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A car assembly line at the factory of Truong Hai Auto Joint Stock Company (Thaco) in Chu Lai Open Economic Zone, Nui Thanh District, Quang Nam Province. Photo: VNA

Car production grows rapidly

Although developing later than other countries in the region, with the efforts of the Government and domestic enterprises, in the past two years, Vietnam's automobile industry has developed quite rapidly. The output of locally produced and assembled vehicles has also increased rapidly. If in 2018 the domestic production and assembly of cars reaches 258,116 cars, in 2019 it reached 330,000 cars. In the first nine months of 2020, although affected by the Covid-19 pandemic, car production is estimated at over 160,000 vehicles.

Especially, the past two years have recorded results of rapid growth and strong development of domestic automobile production, led by three big companies: TC Motor, Truong Hai (Thaco) and VinFast.

TC Motor, after completely switching to domestic assembly (instead of importing complete units), has brought most of the key models of Hyundai to be assembled in Vietnam.

Expansion of production with a strategic product has resulted in the sales of TC Motor cars reaching over 70,000 vehicles in 2019 and accounting for 23% of the market share of passenger cars in the first 10 months of 2020. TC Motor consumption is over 63,000 vehicles. Along with that, this enterprise has invested in building a second factory in NinhBinh and an auxiliary industrial park in Quang Ninh.

Thaco increasingly strengthens its leading position with the launch of a series of new domestically assembled products with a wide range of products at competitive prices. After the inauguration of the most modern Mazda car factory in Asia with a capacity of 50,000 cars per year, Thaco continues to expand and increase the capacity of the KIA factory from 20,000 to 50,000 vehicles per year. Not only dominating the domestic market, THACO has a lot of complete products, spare parts and components exported to regional countries.

Investing in a large-scale factory (250,000 vehicles per year) and the most modern in Vietnam at a high speed, VinFast also launched its strategic models to quickly dominate the market. This new brand not only launches new models but also continuously applies price, capital, and benefit incentives that ensures sales are good for a new brand.

Localization is low; supporting industries cannot keep up

The domestic automobile production and assembly have developed rapidly, but the supporting industries for this industry are still unstable.

A report by the Ministry of Industry and Trade shows rapid growth in quantity, but the domestic automobile manufacturing and assembly industry has not yet met the criteria of the real automobile manufacturing industry. There has been no cooperation-linkage and specialization among businesses in automobile production-assembly and spare parts production. A system of large-scale suppliers of raw materials and components has not yet been formed.

The localization rate is much lower than the set target; localization products have very low content of technology. According to the Ministry of Industry and Trade, although the target set the percentage of individual automobile owners at 40% in 2005 and 60% by 2010, so far, domestic automobile manufacturers have only reached about 7-10%.

Big enterprises such as Thaco, TC Motor and VinFast all have plans to quickly increase the rate of localization, reaching 40% (meeting the content of RVC region to enjoy 0% tax rate when exporting to other countries in the ASEAN market) but in reality, the implementation still faces many difficulties, of which the most difficult is finding suppliers who meet standards.

Currently, only a few domestic suppliers are able to participate in the supply chain of automobile assembly manufacturers in Vietnam. While Thailand has 700 tier 1 suppliers and 1,700 tier 2 and 3 suppliers, Vietnam has less than 100 tier 1 and 150 tier 2 and 3 suppliers.

Therefore, Vietnam currently has to import almost all groups of assistive technology products with high technology content and added value, especially important components. According to data from the Ministry of Industry and Trade, in order to serve the domestic automobile assembly, each year, on average, Vietnam has to import about $2 billion worth of auto spare parts.

Leverage to push

In order to maintain and promote the automobile market for stable and long-term growth, the Government and ministries and sectors have issued many policies and supporting solutions. These are seen as levers to promote the development of supporting industries for the automobile industry.

Regarding import tax, in 2017, the Government issued Decree 125/2017 / ND-CP amending and supplementing a number of articles of Decree 122/2016 / ND-CP, in which the tax incentive program includes importing components for domestic automobile production and assembly. Decree 125 has the effect of encouraging automobile manufacturing and assembly enterprises, but there are no specific regulations to encourage the production of supporting technology products for the auto industry, so on May 25, 2020, the Government issued Decree 57/2020 / ND-CP.

Decree 57 amended regulations to encourage businesses to import raw materials for production and processing in the automobile manufacturing and assembly industry; to attach importance to developing the fields of high technology, source technology, energy saving and environmental protection.

The provisions of Decree 57 also encourage the import of raw materials, giving priority to the production and processing of industrial products to support the development of the automobile manufacturing and assembly industry in the 2020-2024 period.

In particular, Decree 57 aims to reform administrative procedures, simplify the tariff schedule and facilitate the tax administration of the customs office and the import-export activities of enterprises.

This is considered an important lever that will boost the development of supporting industries in the future.