After months of delays, Volkswagen has received approval to build a plant in Thailand that will produce fuel-efficient cars, according to sources close to the government.
“All documents are now in Wolfsburg, Volkswagen’s headquarter in Germany, and ready for approval,” said a senior member of the Thai government who did not want to be named.
A Volkswagen spokesperson said the project now only needs to be confirmed by the board.
Volkswagen is believed to have started recruiting employees for the Bangkok plant.
The new factory will strengthen Volkswagen's position in southeast Asia. In the past, the carmaker's plans were often delayed by governments of members of the Association of Southeast-Asian Nations, which are said to have ignored Volkswagen’s requests to grow in their markets.
The plant will boost Volkswagen's efforts to gain market share in Southeast Asia. While the company is the market leader in China, it has long lagged behind regional competitors. Japanese carmaker Toyota, for example, makes more than 325,000 cars per year in Thailand, compared to Volkswagen's 476.
The new plant is expected to cost €1 billion ($1.13 billion) and will produce 300,000 cars annually.
It will be built in Chon Buri, one hour's drive from Bangkok, next to Volkswagen’s motorcycle subsidiary Ducati.
Thailand’s prime minister, Prayuth Chan-ocha, who seized power in May last year following a military coup, fast-tracked the approval, hoping to stimulate the economy.
Volkswagen is taking advantage of a Thai-government scheme to encourage the construction of small, environmentally friendly cars.
Volkswagen is taking advantage of a Thai-government scheme, known as Eco 2, to encourage the construction of small, environmentally friendly cars. It offers a tax break for car makers for the first six years and enables them to import vehicles and parts customs-free.
U.S. companies including General Motors and Ford have also taken advantage of the Thai government's tax breaks.
In exchange, auto makers must invest a minimum of €175 million and build more than 100,000 cars per year.
The cars they build must have a gas consumption level of below 4.3 liters per 100 kilometers and fulfill the Euro V emissions norm.
The Thai plant is part of a wider Volkswagen Asian strategy designed to exploit local markets. The firm has invested €700 million in a manufacturing plant in Pune in India, and in Indonesia it is building Audi and VW cars together with a local partner, Indomobile. In Malaysia, Volkswagen makes Polo, Passat and Jetta cars together with DRB-Hicom.
“There are great opportunities in Southeast Asia,” said Dieter Pötsch, Volkswagen's finance chief.
This story first appeared in Wirtschaftswoche. To contact the author: [email protected]