Vietnam’s Automotive Industry Localization Navigating Technology, Capital and Connectivity Challenges

The supporting industry  for Vietnam’s automotive sector offers vast opportunities for growth

Growing market, electrification leading the trend

Mr. Dao Cong Quyet, Head of the Communications Subcommittee of the Vietnam Automobile Manufacturers’ Association (VAMA), noted that Vietnam’s automotive market has entered a phase of motorization. In 2024, VAMA member companies produced 386,000 vehicles, accounting for 80% of the total market, generating $15 billion in revenue, contributing 3% to GDP, and paying $8 billion in taxes. In the first five months of 2025, VAMA reported total sales of 131,044 vehicles, a 21% increase compared to the same period in 2024.

Electrified vehicles are emerging as a dominant trend. VinFast’s production of fully electric vehicles surged from 35,000 units in 2023 to 80,000 units in 2024. Hybrid vehicles also saw robust growth, rising from 3,800 units in 2023 to over 10,000 in 2024, aligning with global trends. Mr. Quyet emphasized: “The potential for growth in Vietnam’s automotive market remains vast. As the market expands, the supporting industry will also develop accordingly.”

Leading companies such as VinFast, Thaco and Hyundai Thành Công are driving the growth of the supporting industry. VinFast aims to increase its localization rate from 60% to 80% by 2026 and produce 1 million electric vehicles by 2030. In Q1 2025, the company delivered 36,330 electric vehicles globally, a 296% increase from the same period in 2024. VinFast also hosted a conference with 1,000 domestic suppliers, creating significant opportunities for local businesses to join its supply chain.

Thaco has established Thaco Industries in the Chu Lai Industrial Zone (Quảng Nam), featuring an R&D center, a mechanical engineering center, and 15 supporting industry factories. In 2024, Thaco exported nearly 1,200 vehicles, generating $13 million in revenue from markets such as Thailand, Myanmar and the Philippines.

Hyundai Thanh Cong has made strides with its second Hyundai plant in Ninh Binh province, operational since 2022, and the Thanh Cong Viet Hung complex in Quang Binh province, which began producing Skoda vehicles in March 2025. The company is actively seeking domestic suppliers to manufacture a new model with a high localization rate, set to launch in 2027.

Toyota, a foreign direct investment (FDI) enterprise, has supported 60 Vietnamese suppliers with 1,000 component codes through its “production improvement consulting” program since 2020. The Toyota Vios boasts a localization rate of 43%, the highest among Toyota models in Vietnam.

An exhibition booth at Vietnam AutoExpo (VAE) 2025

Numerous challenges in the supporting industry

Despite some bright spots, Vietnam’s automotive industry faces significant hurdles. Mr. Pham Van Quan, Deputy Director of the Industry Department (Ministry of Industry and Trade), emphasized that the sector must candidly acknowledge its low localization rate, heavy reliance on imported components, fragmented supporting industry and lack of connectivity. Vietnamese businesses also face limitations in technology and capacity to participate in global supply chains.

Currently, Vietnam’s automotive industry depends on imported components for up to 80% of its needs, driving up production costs and exposing the sector to global disruptions such as price fluctuations, logistics costs and geopolitical tensions. The average localization rate stands at only 12%-20%, significantly below the targets outlined in Vietnam’s Automotive Industry Development Plan: 30%-40% by 2020, 40%-45% by 2025, and 50%-55% by 2030. This gap highlights the difficulties in building a robust domestic supporting industry.

Ms. Truong Thi Chi Binh, Vice President of the Vietnam Association of Supporting Industries (VASI), noted that businesses face multiple obstacles, including rising material costs, a shortage of skilled labor, and limited access to preferential policies. Additionally, weak production management leads to inefficiencies such as excess inventory and waste from overstocking materials.

Furthermore, the small domestic market size poses a barrier. In 2024, Vietnam’s vehicle consumption reached 494,300 units, still below Thailand’s 572,675 units. Vehicle ownership in Vietnam stands at 68 cars per 1,000 people, compared to 280 in Thailand and 542 in Malaysia. This limited market discourages foreign direct investment (FDI) enterprises from localizing production in Vietnam.

These challenges demand comprehensive solutions, including enhancing technological capabilities, improving management, expanding market reach, and strengthening supply chain connectivity to bring Vietnam’s automotive industry closer to its localization and global competitiveness goals.

Promoting localization for sustainable development

According to the Draft Strategy for the Development of Vietnam’s Automotive Industry to 2030, with a vision to 2045, the Ministry of Industry and Trade aims for Vietnam to consume 1 to 1.1 million vehicles annually by 2030. From 2031 to 2045, the market is expected to maintain an average growth rate of 11–12% per year, increasing the total number of vehicles in circulation to approximately 5–7 million units.

Notably, domestic vehicle production and assembly are projected to grow faster, at 13–14% annually, reaching 4–4.6 million units by 2045, meeting 80–85% of domestic demand. The supporting industry is also set to develop robustly, with goals to supply 55–60% of automotive component needs by 2030 and 80–85% by 2045.

On the business side, VinFast has set a target to produce 1 million electric vehicles globally by 2030 while achieving an 80% localization rate by 2026—a clear indication of growing domestic technological prowess and ambition.

Speaking on the role of the automotive industry, Mr. Pham Van Quan, emphasized that it is not merely a manufacturing sector but a symbol of technological capability and national stature. “To become a developed industrial nation, Vietnam must master foundational industries such as mechanics, automotive and high technology,” Mr. Quan affirmed.

According to Mr. Quan, close collaboration between the government and businesses is critical for achieving breakthroughs. Automakers and component manufacturers need to strengthen partnerships with universities, develop R&D centers, and proactively propose policies to help the Ministry of Industry and Trade refine the legal framework, particularly in emerging fields like electric vehicles, AI, robotics, and next-generation components.

The Ministry of Industry and Trade is currently revising Decree 111/2015/ND-CP on supporting industry development, aiming to propose practical incentives related to taxes, land, and credit to boost component localization.

From a business support perspective, Ms. Truong Thi Chi Binh, suggested avoiding fragmented funding allocation and ensuring efficient use of resources, particularly energy, a key factor for sustainable industrial development. Regarding human resources, Ms. Binh stressed the need for in-depth training programs to enhance workforce quality. The government has also implemented policies to strengthen training capacity for labor export, laying a foundation for sustainable domestic industrial growth.

From a market perspective, Mr. Phan Dang Tuat, Chairman of VASI, noted that Vietnam’s automotive industry is gradually catching up with global trends, thanks to new support policies and increased business investment. He proposed that the government establish clear incentives on taxes, land, and credit for small and medium-sized enterprises while encouraging FDI companies to share technology with local partners to enhance production capacity and competitiveness in the market.