Taiwan's Auto Production Surges 22.5% YoY in Q3, 2010

Taiwan's overall automotive production value, including that of assembled vehicles and auto parts, increased 0.8% quarter-on-quarter (QoQ) or 22.5% year-on-year (YoY) in the third quarter of 2010 to reach NT$81.3 billion (US$2.71 billion), according to the officially-backed Industry & Technology Intelligence Services of the Industrial Economics & Knowledge Center (IEK-ITIS) of the Industrial Technology Research Institute.

Relative to the same period in 2009, the production value of assembled vehicles declined a slight 0.02% to NT$38.1 billion (US$1.3 billion), but climbed 25.9% YoY. Medium and compact passenger cars accounted for 61.6% of the overall assembled-vehicle production value, followed by passenger and commercial vehicles that made up 19.3%.

The production value of medium and compact passenger cars (with engine displacements under 2.0L) increased about 6.2% QoQ, compared to a 40.2% QoQ decrease in large passenger cars (over 2.0L) and a 40.2% QoQ increase in passenger and commercial vehicles. IEK-ITIS attributes the clear growth of the last category to strong sales of both the LUXGEN7 sport utility vehicle (SUV) and the Hyundai ix35 SUV. In Taiwan, most of the SUVs are licensed under the passenger and commercial vehicle category.

A steady export market of locally made assembled cars has also contributed to the overall automotive production value. Statistics compiled by domestic Taiwan Transportation Vehicle Manufacturers' Association (TTVMA) show that some 11,462 Taiwan-made assembled cars, mainly local-made Toyota Altis sub-compact cars, were exported in the third quarter.

Auto Parts
Thanks to the stable new-car sales on the island, Taiwan's auto-parts production value increased 1.6% QoQ and 19.7% YoY to reach NT$43.2 billion (US$1.44 billion). The economic recovery in the United States has made consumers there more willing to replace old parts and accessories, supporting modest growth in Taiwan's auto-parts exports to the U.S.

Industry Dynamics
Several major issues that occurred during the third quarter of 2010 in the local automotive industry are expected to influence the future development of the overall line.

The first of these issues was that the Chinese central government approved the establishment of the Dongfeng Yulon Motor Co., Ltd., a joint venture between China's third-largest automaker Dongfeng and Taiwan's Yulon Group, the largest automotive conglomerate on the island, in late July of 2010.

Dongfeng Yulon is modifying an auto production factory (originally operated by Dongfeng) in Xiaoshan, Hangzhou of Zhejiang Province in China. The facility, with a targeted annual capacity of 120,000 assembled cars and 120,000 automotive engines in the first phase of construction work, is scheduled to begin mass production of LUXGEN brand multi-purpose van (MPV), SUV, sedan, and electric vehicle (EV) models, all developed by Yulon Group. The venture is capitalized now at RMB1.55 billion, in which Dongfeng and Yulon each holds a 50% stake.

Yulon's CEO Kenneth Yen and Dongfeng's chairman Yen Xu Ping signed the formal agreement to set up the new venture on September 29, 2010 in Beijing.

IEK-ITIS points out that the new venture is a major milestone for Yulon, which has been trying to develop its own car brand business so it can break its long-term role as only a local assembler (for Nissan of Japan) and also to overcome the constraints of the limited domestic market (around 300,000 units a year in these two years). Through the venture, Yulon is expected to have a much bigger market in China, and a greatly expanded sales volume will help cut costs and upgrade competitiveness. In addition, more than 30 Taiwanese auto-parts makers have also decided to set up production plants in Xiaoshan to directly supply products to Dongfeng Yulon, helping create a new way for local parts suppliers to participate in the world's largest automobile market.

Dongfeng Yulon is scheduled to push its China-made LUXGEN cars in the third quarter of 2011, and the company's previous distributor-recruitment activities attracted a flood of players with a strong interest in its products.

China to Limit Foreign Shareholding in EV Key-parts Ventures
China may promulgate laws or regulations to both prevent any joint venture in EV or related key-parts between Chinese and foreign companies and preclude foreign players from owning shares totaling more than 49%.

After becoming a member of the World Trade Organization (WTO), China lifted limitations on the shareholding of foreign enterprises in local joint ventures with Chinese companies. In the past, many international companies with technical advantages had very high stakes in their ventures in China and controlled the supplies of some key automotive parts.

To achieve technology independence and control the industry's future development, the Chinese central government hopes to localize the roles of the EV and key-parts industries in the big market.

The possibility of such a policy decision has triggered responses from many foreign companies and the impact is also expected to reach involved Taiwanese players involved.

Forecast
IEK-ITIS says that in the fourth quarter most automakers will try to promote sales to clear out their previous-year models, and also that in the new year consumers will want to buy cars to maintain the residual values of their vehicles in the second-hand market. So new-car sales are expected to ramp up due to automaker campaigns, then slow down in the final month.

In addition, IEK-ITIS says that exports of Taiwan-assembled Toyota cars are expected to continue to increase in the fourth quarter.

The research project forecasts that fourth-quarter assembled-vehicle production value to reach will be about NT$35.3 billion (US$1.2 billion) (which is when the government's subsidy to new-car buyers will expire), down 7.4% QoQ and 17.6% YoY. Production value of auto parts in the fourth quarter of 2010 was estimated at is forecast to be NT$41.5 billion (US$1.4 billion).

Taiwan's overall automotive production value, according to IEK-ITIS, wasis expected to decrease 11.2% YoY in the fourth quarter of 2010 to about NT$76.8 billion (US$2.6 billion).

With the fourth-quarter forecast, IEK-ITIS predicteds that Taiwan's annual automotive production value for 2010in all of 2010 is about to increase 21.8% YoY to about NT$317.3 billion (US$10.58 billion), including NT$149.4 billion (US$4.98 billion) from assembled vehicles (up 26.1% YoY) and NT$167.9 billion (US$5.6 billion) from auto parts (up 18.3% YoY).

Production Values of Taiwan's Automotive Sectors (Q3'09-Q3'10) Unit: NT$1 million
Period		Q3'09	Q4'09	Q1'10	Q2'10	Q3'10	QoQ	YoY	Q4'10(f)
Assembled Vehicles	Medium & Compact (<2.0L) Passenger Cars	18,445	30,096	23,721	22,095	23,467	6.21%	27.23%	22,262
	Large (>2.0L) Passenger Cars	3,522	3,144	4,283	5,763	3,445	-40.23%	-2.19%	3,848
	Light Trucks (<3.5 ton)	1,401	2,380	2,123	2,790	2,370	-15.06%	69.15%	2,188
	Passenger & Commercial Vehicles	4,960	5,438	6,187	5,258	7,373	40.24%	48.65%	5,543
	Heavy-duty Trucks/Buses	1,940	1,568	1,551	2,222	1,465	-34.08%	-24.7%	1,460
	Sub-total	30,267	42,627	3,7864	38,128	38,120	-0.02%	25.94%	35,301
Auto Parts	Engine Parts	2,681	3,051	2,858	3,188	3,249	1.92%	21.22%	3,055
	Transmission Parts	3,735	4,752	4,624	4,713	5,044	7.02%	35.02%	5,268
	Steering Parts	537	586	582	758	709	-6.44%	31.99%	625
	Electrical Parts	8,201	8,917	8,691	9,594	9,105	-5.09%	11.02%	9,418
	Brake Parts	1,395	1,519	1,452	1,642	1,600	-2.57%	14.68%	1,640
	Auto Gauges	304	433	44	457	516	12.81%	69.54%	393
	Truck/Bus Body Parts	87	159	329	410	536	30.72%	518.22%	286
	Truck/Others Body Parts	194	308	210	427	294	-31.14%	51.23%	376
	Other	18,949	24,130	21,543	21,319	22,125	3.78%	16.76%	20,405
	Sub-total	36,084	43,856	40,731	42,508	43,178	1.58%	19.66%	41,468
Total		66,352	86,483	78,594	80,636	81,298	0.82%	22.53%	76,768
Source: IEK-ITIS, May 2010