ASEAN sales
July 2022: +52.9%; 250,481 units vs. 163,836 units
YTD 2022: +23.8%; 1,814,156 units vs. 1,465,179 units

• Light vehicle sales in the Association of Southeast Asian Nations (ASEAN) recorded about 250,000 units in July 2022, an increase of 53.0% compared with July 2021. In the year to date (YTD), the market increased 24.0% to around 1.81 million units. The ASEAN market should increase 3.6% to 2.87 million units in 2022.

• Thai light vehicle sales in July 2022 increased 24.4% year on year (y/y) to about 62,900 units. Sales received a boost from the economic recovery, continued easing of COVID-19 control measures and countries reopening; the government's new electric vehicle (EV) policy; and a low base in 2021 when the country had a low vaccination rate and was hardest hit by Delta.

• Thai consumer confidence in July increased for the second straight month. Consumers believed that economic conditions had started to pick up slightly owing to improved business activities and strong exports. Plus, there are fewer concerns over the COVID-19 situation because of the high vaccination rate and mild symptoms of the current variants. Thailand's headline inflation slightly declined in July, helped by government support measures, but the pace was still near a 14-year high. To curb rising inflation, the Bank of Thailand raised the policy interest rate from 0.50% to 0.75% for the first time since 2018 in August 2022, and it might continue to increase the rate twice this year. The bank expects inflation to remain high for the rest of the year at 6.2% in 2022, before gradually falling to its target range at 2.5% in 2023, as supply-side price pressures ease.

• According to the IHS Markit July 2022 database, the Thai economy is set to improve by 3.0% and 4.0% in 2022 and 2023, respectively, led by recovering domestic consumption, especially in the services sector, strong exports, and the pickup in foreign tourists. Real GDP in second quarter 2022 expanded by 2.5% y/y, accelerating slightly from 2.2% y/y growth in the first quarter of 2022. However, the current Russia-Ukraine conflict and the US-China relationship may constrain Thai GDP growth in 2022 owing to rising inflation, supply constraints, and financial market volatility.

• Vehicle sales during January-July 2022 hit 478,300 units, which marked a 16.0% y/y increase, thanks to pent-up demand and rising consumption. In addition, the chip shortage issues and automotive production in the first half of 2022 were much better than expected. With the strong performance and improved consumer confidence, we plan to upgrade the 2022 Thai sales forecast in the next round. Nevertheless, we still expect slower sales growth for the remainder of the year because of economic challenges. High inflation from increasing energy and commodity prices, the food crisis, and the increasing interest rate will worsen automotive sales demand. The semiconductor and supply chain crisis will still be a major risk for Thailand's car production in 2022.

• xEVs continue to garner interest from consumers, in line with the global rise in petrol prices and the electric vehicle (EV) popularity during the COVID-19 outbreak. Concerns over fine particulate matter (PM2.5) pollution in Thailand also contribute to their popularity. Plus, the government's launch of the 2022 battery-electric vehicle (BEV) consumer incentives, which include a reduction of completely built-up (CBU) import taxes, a reduction of the excise tax, and a cash subsidy worth up to THB150,000, are expected to boost BEV-segment sales starting in 2022. Newcomers Neta and BYD will likely launch several BEVs to join the race in 2022. Meanwhile, the continued fast-growing e-commerce business and in-home delivery services will also support demand for pickups.

• In the short term, the COVID-19 pandemic and the Russia-Ukraine war will continue pressuring the economy, businesses, consumer behaviors, and the automotive market. A k-shaped recovery is expected 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. The sales recovery is expected to be further delayed, returning to the pre-pandemic level later than 2023. Sales should also be supported by the new elections in 2023, the urban expansion after the completion of the megaproject on public transportation, and substantial overseas investments to join the Eastern Economic Corridor (EEC)—Thailand's new flagship economic zone. The urban expansion 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 EV scheme will contribute to Thai market demand in the medium-to-long term. The 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 threat in the future.

• Indonesia's light vehicle market in July 2022 increased 29% y/y to a record 80,000 units. The growth was due to the low base of comparison in July last year, when the country had restricted community activities in Java, the largest contributor to car sales every year. Bali recorded a spike in COVID-19 cases. Consumer confidence in July 2022 remained strong on the back of strong expectations for future economic conditions, especially in income and employment. Sales also increased because of the higher second-quarter economic results, hitting a four-quarter high. The 5.44% y/y GDP growth rate was recorded in second quarter 2022, up from the 5.01% y/y set in the preceding quarter. The second quarter also showed solid growth in household consumption on the back of easing concerns over the pandemic and impressive export growth, thanks to high commodity prices. In the coming months, inflation risk (highest in seven years in July 2022) stemming from rising oil, food, and service prices, and vehicle selling price increases from the rupiah depreciation may become challenges and affect consumer spending. In the year to date, the Indonesian market increased 22.0% y/y to around 521,000 units.

• The market in 2022 should be better than 2021, increasing 2.3% to around 0.84 million units owing to the economic recovery, new nameplate introductions, accelerated vaccination rates, and attractive auto policies. GDP will accelerate in 2022 to 5.04% because of the consumer spending recovery and a still-growing middle class leading to private consumption growth. New nameplate introductions will stimulate the market, including the Toyota C-MPV, the Honda BR-V, the Honda HR-V, and the Hyundai Stargazer. The widespread use of the COVID-19 vaccine—the government kicked off a COVID-19 booster program for the general public on 22 January to increase protection from the Omicron variant—should boost consumer confidence. The luxury sales tax discount was officially extended at the beginning of February, and the 2022 scheme targets the passenger vehicle segment with displacement of up to 1,500 cc, prices up to IDR250 million, and at least 80% of local purchase components. However, higher oil prices, semiconductor availability, high raw material prices due to the Russia-Ukraine crisis, and distribution of vaccines to more remote areas are still concerns.

• In the short-to-medium term, Indonesian car sales should continue to rise owing to robust demand, product refreshment, further corporate tax cut expectations, as well as public infrastructure improvement. The chip shortage situation will likely impact automotive supplies and sales during the short term, and demand should rebound in the medium term after the situation starts to recover. The high raw material prices due to 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. For the longer term, the market should grow owing to the rising middle class. Considering the penetration rate in the country is still low, there remain 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.

ASEAN production
July 2022: +36.0%; 282,144 units vs. 207,443 units
YTD 2022: +13.9%; 2,204,597 units vs. 1,935,963 units

• The Association of Southeast Asian Nations (ASEAN) region's light vehicle production in July 2022 posted significant growth of 36% year on year (y/y) with 282,144 units compared with the low base in July 2021; year-to-date (YTD) production in July 2022 also surged 13.9% y/y, recording 2.2 million units, largely driven by the robust production during the first half across the region.

• In the August forecast release, we upgraded the 2022 outlook to 138,000 units owing to the stronger-than-expected actual production during the first half of 2022—particularly in Indonesia, Malaysia, and Thailand—as well as the improving availability of the supply chain in the second half of the year as most OEMs ramp up production for backorder fulfillments and inventory rebuilds. However, the global automotive industry will continue to face semiconductor shortages throughout 2022 amid surging demand and chipmakers' pressured capacity. Moreover, soaring inflation caused by rising energy and food prices have forced the central banks across the region to hike interest rates to curb headline inflation, which should deteriorate automotive demand during the immediate term and the remainder of the year. Consequently, we now anticipate ASEAN's light vehicle production forecast for full-year 2022 to grow 6% y/y with 3.7 million units.

• We also upgraded the ASEAN region's 2023 outlook by 39,000 units because it may take OEMs until mid-2023 to fulfill 2022 backorders; this is owing to the ongoing semiconductor supply crisis coupled with chipmakers' capacity bottlenecks. Nevertheless, the outlook for 2024 was slashed by 42,000 units as we have incorporated the further demand destruction effect in the short-to-medium term for the year; this will deteriorate global automotive demand and production more significantly than previously anticipated through the longer term.

• Thailand's light vehicle production in July increased 11.4% y/y, with 129,957 units built, while YTD production for the first seven months of 2022 rose 1.5% y/y, or 0.97 million units produced, owing to the robust domestic and export demand during first half of 2022 and the improved supply following the easing of mainland China lockdowns in early June. However, OEMs continued to face the chip supply shortage throughout July given the constrained supply and chip makers' capacity bottlenecks—evidenced by major OEMs including Nissan and Toyota having halted production at their plants for certain days during July.

• In August, Ford and Toyota announced they would ramp up the production outputs from August onward on the back of the improving supply chain and increased availability of chip supply. Moreover, Ford planned to accelerate production from September to fulfill the backorders from the key export markets (mainly for Australia) in a bid to reduce the waiting period from 8-12 months to 5-7 months. In the meantime, however, Toyota decided to cut the production of pickup, pickup-based sport utility vehicles (SUVs), and sedans during August-September given the semiconductor supply issue. Toyota planned to increase production from October onward for the build-back outputs. In contrast, Toyota decided to ramp up the best-selling Toyota Corolla Cross during September-October for both domestic and export. On a separate note, Nissan announced it would operate only one-shift production during the third and fourth quarters of 2022 owing to the ongoing semiconductor shortage. Following suit, Isuzu also slashed the third-quarter production target owing to the short supply of semiconductors but expects to increase output in the fourth quarter of 2022.

• Thailand's completely built-up (CBU) exports in 2022 will likely maintain strong momentum, accounting for 58% of the country's total production. Full-year 2022 light vehicle production is now forecast to reach 1.7 million units, marking moderate growth of 2.5% y/y. Pickup production will remain the country's mainstream with over 1.02 million units, while the surging demand trend for SUVs will continue to significantly drive the overall production of the passenger car segment in light of the growing demand trend for hybrid-powered SUVs.

• We upgraded the 2023 outlook from our previous forecast by 17,500 units, resulting in full-year production of 1.86 million units, an increase of 8.9% y/y. Most major OEMs should continue to ramp up production through mid-2023 for the 2022 backorders due to semiconductor supply constraints. However, we downgraded the 2024 outlook by 23,500 units largely owing to the demand destruction effect that we now expect will hurt global automotive demand in the short-to-long term, more significantly than previously anticipated, but full-year 2024 production should rebound to surpass 2 million units, the pre-pandemic level in 2019.

• Thailand's GDP expanded 2.5% y/y in the second quarter of 2022, supported by the robust export and revived tourism sector, while the country's inflation slowed to 7.61% in July after marking a 14-year high of 7.70% in June owing to the soaring energy price and food crisis. Higher raw material prices and the supply chain disruptions have weakened the automotive manufacturing and car market outlook. In August, the Bank of Thailand (BoT) raised the policy interest rate by 0.25 basis point, from the current 0.50 basis point to 0.75 basis point in an attempt to curb soaring inflation. We expect Thailand's 2022 GDP to expand 3.02% y/y driven by the economic recovery following the COVID-19 pandemic.

• Indonesian light vehicle production in July 2022 posted robust growth of 21% y/y, with 84,908 units. YTD production in July was up 24.7% y/y, largely driven by strong domestic market demand—particularly the mainstream B-Segment multipurpose vehicles (MPVs) and SUVs as well as the low-cost green car (LCGC) segment. In addition, the CBU export momentum continues to record steady growth over 30% y/y. However, we anticipate a weaker production outlook for the second half of the year because of the ongoing supply chain crisis coupled with the slower economic recovery pace amid surging inflation and energy prices. Therefore, we maintain the previously forecast production outlook for full year 2022 of 1.09 million units with only a minor volume adjustment. However, the Indonesia production forecast for full-year 2023 was slashed by 9,300 units owing to the ongoing global chip supply issue as well as the deteriorating domestic demand outlook in the wake of high inflation and the economic slowdown. We also slashed the 2024 outlook by 23,500 units owing to the demand destruction effect from inflated vehicle price tags, rising material costs, and concerns over slower global economic expansion through the longer term. However, we forecast Indonesia's 2024 production to rebound to the pre-pandemic level with 1.2 million units produced, driven by the stable auto market demand, while Indonesia's total CBU exports will continue to expand to nearly 39% of total production by 2025 owing to the stable export demand outlook for MPVs and SUVs to emerging markets.

• Recently Toyota announced it would further invest USD1.8 billion for electrified vehicle production in Indonesia through 2025, while Mitsubishi planned to spend USD660 million during 2022-25 for the investment of the hybrid electric vehicle (HEV) and battery-electric vehicle (BEV) production in Indonesia. In August, Tesla reportedly signed the deal worth USD5 billion to purchase nickel products from nickel processing companies in Indonesia. However, Tesla and the Indonesian government are still in negotiations for Tesla's investment of EV assembly and EV battery manufacturing in Indonesia.

• Indonesian GDP in the second quarter of 2022 expanded 5.44% y/y, driven by the rising commodity prices and household consumption after the lifting of COVID-19 restrictions; however, the GDP growth outlook for 2022 will remain constrained at 5.0% amid rising inflation amid the global economic slowdown.

• In July, Malaysia's light vehicle production recorded 45,708 units compared with the low base output of 2,557 units recorded in July 2022 during Malaysia's nationwide lockdown. YTD output surged 46.2% y/y owing to the low base effect coupled with OEMs' strong production result since early 2022, which was driven by the government's sales and service tax (SST) exemption program that expired in late June. However, despite the SST program having expired, cars purchased by 30 June 2022 can still be registered by 31 March 2023. Most major OEMs reportedly received overwhelming bookings as the combined backorder volumes reached nearly 0.2 million units, which must be delivered to car buyers within the end of first quarter 2023. OEMs including Perodua and Proton are ramping up full-scale production during August amid the concern over the chip shortage; we anticipate that most OEMs will struggle to acquire chips throughout 2022, and it may take until the second quarter of 2023 to fulfill the backorders.

• For full-year 2022, we now expect Malaysia production to reach nearly 0.6 million units, up 26.6% y/y. Malaysia's light vehicle production should continue to grow in 2023, mainly boosted by the spillover effect from the backorder fulfillment of 2022. Malaysia's economy grew 8.9% in the second quarter of 2022 compared with the same period in 2021 owing to the economic recovery from the pandemic crisis during 2020-21; the government estimated the growth for full-year 2022 between 5.5% to 6.5% on the back of continued economic expansion in global demand and higher expenditures in the private sector.

• We upgraded Vietnam's 2022 production by 2,800 units mainly supported by the stronger-than-expected actual production recorded during the first seven months of 2022 and thanks to stable economic growth and domestic demand. Vietnam's full-year 2022 light vehicle production should now rise 6.3% y/y, or 0.24 million units, and it should continue to expand to the new record high of over 0.32 million units in 2023 owing to the strong domestic market as well as VinFast's export strategies.

• In our August forecast round, we made a further reduction by 91,000 units on an annual basis during 2025-30 for the ASEAN region to reflect the demand destruction effect. Global automotive demand will likely decline given concerns over the worsening outlook—from rising manufacturing costs and car prices following the pandemic (and amid the supply chain crisis) to slower economic growth throughout the forecast horizon. Nevertheless, the ASEAN region will brace to return to the pre-pandemic level by 2024 with nearly 4.4 million units; however, it will be a longer road ahead to hit a new record high of nearly 5 million units in 2027, on the back of strong economic fundamentals and the rising middle class through the longer term. Thailand and Indonesia will gradually become a manufacturing base of electric vehicles (EVs), including hybrid electric vehicles (HEVs), plug-in hybrid electric vehicles (PHEVs), and battery-electric vehicles (BEVs). EVs will now likely account for nearly 40% of the country's total production by 2030. After the recent investment plans of Hyundai and Toyota/Daihatsu, we anticipate Indonesia to become the key regional production base for EVs. In March 2022, Hyundai commenced local assembly of the IONIQ 5 at its Indonesia plant for the first time in Asia (after South Korea) and is considering the export of more internal combustion engine (ICE) vehicles and BEVs for the ASEAN and Oceania markets on the back of the free-trade agreements (FTAs) from mid-2022 onward. More mainland Chinese OEMs, including BYD and Chery, have announced longer-term investments in their manufacturing facilities in the ASEAN region to expand their exposure with more export potential of right-hand-drive (RHD) ICE vehicles and BEVs.

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