July 2023: +5.8%; 265,999 units vs. 251,498 units

YTD 2023: +1.5%; 1,848,595 units vs. 1,821,896 units

• Light-vehicle sales in the Association of Southeast Asian Nations (ASEAN) recorded about 266,000 units in July 2023, marking an increase of 5.8% compared with July 2022. For the year-to-date performance, the market increased 1.5% to about 1.85 million units. The ASEAN market will likely decrease 0.2% to 3.34 million units in 2023.

• Thai light-vehicle sales in July 2023 decreased 7.5% year over year to about 57,200 units. The current high household debt, tighter auto loan approval, poor export performance from global softened demand and rising political uncertainty have delayed consumer purchasing on automotives.

• In 2023, the Bank of Thailand has increased the interest rate by 25 basis points in January, March, May and August to 2.25%, which is expected to push borrow costs to its highest in eight years. Thailand's July headline inflation slightly increased by 0.38% from 0.23% in June, driven by the rise on prices of food and beverages. The government expects the inflation to continue to increase in August, according to world economic uncertainty and Thailand's severe drought.

• According to the S&P Global Market Intelligence July 2023 update, the Thai economy is set to improve by 3.38% in 2023; recovering domestic consumption (especially in the services sector), the pickup in foreign tourists and a better-than-expected global economy lead the improvement.

• The Tourism Authority of Thailand downgraded its 2023 international tourism target from 30 million visitors to 25 million visitors, compared with 11 million visitors in 2022 and 40 million visitors in 2019. Mainland Chinese tourists — accounting for more than 25% of Thailand's total visitors — should only be about 5 million visitors from 7 million-8 million visitors at the last expectation.

• Thailand's export sector has faced challenges amid volatility in the global economy and financial markets. Softening global demand including the US, EU and mainland China, and concerns about geopolitical tensions have affected Thailand exports' value. Exports in 2023 may contract by more than 2%, according to the Federation of Thai Industries.

• The coalition formation has been uncertain after election in May. This led to decline in domestic spending due to risk of protests and political instability. In addition, any delay in government formation would result in a delay in budget approval in the fiscal year of 2024.

• The overall chip shortage bottleneck and delivery time has improved for many manufacturers, although the problem is still delaying production and delivery for some models.

• We expect sales improvement, especially in late 2023, driven by lower inflation; the official announcement of a new prime minister and the cabinet; the peak season of foreign tourists; the easing of the automotive supply constraint problem; as well as the possibility of high promotion and rushing to buy some in-stock vehicles before completely built-up (CBU) battery-electric vehicle (BEV) benefits will end in December 2023 and the new Euro 5 will be applied in 2024.

• We expect 2023 sales to grow at a slower pace of 2.9% year over year to 0.85 million units. The downgrade is also possible considering rising negative risks, including the delay on new government formation, decrease in 2023 export and tourism targets by the government, and tighter auto loan approval according to high household debt.

• The rising star in the automotive segment in 2023 is the BEV, with support from government incentives, the high price of gasoline and concerns over fine particulate matter (PM2.5) pollution in Thailand. The government's 2022 BEV incentives for CBU, including a reduction of import taxes, a cut of the excise tax and a cash subsidy worth up to 150,000 baht, will end before 2024. While we expect that original equipment manufacturers who joined in the EV 3.0 scheme will start local BEV production in 2024 onward, many OEMs including Changan Automobile and GAC Motor are anticipated to participate in the tentative EV 3.5 scheme if it is approved by the new government.

• In the short term, the COVID-19 pandemic, the Russia-Ukraine war and the uncertain global economy will pressure the Thai economy, businesses, consumer behaviors and automotive market. We expect a k-shaped recovery among business sectors, while high household debt reaching 90% of GDP will hamper the ability to pay debt, affect decisions to buy high-valued goods and cause stricter loan approvals from financial institutions. In addition, automotive prices that were pushed up in 2023 will remain high, suppressing purchasing power and disrupting automotive demand. The slowdown in key economies will hurt the global economy including the ASEAN economy and consequently ASEAN auto demand. Therefore, a sales recovery will be further delayed, returning to the pre-pandemic level in 2025.

• The further urban expansion after the completion of the public transportation megaproject and substantial overseas investments to join the Eastern Economic Corridor — Thailand's new flagship economic zone — will continue as many companies could allow more remote working and relocation away from crowded big cities; bordering provinces have also gained free-trade and labor opportunities with the creation of the ASEAN Economic Community. The government's electric vehicle scheme will contribute to Thai market demand in the medium-to-long term. Continuous new vehicle launches, and the global battery price decline will lead to better affordability and a wider target consumer range in the future. In the longer term, the automotive industry will grow at a slower pace as penetration levels and public transportation — especially the Skytrain in Bangkok — expand. In addition, there are more concerns about limited roads, and high traffic congestion in big cities will be a future threat.

• Indonesia's light-vehicle market in July decreased by 7.4% year over year to about 74,000 units. The negative growth was due to the slowdown in exports, the high interest rate and the Fed Fund Rate hike. Indonesia exports slumped by more than 20% year over year in June, amid the declining prices of its top commodities and the weakening demand from its key trade partners. The Bank of Indonesia hiked its policy interest rate at the beginning of 2023, which was higher than the last-year level. This is likely to limit the liquidity of car loans because cars will be less affordable for consumers. Fed Fund Rate hikes are likely to impact the Indonesian exchange rate. This can make Indonesia's exports more expensive. The negative factors mentioned earlier can affect consumer confidence in buying big items. In a month-over-month comparison, the market also decreased by 2.6%. Many customers are waiting to buy vehicles during the auto show in August to receive good promotions and campaigns. In the year to date, the Indonesian market increased 3.7% year over year to about 540,000 units.

• We expect the 2023 market to slightly increase by 0.6% to about 0.97 million units. The main factors influencing 2023 performance will likely be continuous strong private spending, leading to solid economic growth of about 4%-5% (close to 2022 level). New car models will be available in the market, offering fresh options to car buyers and restoring their purchasing confidence. Electrified vehicles will likely gain more market share thanks to the latest announcement by the government regarding a value-added tax (VAT) reduction, adding to the current low excise tax scheme; the government had announced the incentive, eligible for local assembled BEVs with local content of at least 40% that would lower the VAT from 11% to 1% from April to December 2023. However, ongoing high fuel price from the government subsidy cut to save the country's costly budget, financial instability from monetary tightening, and the global economic slowdown spreading to the US will create unease for consumers.

• In the short-to-medium term, Indonesian car sales should continue to rise owing to robust demand, product refreshment, further corporate tax cut expectations and public infrastructure improvement. The fuel prices rising from the government subsidy cut since September 2022 will likely affect consumer purchasing. The high raw material prices owing to the Russia-Ukraine tension would dent market performance through the medium term, as it will likely raise car prices and add pressure to the affordability of a new car. In the long term, the market should grow, owing to the rising middle class. Considering the penetration rate in the country is still low, there remains plenty of opportunities for further growth in the years ahead. However, mass rapid transit (MRT) programs may result in consumers prolonging the decision to buy a new car, because MRT can accommodate many people at the same time through business areas that currently face severe traffic jams.

July 2023: +2.7%; 337,697 units vs. 328,774 units

YTD 2023:+6.2%; 2,413,099units vs. 2,272,998 units

• The Association of Southeast Asian Nations (ASEAN) region's light-vehicle production in July 2023 increased 3% year over year with 337,697 units built. Year-to-date production in July grew 6.2% year over year with 2.41 million units built, thanks to original equipment manufacturers' strong outputs during the first half of 2023, in a bid to fulfill the backlogs of 2022 across the region as well as the export momentum in Indonesia and Thailand. In the August forecast update, ASEAN's full-year 2023 production remains the previous forecast outlook with 4.19 million units, a slight contraction of 1.8% year over year. Vietnam production forecast has been cut by nearly 35,000 units, primarily weaker production recorded during the first seven months of the year, as the automotive market has been significantly hit by the ongoing economic headwinds. However, it is offset by the upgraded forecast outlook in Indonesia and Thailand, thanks to the stronger than expected actual production during the second half. ASEAN's production during the second half of 2023 should be able to maintain the output of over 2.1 million units amid the weaker market outlook across the region. The 2024 and 2025 outlook is now forecast to remain flat with 4.2 million and 4.3 million units, respectively.

• Thailand's light-vehicle production in July recorded 145,148 units, a growth of 3.9% year over year, while the year-to-date production of the first seven months of the year expanded 7.3% year over year with 1.05 million units built. This was significantly driven by OEMs' production to fulfill the backlogs of 2022, particularly in the pickup, sport utility vehicle (SUV) and subcompact passenger car segments. Ford reportedly continued to face the chip supply constraints for the Ford Ranger during August, with an expected running rate at 80% of the normal capacity, and it could take until the fourth quarter to resume full-scale operation. In late July, Mitsubishi recently introduced the all new-generation Mitsubishi Triton pickup in Thailand and planned to ramp production for export from the late fourth quarter. Thailand's 2023 light-vehicle production was revised up by 18,800 units to reach 1.84 million units, mainly due to revised actual production of Isuzu during the second quarter together with an upgraded third- and fourth-quarter outlook for Ford and Toyota. Federal of Thai Industries (FTI), an automotive association in Thailand, has cut their forecast for domestic sales and production to 0.85 million units and 1.86 million units, respectively, given the tightening monetary policies, high interest rate and slower demand outlook. Pickups should maintain their stronghold in Thai production with 1 million units, accounting for 55% of the country's total production on the back of robust export demand from the Middle East and Oceania market.

• Thailand's Consumer Price Index (CPI) in July was slower than expected with an increase of 0.38% year over year, primarily due to the lower food and energy prices. In August, the Bank of Thailand raised the policy interest rate for the seventh consecutive hike to 2.25%, the highest in the last 9 years.

• During 2023-25, major OEMs plan to launch their all-new vehicles in the mainstream midsize pickup segment, including the next-generation Mitsubishi Triton and the next-generation Toyota Hilux. Honda Motor Co. Ltd. announced the local assembly of the e: N1, a fully battery-electric compact SUV in the fourth quarter of 2023. The new players, including BYD Auto Co. Ltd. and Horizon Plus (Foxconn-PTT's joint venture), have announced the rollout of their battery-electric vehicles (BEVs) at their newly established Thai manufacturing facilities starting in 2024; the companies plan to export right-hand drive BEVs to the global market starting in the medium term. In the meantime, mainland Chinese OEMs including SAIC Motor Corp. Ltd. (MG) and Great Wall Motor Co. Ltd. plan to start local assembly of their BEVs by 2024 under the Thai government's electric vehicle scheme and subsidy program. In addition, S&P Global Mobility analysts anticipate Changan Automobile Co. Ltd. and GAC Motor to receive the investment approvals from Thailand's Board of Investment by late 2023 to build manufacturing facilities for electrified vehicles in Thailand, with a rollout plan from 2025 going forward. Moreover, Chery is expected to join its mainland Chinese counterparts to enter the Thai market from 2024 with a local manufacturing plan from 2026 at the earliest. We expect the demand for Thai-built electrified vehicles including full-hybrid electric vehicles (FHEVs), plug-in hybrid electric vehicles (PHEVs) and BEVs will maintain steady growth, largely driven by the lower excise taxes and subsidies. The combined production of electrified vehicles including hybrids (FHEV, MHEV and PHEV) and BEVs should continue to rise from 38% of the country's total production in 2026 to 59% in 2030. The Thai government anticipates BEV production in Thailand to be 30% of the country's total production in 2030. However, S&P Global Mobility analysts estimate the figure will reach 25%, given consumer skepticism and concerns over the development of charging infrastructure over the course of 2025-30. Nonetheless, Thailand will lead the EV market and production base in Southeast Asia owing to the government's investment scheme and incentives, including subsidies and tax reductions coupled with OEMs' manufacturing strategies and a strong automotive supply chain.

• We expected Indonesia's light-vehicle production in July to have increased 6% year over year, with 117,935 units, while year-to-date production grew 6.8% year over year, or 774,627 units. In the August forecast round, 2023 production was slightly revised up by 5,000 units, given the revised outlook for mainstream subcompact multipurpose vehicles (MPVs). Having recorded the historic high production of 1.37 million units, with growth of 29.1% year over year in 2022, Indonesia's full-year 2023 production will maintain 2022's level with only a mild contraction of 0.3% year over year, amid the slower pace of demand as well as high interest rate. Indonesia's completely built-up exports will likely account for nearly 0.5 million, accounting for 40% of the country's total production, thanks to the growing export demand for the mainstream B- and C-segment MPVs and SUVs from Hyundai, Mitsubishi, Suzuki and Toyota. Indonesia's light-vehicle production forecast for 2024-25 is anticipated to maintain the flat growth of 1.41 million and 1.42 million units respectively in the wake of slower automotive market demand post-pandemic. Over the past few years, Japanese OEMs in Indonesia have faced more challenges and intense competition from mainland Chinese and South Korean OEMs — particularly the mainstream B-segment MPVs and B-segment SUVs as well as the BEV segment — as Japanese OEMs are not expected to roll out the locally built BEVs before 2029. However, they should maintain their market stronghold in Indonesia, accounting for over 80% of the country's total production through the longer term. In the medium term (2025), MPVs and SUVs should continue their mainstay in Indonesia with a production share of 38% and 32%, respectively.

• Indonesia's economy grew 5.17% during the second quarter of 2023, accelerating from a revised 5.04% during the first quarter of 2023, supported by strong consumer spending during the Muslim month of Ramadan. Private consumption, which contributes half of Indonesia's GDP, grew 5.23% year over year. Indonesia's CPI cooled to 3.08% year over year, remaining within the Bank of Indonesia's (BI's) target range of 2%-4%. BI kept the key interest rate unchanged in July at 5.75%.

• In April, the Indonesian government announced the incentive for locally assembled BEVs with local content of at least 40%, through a reduction of the value-added tax (VAT) from 11% to 1%, effective from April 1 to Dec. 31, 2023. The government is expected to introduce new tax incentives for BEVs, including further VAT reduction from 1% to 0%. In addition, luxury goods sales tax for imported BEVs will be exempted, while the deadline localization of locally built BEVs with at least 40% requirements in 2024 will be revised to 2026. In the short-to-medium term, Hyundai and Wuling Motors Ltd. will benefit from the government's VAT reduction program as they are assembling BEVs in the country. We expect Chery Automobile Co. Ltd. and DFSK Motor to start the local assembly of their BEVs by 2024 and 2025, respectively. In addition to the huge investment from OEMs, Indonesia is bracing to become the key production base of EV battery producers on the back of the country's rich nickel reserves, which account for over 24% of world nickel production. The global EV battery producers including CATL Co. Ltd. and LG-Energy Solution Ltd. will likely commence EV battery production during 2025-26. We expect BYD to invest in BEV assembly in Indonesia after the rollout of its local manufacturing facilities of EV buses (2026). Indonesia will remain the Southeast Asian bloc's second-largest producer after Thailand, with production to reach nearly 1.5 million units by 2029 on the back of rising purchasing power from the working population, which accounts for nearly 40% of its total population of 270 million, and growing export outputs coupled with steady economic expansion.

• In July, Malaysia's light-vehicle production posted a growth of 2.7% year over year with 52,305 units produced. Year-to-date production grew 13.7% year over year with 408,551 units, primarily due to robust production in a bid to deliver 2022's backlogs to customers during the first half of the year. As OEMs have now returned to the normalized production rate, we anticipate weaker production outputs during the second half of 2023, given the post-pent-up demand effect and consumer sentiment over slower economic expansion. Malaysia's full-year 2023 production is now expected to decline 3.5% year over year with 0.66 million units. However, Malaysia's production during 2024-25 should continue to maintain negative growth with annual outputs of about 0.62 million amid high vehicle penetration in the domestic market, which accounts for country's production of nearly 94% with limited export potential.