Vietnam automobile market is about to bottom out

Mitsubishi was planning to assemble many PC models in Vietnam, including Mitsubishi Xpander

Passenger car purchasing to bounce back

Automobile sales plunged 30% YoY to 102,726 units in 1H20 but gradually improved since Jul 20, thanks to 1) pent-up demand and 2) the Government's decision to cut back the registration fee by 50% for domestically produced automobiles, being in effect from 26 June 2020.

Automobile sales showed a positive signal in 1H21, reaching 135,606 units (32% YoY) thanks to (1) the low base in 1H20, (2) a series of promotional programs and discounts launched by PC manufacturers to stimulate demand, and (3) launching many new automobile models and facelift to attract consumers. However, Covid-19 cast a shadow on the Vietnam automobile industry in 3Q21. According to VAMA, automobile sales in 3Q21 posted 34,467 units (-50.7% YoY) as PC distributors and dealers had to close stores to implement social distancing. Especially, automobile sales in Aug-21 only reached 8,884 units – the lowest since 2015.

Vietnam has signed a total of 12 free trade agreements (FTAs) with other countries and blocks. Currently, the import tax rate for Completely Built-Up (CBU) automobiles from the EU to Vietnam is 70% for vehicles with a cylinder capacity of over 3,000cc and 75-78% for vehicles with a cylinder capacity of less than 3,000cc. According to the tariff reduction timetable of the VietnamEuropean Union Free Agreement (EVFTA), Vietnam will cut taxes at an average reduction of 7% per year and reach zero within 10 years. VNDirect expected that the reduction of import tax from the EU market would be considered an opportunity for Vietnamese consumers to purchase European passenger cars at a lower price.

Furthermore, on July 20, Vietnam’s Government issued Decree 57/2021 on import tariffs, including reducing import tax on raw materials and components that cannot be domestically produced for production, processing (assembly) to 0%. VNDirect expected this policy would encourage enterprises to increase assembly, reduce costs and strengthen the value chain. After the issuance of Decree 57, Mitsubishi, Honda, Nissan, and Suzuki was planning to assemble many PC models in Vietnam, including Mitsubishi Xpander and Honda's CRV, which are imported from 2017.

Growing affluence to fuel the automobile growth

Automobile sales volume CAGR over in 2012-16 reached 38%, especially in 2015, Automobile consumption soared 55% YoY, but volume growth pace decelerated in 2017-2019 period due to tax policy from ASEAN Trade in Goods Agreement (ATIGA) before turning negative in 2020 due to Covid-19. According to the Ministry of Industry and Trade (MOIT), Vietnam’s automobile market value reached US$12.2bn in 2020 and is expected to achieve a 2021-2030 CAGR of 12.9%.

According to the Ministry of Planning and Investment, Vietnam’s adjusted GDP reached US$343bn and GDP per capita reached US$3,521 (2.91% YoY) in 2020. VNDirect estimates that per capita income has grown stably, while inflation and exchange rates are controlled on time, giving people access to a premium asset such as a passenger car. 

International Monetary Fund (IMF) forecasted that by 2025, Vietnam's per capita GDP would achieve about US$4,688 (2020-25 CAGR of 5.8%), bringing Vietnam into the high-income country group. Vietnam's middle-class population is expected to snowball over the next decade, which will fuel a rapid rise in demand for all manner of consumer durables. Meanwhile, Nikkei forecasted established class account for 30.6% of Vietnam population in 2030.

Vietnam has become one of the fastest-growing countries in purchasing power over the past ten years, yet its passenger car (PC) ownership per capita remains much lower than that of other markets in Asia. According to Statista, only 5% population of Vietnam owns a PC in 2020, while this figure for Thailand is 52%. With forecasted 2021-2030 automobile sale volume CAGR of 14.9%, VNDirect estimated that Vietnam would reach a 9% ratio of the population who have a PC by 2025, equivalent to India and the Philippines’ current level, and 30% by 2030.