Test Track Allows Thailand To Be Independent Spoke


BMI View : Nissan's planned test track at its upcoming second Thailand production plant reinforces our view that Japanese automakers' strategy to diversify their production away from Japan is intact. With the firm's new models now able to bypass testing in Japan and be exported straight out of Thailand, we see Nissan's Thai production base as becoming an independent spoke in the automaker's strategy, increasing the firm's efficiency and profits in the long term.

Japanese automaker Nissan Motor plans to launch its first test track outside Japan at its second Thailand plant, located in Samut Prakan, later this year. At present, Nissan operates three test tracks in Japan. Nissan's new Samut Prakan plant will start operating in August 2014 and at full capacity, will bring the firm's total Thailand capacity to 370,000 vehicles ( see our online service, October 29 2012, 'Nissan Increases Bets On Thailand').

Diversification Strategy On Track Despite Currency Fluctuations

We see this move as a commitment by Nissan to stay on course with its overseas diversification strategy. We have recently highlighted the fact that although the Japanese yen has depreciated by about 25% against the US dollar in the past few months, Japanese automakers will continue their strategy of diversifying their production away from Japan and developing production bases in other parts of the world.

Furthermore, we have stated our view that we expect Japanese automakers, which have increased their investments in Thailand in the past few years, to maintain their export bases in the country despite the recent strengthening of the Thai baht. International currency movements are just one facet of assessing a country's export competitiveness and we believe Thailand continues to enjoy significant infrastructure, industrial cluster and business environment advantages vis-a-vis its regional peers, cementing its place as the export kingpin of South East Asia ( see, 'Baht Strength Will Only Be A Minor Annoyance', April 4 2013).

Nissan's move to develop its first test track outside Japan, in Thailand, highlights to us the importance of its Thailand production base to Nissan.

Thai Base Will Become Independent Spoke

Currently, all new car models manufactured in Thailand have to be shipped to Nissan's Japanese test tracks to be tested, before they can be sold. The new testing centre will cut Nissan's shipping costs as models can now be tested directly in Thailand, before they are exported to other markets. We see this as providing Nissan flexibility in its global export strategy, allowing a faster response time for the Thailand base. Also, with transportation costs reduced, Nissan's profits will be boosted in the long term.

We believe Thailand will continue to attract investments from both carmakers and suppliers and firms. Furthermore, as more manufacturing firms begin to appreciate Thailand's conducive business environment and align their regional strategy to make it their gateway to the region, we are likely to see more companies setting up their Asian/ASEAN headquarters in Thailand. They will also bring in more investments which are technical and/or research and development related, such as Nissan's tech centre. Nissan's investment reinforces another view of ours, that automotive firms will increasingly look to Thailand as being not just a bespoke production base, but also a value added economy, thus bringing in investments which are more high-tech.

Thailand and Indonesia continue to be Nissan's main ASEAN production bases, in line with BMI's view on these two countries being attractive South East Asian production hubs. Nissan intends to sell 500,000 vehicles in ASEAN in FY2016/17 (April-March) from its current 260,000 units, and increase its market share from 7.2% to over 15%.

This article is tagged to:
Sector: Autos
Geography: Thailand, Japan