Taiwan's Q1 Automotive Production Value Up 59.7% YoY: IEK-ITIS

Taiwan's production value of assembled vehicles and auto parts increased 59.7% year-on-year (YoY) in the first quarter of this year to US$2.3 billion, but was down 16.5% quarter-on-quarter (QoQ), according to the officially-backed Industry & Technology Intelligence Services of the Industrial Economics & Knowledge Center (IEK-ITIS) under the Industrial Technology Research Institute.

Relative to the same period in 2009, the production value of assembled vehicles declined 25.0% to US$1 billion, but shot up 92.1% YoY. The IEK-ITIS attributes the QoQ decline to the cessation of official subsidies on the last day of 2009, totaling US$937.5 for each 2,000cc-or-under new car sold, which drove up new car sales in the fourth quarter of 2009. Upon expiry of the official subsidy, demand for over-2,000cc cars in Taiwan rose clearly in the first quarter, up 27.2% QoQ or 131.2% YoY. .

Taiwan's auto-parts production value declined 8.2% QoQ , but up 40.8% YoY. Relative to that last year, production values of auto gauges, bus body parts, truck/other vehicle body parts suffered the highest declines: 23.2%, 33.1%, and 20.2% respectively. These products are more vulnerable to local market conditions due to being relatively minor exports.

Uptrend in Q2

The IEK-IT IS forecasts that in the second quarter, the production value of assembled vehicles will likely reach US$1.08 billion, up 7.6% from the first quarter, with that of auto parts totaling about US$1.36 billion, up 8.4%.

Various uncertainties are expected to impact the global economy, including the Greek debt crisis, high unemployment in Spain and Eastern Europe, over 9% unemployment stateside as reported recently, the recent heightened tension between the two Koreas, and China's reported policy to chill its real estate bubble, all of which may collectively undermine global investor confidence, as well as new-car sales in Taiwan.

With the local automotive industry growing along its current uptrend, the IEK-IT IS says, Taiwan's automotive production value will likely reach US$9.18 billion in 2010, up 12.7% from the previous year, including US$3.94 billion from assembled vehicles (up 6.4% YoY) and US$5.23 billion from parts (up 18% YoY).

Market Dynamics

The assembled-vehicle production value in Taiwan has been shrinking in recent years due to the maturing automobile market, PC-speak for a saturated segment; while auto-parts makers on the island are posting relatively stable production value grow by tapping overseas markets.

To raise its 30%-plus market share, Hotai Motor, Taiwan's agent of locally made and imported Toyotas and Lexus, has introduced an unprecedented four-year or 120,000 kilometer warranty on all Toyotas sold, retroactive to all new cars sold since January 1.

Industry sources say that Hotai's bold warranty offer tries to regain consumer confidence after the U.S. recall, with the move having an immediate impact: sales volume in April totaled 8,960 vehicles, up 36.9% month-on-month (MoM) to raise its market share in Taiwan to 34.3%.

Insiders say Toyota will likely remain the leading brand in Taiwan in the foreseeable future, especially considering the recall in the U.S. is unrelated to production and parts supply in Taiwan. It's no surprise that Toyota is the top car brand in Taiwan, for no other reason than historical advantage, coupled with the Japanese giant's long-term image as a maker of quality cars for value-conscious buyers globally, though short-term sales in Taiwan may be impacted.

EV Advanced Propulsion Driving System

Helping more local suppliers to be global tier-ones for EV makers, the Automotive Research & Testing Center (ARTC) in Taiwan, the largest automotive testing and certification organization on the island, recently tied up with several private EV-related makers to set up the "EV Advanced Propulsion Driving System (EV-APDS) Strategic Alliance."

Via integrated development and systematic marketing, the Alliance aims to help local suppliers design and build more advanced EV propulsion systems, with the domestic members including Fukuta Elec. & Mach. Co., Ltd. (to develop EV motors), Rich Electric Co., Ltd. (propulsion controls), and Kuo Yuan Enterprise Co., Ltd. (EV transmission), and the ARTC to handle system controls, intelligent-vehicle integration and certification.

The Alliance looks to set up a global EV propulsion-system company within three years to tap into the global assembled-EV market by exporting system modules or partnering with international EV makers in technological development. Budgeted at US$15.7 million for R&D projects, the Alliance aims to generate production value of US$94 million in three years to turn Taiwan into a key EV-system exporter.

Insiders say that the Alliance, if successful to offer total solutions, can slash R&D schedule for global automakers who aim to fast-track EV product development. But such may be more grand hope than reality: insiders admit that Taiwan has no EV maker with total in-house expertise. Simply no EV maker exists in Taiwan can build a working EV independently nor design such systems.

Action Plan

The Taiwan Cabinet has been trying however, holding many cross-ministry meetings to map out an overall strategy and action plan to drive the EV-industry ahead.

By mid-April, the Taiwan Cabinet has lived up to its role of drawing an idealistic picture with green EVs roaming the island. Five major strategies have been proposed to develop the EV industry in Taiwan: an EV demonstration program, building a more user-friendly infrastructure, offering more EV-purchase incentives, setting up new EV testing standards, and offering official support for the industry. The ultimate goals include popularizing EVs in Taiwan and further developing the EV industry.

The Ministry of Economic Affairs (MOEA), following up on the above, will budget for fiscal 2010-2015 a total US$303.13 million to try to realize such lofty goals.

Taiwan is expected to invest, during the demo period, US$68.8 million to put 3,000 intelligent EVs on the roads from 2010 to 2012, which is to be backed by central governmental commodity-tax breaks, as well as encouraging local governments, EV operators and EV dealers to propose new EV-operation business models. Tax incentives and subsidies will not be given to EV drivers but EV mass transport projects.

Demonstration Essential

Insiders say that real-world demonstrations are essential to popularizing EVs, whose commercialization hinges on proving new technologies, reliability and user-friendliness work on Main Street. Also demo EVs allow discovery of faults, impracticalities typically not found in labs and factories; while demo EVs can also help to improve infrastructures by providing data as typical fill-up or recharge distances.

Making EVs a feasible reality in Taiwan remains as elusive as DIY backyard fusion reactors for many factors, not least of which being retail price. Even the new Tesla four-door sedan is reportedly to go for US$50,000-plus, and much smaller EVs typically priced double or more than similarly-sized cars with gasoline engines. Other hindrances include short cruise range, lack of recharge stations and relatively heavy curb weight considering having fewer parts in EVs.

Production Values of Taiwan's Automotive Sectors (2008-2010) Unit: NT$1 million
Period		Q4'09	Q1'10	QoQ	YoY	Q2'10(e)	2008	2009	2010(e)	YoY
Assembled Vehicles	Medium & Compact (<2.0L) Passenger Cars	30,096	20,223	-32.8%	78.8%	20,985	54,273	77,925	78,607	0.9%
	Large (>2.0L) Passenger Cars	3,144	4,014	27.7%	131.2%	4,180	18,830	12,654	14,740	16.5%
	Light Trucks (<3.5 ton)	2,380	1,912	-19.6%	126.0%	2,314	6,224	5,716	8,193	43.4%
	Passenger & Commercial Vehicles	5,438	4,582	-15.7%	93.0%	5,429	14,902	17,028	19,734	15.9%
	Heavy-duty Trucks/Buses	1,568	1,248	-20.4%	231.5%	1,493	2,694	5,191	4,799	-7.6%
	Sub-total	42,627	31,979	-25.0%	92.1%	34,401	96,924	118,514	126,073	6.4%
Auto Parts	Engine Parts	3,051	2,870	-5.9%	23.5%	3,140	12,133	10,699	12,151	13.6%
	Transmission Parts	4,752	5,143	8.2%	62.6%	5,448	21,790	14,794	21,228	-43.5%
	Steering Parts	586	533	-9.0%	25.8%	600	1,773	2,114	2,326	5.8%
	Electrical Parts	8,917	8,895	-0.2%	35.2%	9,711	32,276	31,317	37,146	18.6%
	Brake Parts	1,519	1,569	3.3%	45.7%	1,732	6,089	5,298	6,583	24.2%
	Auto Gauges	433	332	-23.2%	38.3%	357	1,166	1,263	1,356	7.3%
	Truck/Bus Body Parts	159	107	-33.1%	336.6%	111	1,035	339	445	31.3%
	Truck/Others Body Parts	308	246	-20.2%	47.7%	319	990	817	1,225	499%
	Other	24,130	20,568	-14.8%	41.0%	22,235	74,969	75,293	85,162	13.1%
	Sub-total	43,856	40,263	-8.2%	40.8%	43,635	152,841	141,933	167,532	18.0%
Total		86,483	72,242	-16.5%	59.7%	78,054	249,765	260,740	293,605	12.7%
Source: IEK-ITIS, May 2010