5 trends to shape Vietnam auto market outlook

VinFast has officially announced to accept the order of the first electric PC model named VF e34 with the price of VND690m.

Vietnam automobile market is about to bottom out

Preferential policy from the Government 

On 15 October 2021, the Ministry of Finance (MOF) consulted relevant ministries and agencies to reduce registration tax for domestically manufactured and assembled automobiles. According to the draft, the automobile registration tax will reduce by 50% from 15 November 2021 to the end of 15 May 2022. VNDirect expected the Government would agree to the draft of a 50% reduction of registration tax to recover the economy affected by the Covid-19 pandemic. As before in 2020, although registration fee revenue has decreased by VND 7,314bn, the 50% reduction of registration tax has increased state budget revenue to VND 14,110bn.

According to VAMA, in 1H20 (when the registration fee reduction has not been implemented yet), car sales were only about 107,183 units. However, after being applied to reduce the registration fee, the total car sales volume of the whole market reached 189,451 units, soaring 76% vs. 1H20 and 33.1% YoY. So, VNDirect expected that preferential policy from the Government would be the key driver for the recovery of the automobile industry in 2022.

Korean car’s dominance

2020 has witnessed strong growth among Korean PC brands when Hyundai overtook Toyota for the first time to take the lead in PC sales in 2020, posting 81,368 units. Meanwhile, Kia has earned the "phenomenal" title of the year. From a brand focused on hatchbacks and sedans, Kia moves to high-grounding cars, with Seltos and Sorento gaining favor among customers. In 2020, Kia holds third place with total sales of 31,350 vehicles, gaining significant market share (from 9% in 2019 to 14% in 2020). Although hit hard by Covid-19 in 3Q21, Korean PC sales in 9M21 only decreased slightly 8.6% YoY, accounting for 32.1% market share. Especially, 6/10 best-selling PC in Oct-21 came from Korean PC brands.

In 2022, VNDirect forecasted that Korean cars would continue to grow strong and maintain the leading position in sales, creating high pressure for other PC manufacturers in Vietnam. Kia plans to bring in new Sonet, Sedona, and Sportage models, while Hyundai may introduce new Elantra and facelift Hyundai Santa Fe. With the emerge of Hallyu (Korean wave), VNDirect believes domestic assemblers/dealers of these brands will be the main beneficiaries including Truong Hai Auto (THACO, unlisted), TC Motor (unlisted).

The age of Crossover and SUV

5-seater or 7-seater high-end PC (Crossover and SUV) are becoming a hot trend of customer choice to replace the sedan because of the dynamism, comfort, and versatility for urban or the suburbs. According to US automobile manufacturers, SUVs/crossovers sales in Southeast Asia have increased by more than 7% per year, while PC sales have fallen by 4% since 2011. 

The data from the VAMA shows that, in 2017, SUV/crossover's sales were only 40,075 units, in 2018 and 2019 increased to 47,801 vehicles and 67,116, respectively. Especially, while sedan sales in 2020 decreased 7.5% YoY due to the effect of Covid-19, CUV/SUV sales increased 17,3% YoY in the same period.

VNDirect thinks the rise of demand for CUV and SUV comes from its versatility. SUV/ CUV has a truck-like design and body structure and high ground clearance, powerful engine for multi-terrain capability, spacious interior for 5-7 people including luggage. “We expect CUVs and SUVs sales to maintain positive growth in 2022, especially in the B-class CUV segment, as major automakers are continuously releasing models”, VNDirect said. 

Reason for Vietnam’s low automobile localization rate

Go green-EV in the near future 

Global sales of EV soared 160% YoY to more than 2.6m units, despite overall automobile sales slumping by the Covid-19 pandemic. Many countries have come up with a roadmap to end fossil fuel-powered automobiles for 2021-2030. Specifically, the UK and Japan announced a plan to ban the sale of gasoline and diesel automobiles by 2030, five years earlier than the previous proposal. While Thailand also exempted some electric vehicle and battery manufacturers from taxes and set a target to become Southeast Asia's No.1 electric vehicle manufacturer by 2030. IHS Markit forecasts global EV sales to rise by 56.3% YoY in 2022, reaching a CAGR of 51.6% in 2015-22.

Moreover, on 24 March 2021, VinFast has officially announced to accept the order of the first electric PC model named VF e34 with the price of VND690m. VNDirect expects VinFast EV will create a new trend for the Vietnam PC market in 2022-23 when some EV models are expected to launch in the Vietnam market in 1H22 such as Kia EV6, Mercedes Benz EQB. EQE, EQS.

Chances for VinFast and supporting companies

In 2019, VinFast has a partnership with An Phat Group (APH VN) to establish VinFast - An Phat Auto Plastic Components (VAPA) with the main goal of providing plastic spare parts and components for the production of automobiles and motorcycles. Moreover, Vinhomes industrial zone investment JSC (under Vingroup) proposes to invest in an industrial complex to manufacture spare parts and accessories for automobiles in Mong Cai, Quang Ninh. 

In addition, according to Article 7a from the government’s Decree 57/2020, imported raw materials, supplies, and components for the production and processing (assembly) of supporting industrial products for the automobile manufacturing industry in the period 2020 - 2024 shall be subject to the tax rate of 0%. VNDirect expects Decree 57/2020 will help reduce input costs for supporting industrial products as well as increase localization rates and improve competitiveness with CBU. VinFast could create breakthrough growth for supporting industries.