Taiwan's Automotive Industry Sees Signs of Recovery

Taiwan's automotive production is showing signs of recovery and the island's new-car sales were up in the third quarter of 2009, but long-term prospects remain uncertain as a reduction in the commodity tax on new cars and powered two wheelers, instituted by the government to stimulate the market, is expiring at the end of the year.

Production value in the domestic automotive sector, including both assembled vehicles and auto parts, increased by 4.2% quarter-on-quarter (QoQ) and 16.5% year-on-year (YoY) in the third quarter, to about NT$64.96 billion (US$1.99 billion at NT$32.5:US$1) in the third quarter, according to the government-backed Industry & Technology Intelligence Services of the Industrial Economics & Knowledge Center (IEK-ITIS), a unit of the Industrial Technology Research Institute.

The production value of assembled vehicles totaled NT$29.69 billion (US$913.5 million) in the third quarter, up 3.6% QoQ. Medium/large buses (over 10 seats) and medium/compact cars enjoyed the highest YoY increases during the period, 109.8% and 80.1%, respectively.

The auto-parts sector contributed NT$35.27 billion (US$1.09 billion) to overall automotive production value in the third quarter, down 0.3% QoQ and 6% YoY.

Transmission system parts and bus bodies/frames suffered the highest YoY declines, 35.6% and 34.2%, respectively.

Auto gauges, bus bodies, and body systems are particularly vulnerable to slackening domestic demand, since exports in these categories have been falling in recent years. The production value of engine parts, transmission systems and parts, steering systems and parts, and brake systems and parts also declined on weaker demand from the U.S. and Europe. However, government-subsidized "cash for clunkers" programs in the U.S., the U.K., and other countries have helped to buoy new-car sales worldwide, providing some relief for auto parts makers in Taiwan.

Major Events

In the third quarter the Yulon Group, Taiwan's largest automobile manufacturing conglomerate, unveiled its own-brand Luxgen7 multi-purpose van (MPV). Luxgen stresses "intelligent" functions that are achieved by advanced automotive powertrain and electronics systems developed by local companies such as Advance Power Investment Co., (CECTEK, formerly China Engine Corp.), High Tech Computer Corp. (HTC), and Hua-chuang Automobile Information Technical Center Co. (HAITEC).

Yulon's 100%-own subsidiary Luxgen Motor Co. went on to introduce its battery electric vehicle (BEV) prototype Luxgen7 EV, which was developed in partnership with AC Propulsion Inc., a major California-based electric-vehicle solutions provider, and Taiwan's lithium-ion power-cell producer E-One Moli Energy Corp. (Molicel). The BEV is equipped with all the intelligent systems of its internal-combustion predecessor, and it has a top speed of 145 kilometers per hour and a cruise range of up to 350 kilometers.

Industry sources note that Yulon is introducing its own-brand vehicles in an attempt to break away from the long-term dependence of the local automotive industry on foreign technical partners.

In addition, the sources comment, electric vehicles have become an established trend in future transportation and Yulon's early deployment in this area can prove its capability in producing assembled BEVs. These new products can also provide local auto and EV parts makers the road credit they need most for the further development of international sales.

Another key event boosting the auto industry in the third quarter was the implementation of compulsory regulations in China promoting vehicle development, environment protection, energy conservation, and new-energy development. The regulations require each of 13 selected big cities to adopt at least 1,000 new-energy vehicles for demonstration purposes, and to construct the needed infrastructure for those vehicles, between 2009 and 2012.

Most of the selected cities plan to introduce new-energy vehicles, mainly for public transportation. Some of the cities might also expand the program to include subsidies for new-energy passenger cars.

The regulation is expected to create an annual demand for more than 30,000 new-energy (mainly electric) vehicles in 2012, and some Taiwanese companies are expected to grab some of the attendant business opportunities.

According to IEK-ITIS, 56 new-energy vehicle products being promoted by 22 vehicle makers in China have passed vehicle certification. Taiwanese companies, which have always hoped in vain to tap into the long-established and closely-knit supply chains of global automakers, is expected to win some opportunities in the new-energy game, especially in China's huge market.

The third major event in the third quarter also happened in China: its expected replacement of the United States to become the world's largest automobile market in 2009, with more than 13 million new-cars sales. The rapidly developing market across the Taiwan Strait is expected to provide more opportunities for assembled vehicle and parts makers in Taiwan than any other nation in the world.

According to ITIS, car ownership in the United States now stands at 765 per 1,000 population, compared to 543 in Japan and less than 50 in China. These figures imply a large potential for the rapid development of new-car sales in China.

Yulon has announced the establishment of the Dongfeng Yulon Motor Co. as a joint venture with the Dongfeng Group, China's third-biggest automaker. The new venture will soon begin mass production of Yulon's Luxgen own-brand cars for sale in China.

Prospects

ITEK-ITIS predicts that Taiwan will turn out NT$29.76 billion (US$915.7 million) worth of assembled vehicles and NT$35.72 billion (US$1.1 billion) worth of auto parts in the fourth quarter of 2009. This will add up to an overall automotive-industry output of NT$65.48 billion (US$2.01 billion) during the October-December period, for a growth of 28.7% YoY.

For the year of 2009 as a whole, the island's automotive production value is expected to reach NT$237.7 billion (US$7.3 billion), down 4.6% YoY, according to IEK-ITIS.

Taiwan's Automotive Production Value (2005-2009) Unit: NT$1,000
Period		2005	2006	2007	2008	Q2'09	Q3'09	YoY	QoQ	2009 (e)	YoY
Assembled Vehicles	Medium & Compact (<2.0L) Passenger Cars	165,686	103,374	92,708	54,273	12,270	18,389	80.1%	1.8%	66,535	22.6%
	Large (>2.0L) Passenger Cars	25,767	19,101	15,961	18,830	4,059	4,079	20.2%	-4.1%	14,899	-20.9%
	Light Trucks (<3.5 ton)	17,481	14,822	8,752	6,224	1,113	1,390	10.0%	27.8%	4,302	-30.9%
	Passenger & Commercial Vehicles	13,836	12,962	22,054	14,902	3,701	4,383	64.1%	3.0%	15,401	-3.3%
	Medium/Large Trucks/Buses	7,878	9,453	5,621	2,685	512	1,454	109.8%	43.9%	3,572	33.1%
	Sub-total	225,315	154,177	145,535	96,914	21,657	29,697	62.9%	3.6%	104,711	8.0%
Auto Parts	Engine Parts	15,247	13,122	14,173	12,133	2,911	2,613	-16.8%	-9.6%	10,329	-14.9%
	Transmission Parts	22,179	19,866	20,348	21,790	5,200	3,499	-35.6%	-5.6%	12,956	-40.5%
	Steering Parts	2,260	1,866	2,061	1,772	499	511	13.6%	-0.2%	2,021	14.0%
	Electrical Parts	28,365	28,364	31,329	32,275	8,099	7,925	25.47%	-4.3%	30,288	-6.2%
	Brake Parts	5,121	5,903	5,602	6,089	1,449	1,343	-8.3%	-2.4%	5,281	-13.3%
	Auto Gauges	2,265	1,708	1,676	1,166	222	298	-10.1%	3.0%	1,114	-4.5%
	Truck/Bus Body Parts	1,225	1,310	1,071	1,035	148	108	15.6%	0.3%	363	-68.4%
	Truck/Others Body Parts	1,468	1,168	1,093	990	156	205	-34.2%	34.0%	741	-25.1%
	Other	93,875	76,481	76,549	74,968	18,358	18,764	9.2%	4.0%	69,932	-6.7%
	Sub-total	184,878	166,182	170,075	152,221	37,046	35,267	5.7%	-0.3%	132,993	-12.6%
Total		410,193	320,359	311,389	249,135	62,316	64,963	16.5%	4.2%	237,704	-4.6%
Source: ITEK-ITIS, December 2009.