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2 Dec 2020

Econ Digest

Trump suspended GSP privileges and Biden supports electric vehicles. It's time for Thai auto parts manufacturers to embrace BEVs.

      The export of Thai auto parts to the US market must be changed now that Donald Trump has announced the suspension of GSP privileges, which went into effect January 1, 2021, and which brought back a 2.5% import tax after the tax was waived under GSP. The auto parts that have had GSP privileges suspended, including gearboxes, steering wheels, drive shafts, differentials, wheels and components of those parts, are likely to face more competition. In addition, after President Biden took office, the US policy adjusted its stance on the domestic auto industry, vigorously supporting the production of electric vehicles and the building of the domestic EV market. Battery electric vehicles (BEVs) are to benefit in particular, resulting in competition within the global automobile market and an even faster leap towards the era of electric vehicles.

       KResearch projects that Thai auto parts exports to the US market, most of which are replacement equipment manufacturing (REM) parts, will be directly affected if they are not adjusted to comply with the US policy, as the currently exported parts only support the internal combustion engine (ICE) car market. Some auto parts cannot be used in BEV electric vehicles, such as radiators, exhaust pipes and clutches, etc. and some auto parts will not be useful if they are not modified, such as gearboxes, brakes and hydraulic brake boosters. Other parts can be used in electric vehicles but require a change in production technology or materials to reduce the overall weight of electric vehicles, thus reducing battery power consumption; the current Thai manufacturing technology has not been able to achieve this change.

        Even today, there are not enough battery electric vehicle (BEV) and plug-in hybrid electric vehicle (PHEV) models in the US to be able to expand their production line as soon as they are subsidized. In addition, Japanese automobile manufacturers (for whom Thailand is the base of parts production) need some time to prepare for the production of electric vehicles in the US. Preparation includes accelerating technology development to compete with electric vehicles of other countries that have already developed their own technology. Nevertheless, Thailand still has time to adapt to attract foreign automobiles and parts manufacturers to make Thailand a part of the world's electric vehicles production chain in the future.

       Therefore, it is presently is extremely important for Thailand to accelerate adaptation in all aspects, from investment promotion policies to various production processes, to be faster than competing countries. If this adaption is achieved, Thailand can shift from being only a production base of for ICE vehicles and parts to a production base for electric vehicles and parts.

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