The Taiwan Auto Industry’s Blockbuster Year

Taiwan’s car market experienced substantial sales growth in 2020, recording the highest number of units sold in 15 years. Yet global headwinds and Taiwan’s relative lack of an EV market could slow the momentum in 2021.

By Austin Babb and Jason Wu

2020 was a traumatic year for the global automobile industry. Factory shutdowns and dealership closures became commonplace as consumers were forced, through travel restrictions and strict quarantine measures, to remain at home. Global automakers suffered unprecedented losses. Overall car sales declined 19% in the United States, 13% in Japan, and 10% in Canada – and by as much as 48.35% in Indonesia and 61% in Germany.

While the global car industry struggled, however, Taiwan’s domestic car market experienced miraculous growth. According to the Taiwan Transportation Vehicles Manufacturers Association (TTVMA), the island’s car sales grew 4% year-on-year to more than 457,000 units in 2020. It was the highest number of vehicles sold since 2005.

The Taiwanese auto industry’s success in pandemic-stricken 2020 came from a combination of factors ranging from changing consumer behavior to the expiration of a government subsidy for trading in old vehicles, explains TTVMA Secretary-General Chen Min-teh.

During the pandemic, many consumers turned to private transport to avoid crowded MRT cars and buses. “People didn’t want to take public transportation due to the virus,” says Chen. “People went to work and sent kids to school by cars.” During the first eight months of 2020, Taipei’s MRT ridership plummeted, falling 20.66% in March and 28.77% in April from the same months a year earlier. Similarly, passenger use of buses dropped 25% between January and March.

Restrictions on international travel also gave rise to increased domestic tourism, another factor driving Taiwan’s record car sales. Given Taiwan’s relative safety amid the pandemic, citizens found an incentive to buy cars for domestic travel. Since consumers had saved up money from not traveling overseas, “naturally you will have a lot of car buyers,” says TTVMA’s Chen.

Coincidentally, rising demand for private transport was met by the launch of several new car models. Throughout 2020, Toyota, Nissan, and Ford introduced new models with autonomous driving features that were appealing to consumers.

“These are not fully automated vehicles, of course,” Chen says. “But they are equipped with level 1 and level 2 automated systems.” He adds that hands-off features such as automatic steering, accelerating, and braking are very popular among younger consumers. All of these innovations increased people’s willingness to buy cars. Chen calls it “the ‘new car’ phenomenon.”

TTVMA Secretary General Chen Min-teh says that the addition of level 1 and 2 automated systems in Ford’s latest Kuga model was a big draw for younger Taiwanese drivers last year. Photo: Ford Lio Ho

Taiwan’s record car sales in 2020 can also be credited to the expiration of a vehicle scrappage policy introduced by the government in 2015. The policy was implemented to reduce the number of older, less fuel-efficient cars on the road. In 2016, the number of such cars stood at 4.35 million units – a staggering 55% of all automobiles on the road. Under the policy, consumers received a NT$50,000 (US$1,750) rebate on new car purchases for trading in vehicles six years or older.

The five-year program ended last December, although the Executive Yuan plans to extend the benefit another five years. Many people, unaware of the extension, rushed to trade in their old vehicles for new ones before the end of the year. TTVMA figures show that in 2020 Taiwan saw an 18% year-on-year increase in vehicle disposals through the program.

Although Taiwan’s automobile industry excelled in the domestic market, its export sales – never a large proportion of the total – took a heavy toll due to weakened international demand during the pandemic. In August 2020, Taiwan’s total car exports totaled 14,009 units, 20.7% lower than the same period previous year. By December, the figure was 19,133 units, 41% lower than in 2019.

Kozui Motors, which is licensed to build Toyota models for Taiwan’s domestic market, also produces more than 95% of Taiwan’s vehicles for export, which mainly go to the Middle East and only recently to North Africa. “People [in those areas] were scared to go outside due to the pandemic, and exports took a hit,” says Chen.

The pandemic also led to supply chain disruptions, which further shrunk Taiwan’s car manufacturing capacity. Automobile parts used by Taiwanese carmakers are predominantly imported, with most supplies coming from China and Japan.

“The pandemic situation became severe around February and March,” Chen says. “Due to factory shutdowns, auto parts from China and Japan stopped coming into Taiwan, which hampered manufacturing.”

According to TTVMA figures, Taiwan’s total automobile production in 2020 dropped 2.26% to 245,000 units – the lowest since 2010. Supply chain disruptions peaked between May and August; total production during that period declined by a substantial 27.6%.

The drop in Taiwan’s automobile manufacturing last year was compounded by a long-term shift in consumer preferences from domestic to imported vehicles. In 2004, sales of imported cars stood at 61,882 units – 13.6% of Taiwan’s 484,292 cars sold that year. In 2010, the market share of imports rose to 22.9% and later to 37.8% in 2015. In 2020, imported cars took up nearly half of the year’s car market.

Darren Liang, an analyst at the Taiwan Institute for Economic Research (TIER), ascribes this trend toward imported cars to their decreasing cost. Two decades ago, the New Taiwan dollar traded at nearly NT$30 against the U.S. dollar (USD). Today, the exchange rate is around NT$28 per USD, a nearly 10% change in value. Imported cars became more attractive to Taiwanese consumers as their currency appreciated. In addition, since Taiwan’s admission to the World Trade Organization in 2002, tariffs on imported vehicles have also been drastically reduced from nearly 30% to the current 17.5%, effectively lowering the price tag on foreign cars.

Greater variety has also contributed to the shift in consumer preferences toward imported vehicles, according to the TTVMA. Foreign automakers’ assembly lines are flexible enough to develop more models than those of Taiwanese manufacturers. It takes about half a year for foreign producers to introduce new models, while Taiwanese firms can take up to two to three years to do so. In addition, foreign automakers’ ability to adapt to the latest consumer trends gives them a distinct advantage over their Taiwanese counterparts. The increased competitiveness of imported cars thus poses an “existential threat” to domestic producers and their supply chains, Chen warns.

Looking ahead

TIER predicts Taiwan will experience an annual GDP growth rate of 4.3% in 2021, and analysts are now pondering the extent to which Taiwan’s auto industry will contribute to that performance.

Darren Liang of TIER suggests that Taiwan’s auto-industry sales will decrease by about 3% in 2021, citing the global shortage of automotive chips and the high base as a result of the strong record in 2020.

High overseas demand for Taiwanese automotive chips might also affect the Taiwan auto industry’s 2021 sales. In February, the Biden administration urged Taiwan to ramp up automotive-grade semiconductor production for the U.S. auto industry. Matt Blunt, former Missouri governor and current president of the American Automotive Policy Council, said that the shortage of chips would continue to be an issue for U.S. auto manufacturers through the first half of the year. Furthermore, market researcher IHS Markit predicts that the shortage would result in as many as one million fewer American-made light vehicles in Q1 2020. If similar trends continue, Taiwan’s auto industry could be significantly impacted in 2021.

Electronic vehicles (EV) in Taiwan may also see slower growth in 2021. Lucy Ho, a senior industry analyst at the government-affiliated Market Intelligence & Consulting Institute (MIC), notes that “compared to other countries, the Taiwan government seems to be less aggressive in promoting the switch from traditional vehicles to new energy vehicles in terms of incentives or subsidies over the years.”

This lack of inducements could be detrimental to the development of Taiwan’s EV industry, as EV makers in many countries are still heavily reliant on them for sales growth. Unlike the fossil-fuel auto industry, however, Taiwan at present does not produce many EVs. Thus, the domestic industry is propelled more by consumer demand than by government incentives.

Nevertheless, MIC’s Ho notes that demand for EVs is growing in Taiwan, though further development of this industry is hampered by a lack of overall planning, specifically in terms of EV charging stations in residential buildings and public places. (See the accompanying story for more on the EV market).

Taiwan’s Environmental Protection Administration proposed a plan in 2017 to ban the sales of fossil fuel-powered cars by 2040. However, rising concerns over the plan’s impact on supply chains forced the government to suspend it in 2019. Tu Chia-wei, another industry analyst at MIC, says that in terms of moving toward a zero-carbon economy, Taiwan needs to act fast.

“In the long run, governments around the world are striving to achieve their net-zero carbon emission goal and the clock is ticking,” Tu says. Given the evolution of smart technologies such as 5G, AI, and EV, he notes, there is a “lesson for the automobile industry that industrial transformation and value-added technologies must be [implemented] before net-zero emissions can become a reality.”