Jul 08, 2019 / 15:48

Vietnam’s automobile industry faces growing pressures from FTAs

The Hanoitimes - Vietnam’s auto market is scheduled to fully open to foreign car companies by 2030, including those from ASEAN, Japan, Mexico and the EU.

Local companies, which mainly focus on assembling, could only maintain its shares on Vietnam’s automobile market until 2025 before losing grounds to foreign companies, according to auto expert Nguyen Minh Dong. 
Illustrative photo.
Illustrative photo.
At present, Vietnam’s automobile import tariffs for ASEAN members have been removed under the effect of the ASEAN trade in Goods Agreement (ATIGA), which came into effect in the beginning of 2018. 

In the same year, Vietnam signed the Comprehensive and Progressive Trans – Pacific Partnership (CPTPP), committing to reduce duties for import cars to 0% in the next 7 – 9 years, while a similar commitment has also been made in the EU – Vietnam Free Trade Agreement (EVFTA) in 9 – 10 years. 

Under this circumstance, Vietnam’s auto market would be fully opened to foreign car companies by 2030, including those from ASEAN, Japan, Mexico and the EU. 

Vietnam’s market is projected to reach the production capacity of 1 million cars per year by 2030, according to official data. With growing disposable income and the acceleration of the motorization from 2020 upwards, car sales are on track to increase from the current 300,000 units per year to one million by 2030. 

The huge potential of Vietnam’s auto market is unquestionable, however, the key point would be whether local companies could compete with high quality import cars with affordable prices. 

In the domestic automobile industry, private conglomerate Vingroup is investing in a production plant with capacity of 500,000 cars per year in two phases. The first phase of the construction has been completed with capacity of 250,000 cars per year. 

Meanwhile, Truong Hai Auto Corporation (THACO) launched the first phase of the 50,000-unit-per year Thaco-Mazda factory, with capacity of 120,000 until full completion. Hyundai Thanh Cong and Toyota Vietnam are also considering projects of 240,000 and 100,000 cars per year, not to mentions others such as Honda Vietnam and Mitsubishi Vietnam. 

In case these projects are on track for completion, Vietnam could have a combined  production capacity at 1 million cars per year, meeting domestic demands and for exports. 

Low localization rate

Comparing to regional peers, cars assembled in Vietnam have an additional cost of 20%, due to low sale number and localization rate at 7 – 10% in average. 

Additionally, most auto parts being localized have low technological contents, including tires, seat, mirror, plastic frame, among others. 

To put things in perspective, the average localization rate of countries in region is 65 – 70%, while that of Thailand is 80%. 

Statistics from the Vietnam Automobile Manufacturers Association (VAMA) showed only 11 car models assembled in Vietnam have production capacity of over 6,000 cars per year. 

Among them, Vios cars from Toyota Vietnam claimed the top spot with 27,000 cars per year, followed by Grand i10 of Hyundai Thanh Cong with 22,000 units. The remaining are in range from 6,000 – 15,000 cars. 

Based on calculation, a model should have a production capacity of at least 50,000 cars per year, twice the sale number of the Vios, Vietnam’s best seller model, to be sustainable for car manufacturer. 

Auto expert Nguyen Minh Dong told Vietnamnet it requires strong incentives from the government for local companies to be able to compete with their foreign competitors. 

Dong noted with the growing trend of electric vehicles in the world, there should be a focus on EV development. 

Recently, Toyota decided to invest US$1.9 billion for manufacturing electric vehicles in Indonesia, putting more pressure on Vietnam’s automobile industry, Dong said.