Honda, Ducati lead shift to big motorbikes in Thailand
High-end brands cash in on local, foreign demand: FT Confidential Research
In less than a decade, Thailand has gone from a marginal producer of "big bikes" -- loosely defined as motorcycles over 400cc or 500cc -- to a leading exporter, mirroring the country's success as an auto manufacturing hub. Nearly all major brands now assemble in the country. Even Harley-Davidson, which has long touted its "Made in America" image, announced plans earlier this year to open a plant in Thailand.
We estimate that worldwide sales of big bikes total at least $10 billion a year. Entry-level models generally cost under $6,000 before tax, several times the price of an average scooter, while high-end sports bikes and cruisers can exceed $30,000. Worldwide, about 1 million motorcycles over 500cc were sold last year.
Approximately 115,000 motorbikes 400cc and larger were assembled in Thailand in 2016, and roughly 90,000 were exported. This year, production is on track to reach 176,000 and exports 133,000 (see chart).
Thailand now accounts for about 15% of global big bike manufacturing, according to our research -- output worth well over $1 billion. Triumph was the first manufacturer to make Thailand a key export base, launching full assembly in 2007. It produced more than 40,000 bikes in the country last year, about 80% of its global sales volume. Honda has relocated assembly for most of its under-700cc motorbikes from Japan to Thailand, where it produces 16 models for global export. Ducati's latest plant expansion doubled capacity to 20,000 units a year.
Major brands continue to introduce new Thailand-produced models. In November Ducati said its new flagship bike, the Panigale V4 "superbike," would be assembled in Rayong for delivery to Asian markets.
Incentives and tariffs are critical
The rush of manufacturers into Thailand can be attributed to three complementary factors: investment incentives, market access and the country's strength as a vehicle production base.
In 2012, Thailand's Board of Investment issued a package of incentives for the manufacture of motorbikes of at least 500cc, and expanded this to bikes over 250cc in 2013. The benefits include tax-free import of machinery, unrestricted foreign ownership and corporate tax holidays for engine manufacturing. The BOI also negotiated directly with Triumph and Ducati to win their pre-2012 investments.
The government has recently signaled continued support for motorbikes and cars with a 3.7 billion baht ($111.8 million) vehicle R&D testing center and proving ground currently under construction.
The second reason manufacturers are expanding in Thailand is to avoid import tariffs and gain competitive access to both the domestic market and others linked to the country by free trade agreements, including the rest of ASEAN. Vehicle import duties in ASEAN are extremely high: Thailand has a 60% tariff on imported motorbikes, and rates can exceed 100% in other countries. This makes bikes from Europe and the U.S., which have no relevant trade agreement with ASEAN, extremely uncompetitive.
A Ducati executive told FT Confidential Research that tariffs, rather than production costs, were the main reason for expanding production in Thailand. Harley-Davidson similarly cited trade barriers as its motive for opening a plant there. Although Japanese manufacturers can now export to Thailand without tariffs under a bilateral free trade agreement, exporting from Thailand still reduces trade barriers to some markets.
Third, Thailand's manufacturing "supercluster" on the eastern seaboard is a highly competitive production base for vehicles and related components. Ducati said the supply chain and quality of labor make Thailand an ideal export base. According to the BOI, Honda invested in big bike production in Thailand in part because as much as 95% of parts for each model can be sourced locally.
Domestic sales roaring ahead
Strong demand for higher-end motorbikes in Thailand has both driven the production boom and been fueled by it. A growing domestic market makes it more attractive to produce in the country, particularly for European and American brands subject to full import tariffs. As manufacturers make Thailand an export base, they can also offer bikes to the local market at attractive prices. We estimate that Thailand now accounts for approximately 3% of the global big bike market, and is likely to reach about 5% in five years, based on industry forecasts.
In the first three quarters, new registrations of over-400cc bikes hit 25,000 units -- the same number as were registered in all of 2016 (see chart) -- and are on pace to exceed 30,000 by the end of the year. Sales are likely to quicken in the final months of the year thanks to high-profile motor exhibitions and the launch of 2018 models.
A Honda representative told FT Confidential Research that the company expected its big bike sales to rise 10-15% in Thailand next year, and for the entire market to expand at about 10% a year over the next five years. Ducati similarly predicts about 10% growth in domestic sales next year. BMW was more cautious, forecasting single-digit growth, with the possibility of an upside surprise.
Before 2012, most big bikes were imported and sold for premium prices (many for over 1 million baht) due to high import duties and hefty markups reflecting a low-volume market of a few thousand sales per year. This rapidly changed in 2012 and 2013 as Ducati, Honda and Kawasaki launched locally assembled models costing 200,000 baht to 400,000 baht, giving many aspiring riders an affordable entry into the segment. Sales doubled between 2012 and 2013, and have grown strongly since.
These brands and others have aggressively expanded their distribution channels. Honda, the market leader by units sold, had only three showrooms nationwide in 2013 but now has 20, one in almost every second-tier city.
Two other factors support a rosy outlook. First, top brands are planning to streamline the secondhand market. This will bring first-time riders into the segment and make it easier for existing owners to resell when they upgrade. BMW will launch a pre-owned program and trade-in scheme, and Ducati and Honda have indicated similar plans.
Second, there is a swiftly growing market for midsize bikes in the 250cc to 500cc range in Thailand. Total sales in this segment reached 25,000 last year, according to an industry source, about the same as the above-400cc segment. Bikes in this category are relatively affordable and easy to ride, attracting new riders who will later upgrade to more expensive machines.
This article was first published by FT Confidential Research.
FT Confidential Research is an independent research service from the Financial Times, providing in-depth analysis of and statistical insight into China and Southeast Asia. A team of researchers in these key markets combine findings from proprietary surveys with on-the-ground research to provide predictive analysis for investors.