Street Talk

Building an industry

We should pursue all the local auto manufacturing opportunities we can get

THE PHILIPPINE economy is strong and resilient. If we look back, gross domestic product (GDP) grew by an average of 5.1% between 2005 and 2025, including the -9.5% aberration in 2020 when the COVID-19 pandemic hit. By any measure, that is a very enviable — and stable — growth trajectory. Indeed, we have grown our way through many crises and disruptions — domestic, regional, or global.

Last year’s 4.4% growth was the third-lowest GDP growth on record for the Philippines in the last 20 years, due to local disruptions of extreme weather disturbances, and political and fiscal turmoil. Arguably, it was still a respectable expansion.

This year’s first-quarter GDP growth of 2.8%, however, has raised concerns. Unfortunately, the Philippines is among the most severely affected by the rise in oil prices because of the Middle East conflict. We import 98% of our oil and, worse, shipments need to go through the Strait of Hormuz that has been blockaded for close to two months now. What this current crisis has clearly exposed is the vulnerability of our energy security.

We are confronted with very strong headwinds creating all sorts of painful economic fallout — extremely high inflation, rising interest rates, growing underemployment, and a depreciating currency. This is a perfect precursor to a much-dreaded stagflation scenario that results to declining economic activity amid rising prices — a twin-headed monster that is the worst nightmare of any economics planner.

While the country must hunker down and navigate the storm that higher oil prices have wrought, the business sector is, well, keen on continuing to do business. The priority in any crisis is to survive it and so we do what we need to do. At the same time, the government — and companies — have to position themselves strategically for the eventual turnabout and recovery — similar to what happened post COVID-19.

I think that one of the most critical goals in reactivating the economy will be for the government to restore full and gainful employment to as many or more Filipinos who may be sidelined during the crisis. For businesses, we need to rebuild human resource capabilities that, unfortunately, may be decimated by the crisis. Particularly in the industry sector, the need to reconstruct the ranks will be a priority. With a decline in consumer spending, production cuts are inevitable, resulting to a reduction in headcount. Restoring a well-trained and highly productive team will be no easy task — but it will be an urgent one.

Last month, Mitsubishi Motors Corp. announced its intent to participate in the Electric Vehicle Incentive Scheme (EVIS) program, with a plan to produce hybrid electric vehicles (HEVs) in its Laguna factory by 2028. Indeed, this is a welcome development and consistent with lining up much-needed manufacturing jobs for Filipinos, albeit two years hence. It will be recalled that the EVIS is a program of the Department of Trade and Industry (DTI) announced back in 2023. The expressed goal is to accelerate the development of the local electric vehicle industry by targeting the manufacture of four million e-vehicles over 10 years, particularly two-wheelers, e-trikes and electric PUVs. As of this writing, the Executive Order outlining the framework for the program is still being finalized.

On the other hand, the DTI announced — quite unexpectedly — that it would sideline the Revitalizing the Automotive Industry for Competitiveness Enhancement (RACE) program that it trotted out in early 2025 as a successor to the Comprehensive Automotive Resurgence Strategy (CARS) program. Given the public pronouncements by the Board of Investments (BoI), the move caught the industry by surprise. Until recently, the RACE program was reported to be prioritized after settlement of budget and incentive payment issues arising from CARS. It seems EVIS was given a heightened mandate considering energy security issues laid bare by the ongoing conflict in the Middle East.

In my long-time association with the automotive industry, I have seen the roll-out of many different programs aimed at developing the sector. The core programs were the Progressive Car Manufacturing Program (PCMP-1973), the Progressive Truck Manufacturing Program (PTMP-1977), the Car Development Program (1987) that included the People’s Car Program (1990), the Motorcycle Development Program (MDP-1990’s), Motor Vehicle Development Program (MVDP-2002) and more. In my view, a key success driver for the programs was broad-based and inclusive framework. Only the People’s Car Program was narrowly crafted to incentivize production of entry-level cars with a price ceiling of P175,000 that eventually rose to P300,000 before it self-destructed.

All other programs offered incentives for the entire supply chain and invited participation from existing and potential fresh players in the industry. Prospective program participants were not limited in their options for what to produce locally, leaving makers to decide what made economic sense. Consequently, local auto production saw the entry of more OEMs such as Honda, Ford, Daihatsu, Mazda, Kia, and Proton. As well, the supply footprint of local auto component makers grew to around 200.

Frankly, I believe that EVIS and RACE are complementary rather than mutually exclusive programs. Both can be combined into a more comprehensive mobility development program to create a broader platform for potential investors. EVIS limits prospects only to makers of xEV (electrified) models while RACE does not specifically incentivize the emerging technologies and components.

When you think of it, xEVs have much less component parts than an ICE (internal combustion engine) model. Therefore, the opportunity to broaden the span of local parts makers is at once limited. In fact, ICE models are still expected to make up a significant portion of mobility in the Philippines up to the next decade, maybe more. Even under the Electric Vehicle Industry Development Act (EVIDA) Law and the Comprehensive Roadmap for Electric Vehicle Industry (CREVI) roadmap, the transition of vehicle fleets is designed to be gradual than immediate.

In fact, there are more common parts than unique ones between ICE and xEV models. For example, unique parts for xEVs may be related to the drivetrain — batteries, motors, inverters. On the other hand, common parts that are drivetrain- agnostic would be plastic parts, seats, wiring harnesses, bumpers, body panels, door panels, switches, wheels and more. In terms of scaling local production and achieving economic scale, it makes good sense to allow parts makers to cater to the needs of both xEV and ICE makers rather than only one or the other. To be a player in the regional or global supply chain, quality and cost efficiency is key. Volume is an essential driver, particularly for the latter.

At the end of the day, the goals are clear: To invite more automakers to produce locally and to expand our local parts making industry. This creates jobs, promotes exports, and provides more revenues for the government. More importantly, this enables more flexibility in meeting the mobility needs of Filipinos as they transition into future technologies. This will also allow industry players to progressively manage their local production operations.

If we can launch a more inclusive local production program, this would potentially accelerate the development of our local auto industry. Perhaps, to stay on point, we should have a hybrid program that blends the desired goals of EVIS and RACE. Why choose one when we can have both?