28,800 28,800 9.DAIMLERCHRYSLER 16,300 - - 16,300 10.YMC Assembly 12,000 - - 12,000 11.BMW. 10,000 - - 10,000 12. 10,000 - - 10,000 TOTAL 440,200 658,700 109,400 1,208,300

7 AutomobileAutomobile ProductionProduction CapacityCapacity PlanPlan 20042004--20072007

Capacity 2004 Capacity 2007 Increase

Toyota 300,000 500,000 66.7% Nissan 143,900 200,000 40.0% Isuzu 140,000 200,000 42.9% Ford/Mazda 135,000 200,000 48.1% Mitsubishi 126,000 200,000 58.7% Honda 120,000 220,000 83.3% General Motors 110,000 150,000 36.4% Bangchan 20,000 20,000 0.0% Thonburi 19,500 19,500 0.0% Yontrakij 12,000 12,000 0.0% BMW 10,000 10,000 0.0% Hino 9,600 9,600 0.0% Volvo 6,000 6,000 0.0% Total 1,152,000 1,747,100 51.7%

8 World Production in 2005 Target: Country NO. Production U.S.A. 1 11,962,152 Detroit of Asia JAPAN 2 10,729,531 GERMANY 3 5,758,710 Become a TOP 10 auto 4 5,708,421 FRANCE 5 3,628,613 producer by year 2010 BRASIL 6 2,781,714 SPAIN 7 2,748,226 CANADA 8 2,693,901 Produce 2,000,000 KOREA 9 2,539,865 units/yr, >50% for ENGLAND 10 1,797,773 export MEXICO 11 1,669,563 INDIA 12 1,642,070 RUSSIA 13 1,340,940 THAILAND 14 1,125,316 ITALY 15 1,032,481 9 SamplesSamples ofof NewNew 20052005 InvestmentsInvestments

HONDA NISSAN TOYOTA Doubling engine $1 billion investment to Doubling capacity to production increase capacity: 550,000 units/yr by 2007 - Auto parts $1.2 billion to produce Increasing production - Plastic parts of engine blocks and 100,000 pickups & SUVs, - body parts sets cylinder heads to 224,550 autos, 14 million 300,000/yr (70% for - Transmissions auto parts. export to Asia) - Diesel and benzene engines $2.2 billion worth of steel, Expanding production to components, electronic 200,000 units/yr from 130,000. parts to be sourced locally HINO By 2008, 10 new models to be introduced to Thailand, most Expanding capacity, assembled locally GM making Thailand its $66 million paint unit in production base for Rayong Asia and Oceania Auto production to increase By 2010 will triple MAZDA to 160,000 units/yr from trucks and buses to Establishing Thailand its 110,000 30,000 units regional ASEAN HQ and export Thailand established as hub for parts for light trucks hub for Asia 10 20052005 Auto&PartsAuto&Parts ExportExport ValueValue UpUp 46%46% Company Value # units Increase 1 Toyota $ 1,751 151,824 188% Total Exports million $7.4 billion 2 Mitsubishi $ 930 88,152 0.1% million 3 Auto $ 751 77,551 5% - 440,715 autos Alliance million ($ 5.1 billion) Thailand 4 Honda $ 530 45,216 1.5% - Components million ($ 2.3 billion) 5 GM $ 544 33,836 -25% million

11 TargetsTargets forfor DetroitDetroit ofof Asia:Asia: To be the 10th of the World by 2010 SHORT TERM LONG TERM (2006) (2010) VEHICLES 1,000,000 Units 1,800,000 Units -Export 40% -Export 40% -Domestic 60% -Domestic 60% MOTOCYCLES 5,000,000 Units -Export 40% 2005, Achieved 1,125,316 Units -Domestic 60% 1 Year Earlier AUTO PARTS 200 Billion Baht -Export 100% Source: Federation of Thai Industries 12 AutoAuto partpart SuppliersSuppliers

• 1,709 part suppliers operating – 709 OEM part suppliers • 386 makers for automobile • 201 makers for motorcycle • 122 makers for both automobile and motorcycle – 1,000 suppliers for supporting industry & raw materials (mould & die, heat treatment, forging, casting, painting, plastic, rubber etc.)

13 Markets Ratio & Local Content Ratio

P/UP/U Ratio Ratio = =58%58% LocalLocal Content Content = =80-90%80-90%

P/CP/C Ratio Ratio = = 33%33% LocalLocal Content Content = =30-70%30-70%

14 Opportunities:Opportunities: ComponentsComponents notnot SufficientlySufficiently ProducedProduced inin ThailandThailand • Passenger Car Engines • Fuel Injection Pumps* • Transmissions* • Differential Gears • Injection Nozzles* • Electronic Systems • Electronic Control Units* • Turbo Chargers* • Substrates for Catalytic converters • Anti-Lock Brake Systems *Current manufacturers not meeting demand 15 Auto & Electrical/Electronics Sectors

InvestmentInvestment Opportunities:Opportunities: MouldMould && DiesDies // PrecisionPrecision EngineeringEngineering • Few producers of mould and dies currently in Thailand (high reliance on imports) • Mould & Dies essential for further development of auto and electrical/electronics clusters • Manufacturers being forced to do own precision engineering, mould & dies to meet customer demands and delivery times. This is very expensive. • BOI responding to industry requests to increase incentives and promotions 16 Samples of Clusters in Thailand

Chiang Rai High land crops Phayao Jewels shaping Chiang Mai CLUSTERS IN THAILAND Canned & Dried Fruits Lumpang Ceramics Chiang Mai Clothes Pitsanulok Agriculture Machinery Chiang Mai Tourism Loei: Udon Thani Winery Clothes & cotton Chiang Mai Auto Clusters Sakon Nakon Handicrafts Clothes Chiang Mai Khon Kaen Gems & Jewelry Sugar Lumphoon Electronics Khon Kaen Tak Clothes & cotton Ubon Rajthani Gems & Jewelry Saraburi Jewels shaping Chicken, Dairy Farms Chaiyapoom Saraburi Textile & garment Cement & ceramics Khao Yai: Winery Ayuthaua Nakornrajsima Software & Electronics Silk Ayuthaua Nakornrajsima Auto Assembly Basic plastic product Karnchanaburi Pathumthani Surin Gems & Jewelry Western Provinces Textlie Silk High Value Vegetable Digital Contents Samutprakarn Nakornpathom Auto Parts/Accessories Rayong: Pork & Poultry Samutprakarn Auto Assembly Leather Rajburi Chanthaburi: Sugar Tropical Fruits Rajburi Chanthaburi Pottery & Ceramics Gems & Jewelry Cholburi: Rajburi Petrochemical Orchids Trad Samut Sakorn Cholburi Petchaburi Koh Chang Tourism Marine Food ProductsElectrical appliances Prachuab Kirikhan Pineapple Basic Iron Production Samut Songkram Marine Food Products AUTOMOTIVE Chumporn Fruits Surat Thani FASHION Ranong Lang Suan Fruits Shrimp Farms Surat Thani Agri & FOODS Phuket Samui Tourism Surat Thani Medical Services Shrimp Farms Surat Thani ICT & SOFTWARE Phuket Para wood Furniture IT City Surat Thani Phuket: Palm Oil TOURISM Tourism, Songkhla: Marine Food Products OTHERS Phuket Krabi Songkhla Gems & Jewelry Palm oil Rubber, Para wood Furniture Trang Thailand Competitiveness Initiative Projects Marine Food Products Pattani 12 July 2004 Satoon Haral Food Processing Marine Food Product Kenan Institute Asia 17 1. AUTOMOTIVE CLUSTER

Automotive Manufacturer Location Pathumthani Ayudhaya Thai Motor Honda Automobile Chachoengsao (Thailand) Isuzu Motors (Thailand) Bangkok Samutprakarn Bangchan General Assembly Toyota Motor Thailand Y.M.C. Assembly Isuzu Motors (Thailand) Thai Honda Manufacturing Siam Nissan Automobile Siam V.M.C. Automobile Thai Auto Work Rayong Millennium Motors Auto Alliance (Thailand) Thai Yamaha Motor General Motors (Thailand) Thai Swedish Assembly BMW Manufacturing (Thailand) (Thailand) Kawasaki Motors Enterprise Samutsakorn Thonburi Automotive (Thailand) Thai Rung Union Car Assembly MMC Sittipol

18 PrincipalPrincipal AutoAuto PartsParts ProductionProduction SitesSites inin ThailandThailand

Pathumthani Total suppliers: 39 Body Parts: 18%, Engine Parts; Electrical Parts: 13% each, Suspension & Brake Parts: Rayong 10%, Drive, Transmission &Steering Parts; Total suppliers: 41 Accessories: 8% each, Other: 31% Body Parts: 24%, Engine Parts; Drive, Transmission &Steering Parts: 15% each, Bangkok Suspension & Brake Parts: 12%, Electrical Parts: 10%, Accessories: 7%, Total suppliers: 232 Mold&Die: 2%, Other: 15% Body Parts: 9%, Engine Parts; Electrical Parts; Drive, Transmission &Steering Parts; Accessories: 6% each, Suspension & Brake Parts: 4%, Mold&Die: 3%, Other: 60%

Chonburi Samutprakarn Total suppliers: 55 Total suppliers: 158 Body Parts: 25%, Engine Parts: 22%, Body Parts: 22%, Electrical Parts: 15%, Drive, Transmission &Steering Parts: Engine Parts; Drive, Transmission 15%, Electrical Parts: 9%, Accessories: &Steering Parts: 8% each, Suspension & 5%, Suspension & Brake Parts: 4%, Brake Parts: 5%, Mold&Die: 4%, Mold&Die: 4%, Other: 16% Accessories: 3%, Other: 36%

19 2 5k m KeyKey InfrastructureInfrastructure Suvarnabhumi Airport ManyMany autoauto firmsfirms Eastern Seaboard are located on Industrial Area are located on ThailandThailand’’ss EasternEastern SeaboardSeaboard

Laem Chabang 5757 IndustrialIndustrial EstatesEstates Port DeepDeep seaports:seaports: 5 million TEU capacity

20 BOIBOI IncentivesIncentives forfor AutomotiveAutomotive ProjectsProjects

21 RoleRole ofof BOIBOI inin PromotingPromoting InvestmentInvestment BasicBasic BOIBOI privilegesprivileges andand incentivesincentives

TAX INCENTIVES NON-TAX INCENTIVES • Corporate income tax • 100% Land ownership holidays up to 8 years rights for foreign investors • Import duty reductions Permission to bring in or exemptions on • foreign experts and machinery and raw technicians materials • Work permit & visa facilitation

22 BasicBasic ZoneZone--BasedBased CorporateCorporate IncomeIncome TaxTax ExemptionsExemptions Zone Inside IE Outside IE

Zone 1 3 Years Not Exempt Zone 2 *7 Years 3 Years Zone 3 8 Years

*Laem Chabang IE and Rayong IE receive 8 years 23 AUTO Zone 1 Zone 2 Zone 3 Car Assemblers: •Duty on 50% 50% Exempt Machinery reduction reduction Component Parts Manufacturers: Machinery Machinery Duty: Machinery Duty: Duty: 50% In IE exempt Exempt reduction Outside IE 50% reduction • General Corporate Corporate Income Corporate Income tax tax exemption: Income tax exemption: exemption: In IE - 7 years In IE - 3 years Outside IE - 3 years exempt 8 years Exempt from machinery import duties

• High-Tech Exempt from corporate income tax for 8 years Examples: Electronic Fuel Injection Systems, ABS Brake Systems, Substrates for Catalytic Converters, Molds/Dies 24 AutomotiveAutomotive IndustryIndustry ClusterCluster:: AssemblersAssemblers && SuppliersSuppliers ApplyingApplying asas PackagePackage forfor BOIBOI PromotionPromotion • Conditions – Total investment at least THB 10 billion ($250 million) including component parts manufacturing – Covers: • Automotive Assembling • Manufacture of Vehicle Parts and Engines

• Incentives – All Zones: Duty Free Machinery 25 NaturalNatural GasGas VehiclesVehicles Current status New BOI NGV incentives: • NGV parts production • 4,678 NGV vehicles including engines, tanks and • 4,359 are taxis other parts • 28 NGV service • Production of natural gas equipment and machinery for stations NGV service stations Priority Incentives: 8 year NGV on national corporate income tax holiday, agenda: duty free machinery Government regardless of location Targets 120,000 NGVs by 2008 • NGV assemblers and NGV service stations: duty free machinery regardless of zone 26 WorldWorld’’ss MostMost ExpensiveExpensive CitiesCities 20062006

1) Moscow 20) Shanghai 2) Seoul 32) Hanoi 3) Tokyo 37) Ho Chi Minh 4) Hong Kong 48) Jakarta 5) London 54) Guangzhou 6) Osaka 68) Mumbai 7) Geneva 73) New Delhi 10) New York City 114) Kuala Lumpur 14) Beijing 127) Bangkok 19) Sydney 139) Bangalore Source: Mercer Human Resources Consulting Worldwide Cost of Living Survey 2006 27 ComparisonComparison ofof LandLand andand OfficeOffice PricesPrices Bangkok Beijing Hanoi Jakarta Kuala Manila Singapore Lumpur Industrial 54.71 55.65 - No Land 35 – 5.3 - 45 -50 72.50 – Estate 68.02 Purchase 10.6 221.63 Purchase Rate 40 (per sq.m.)

Monthly 4.86 5.6 - 8.71 0.18 3.60 – --- 1 4.95- Industrial 12.50 Estate Rents 4.10 (per sq.m.) Office Rent (per 11.67 34 - 40 22.00 22 – 9.96 - 7.4 34.79 – sq.m. 26 14.21 36.06 Monthly 1,581 2,300 – 2,000 – 1,800 – 924 – 1,726 1,529 – Housing for 6,000 4,000 2,500 1,056 2,646 Foreigners

Source: JETRO 16th Survey of Investment-Related Cost Comparison in Major Cities and Regions in Asia; prices are in US dollars 28 AffordableAffordable OfficeOffice SpaceSpace

140 Tokyo (Inner 131.1 Central) 120 Hong Kong a Mumbai, India 100 Seoul, South Korea 80 75.9 Shanghai (Puxi) 93.1 Singapore 60 56.4 Taipei Ho Chi Minh

(US$/Square Foot) (US$/Square 40 48.2 40.3 Ó 36.8 Guangzhou 41.5 20.2 14.8

Total Occupancy Cost Per Ye Per Cost Occupancy Total 20 Bangkok 22.5 17.1 Manila 0 Jakarta Source: CB Richard Ellis -- May 2006 29 Internationally- Investment Matchmaker Program acclaimed support 1-Stop for visas & work permits: services: work permits in 3 hours Industrial Subcontracting Services Vendors meet customers program (BUILD Unit)

ASEAN Supporting Industry Database (ASID)

Interaction with other govt. agencies on behalf of investors Dedicated to creating an enabling environment for investment Country desks

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