Hybrid vehicles face a bumpy road in Thailand

Since Toyota began producing and selling the first hybrid model in Thailand – the Camry – three years earlier, sales of hybrid cars in the kingdom have reached close to 19,000 in 2012. Sales have been growing at an average rate of almost 60 percent over this span, and there are at least four hybrid models being sold in the market today.

This year, we expect sales to surpass 20,000 units. Despite such strong and stable growth, this volume is miniscule in a country where 1.2 million light vehicles are projected to be sold this year. The hybrid vehicle sector thus accounts for only 1 percent share of the entire domestic market (or 3 percent of passenger vehicle volumes).

This is nothing compared to 18 percent share of hybrids in Japan, the home market of key OEMs in Thailand. To be fair, the ratio in Malaysia, a key competitor for regional production of hybrid vehicles, was at 2 percent on sales of 15,000 last year. At the moment, we expect sales of hybrid cars in Thailand (although they will gradually expand) to be under 5 percent of passenger vehicle sales in the foreseeable future. Our projection for sales in 2020 is slightly over 30,000.

In comparison, hybrid vehicle sales in Malaysia are likely to touch just below 50,000 by 2020, accounting for almost 10 percent of its passenger vehicle market. To be sure, Thailand faces a few challenges to expand the market for hybrid vehicles. One obstacle relates to the structure of the market: pickup trucks still form a majority of the sales, but hybrid technology is mostly adopted in passenger vehicles – which made up of less than half the market versus more than 65 percent in Malaysia.

Thus without structural change arising from government policies, it would be very difficult for Thailand’s automotive market to vastly adopt hybrids or electric vehicles. Another limitation to the growth of hybrids in Thailand comes from pricing. It is in fact more economical to use traditional cars than hybrids.

This was explained in a recent study by King Mongkut’s University of Technology Thonburi: it estimated in the current market mechanism, it is Bt52,000-133,000 (about Rs 1.08-2.44 lakh) cheaper to use an internal combustion engine for eight years than using any electric car.

Yet another calculation by Bangkok Post’s motoring news editor Richard Leu suggested that the benefits of fuel efficiency of the newly launched Honda Civic Hybrid only “come after 140,000km of driving”.

A further investigation shows prices of hybrids in Thailand are also comparatively higher than prices in other countries. For example, while the Jazz Hybrid sold in Japan costs only $19,000 (Rs 10.3 lakh), it is priced around $26,000 (Rs 14.11 lakh) in Thailand. In Malaysia, although the price is higher than that of Thailand at around $29,000 (Rs 15.73 lakh), it is cheaper than the normal Jazz by 10 percent. In other words, hybrids are being sold in Thailand based on their ‘premium’ image, rather than their economic value.

The newly approved ‘CO2 emission-based automotive taxation’ scheduled to become effective from 2016 is likely to further compound the problem. Under the plan, three out of four key hybrid models will be taxed more at 20 percent – doubling from the existing preferential 10 percent tax rate.

Taking current prices as a base, the price of Toyota Camry Hybrid should rise by a minimum Bt200,000 ($7,000/Rs 3.8 lakh). Premium hybrid cars with larger than 3.0-litre engines will, of course, continue to pay 50 percent excise tax.

Meanwhile, the bracket for pickup trucks remains at the lowest 3 percent. We therefore believe the hybrid road in Thailand is filled with potholes and speed bumps. For hybrid and electric vehicles to have any decent market share, these potholes would have to be filled and speed bumps removed.