Automotive in Vietnam Market report 2017 UNDERSTANDABILITY.INTEGRITY.ADAPTABILITY

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1 Automotive in Vietnam Market report 2017

2 Overview of Vietnam Automotive Market Although Vietnam remains a country of motorbikes, demand of using cars in Vietnam becomes more favored nowadays. Due to trending to opting more comfortable and safety vehicles, auto sales have grown dramatically. Vietnam s vehicle sales growth -2016) Total vehicle sales in 2016 (Units) 65% 55% 43% 19% 15.50% 6% -6% -3% % -16% Motorbike Sales Growth Car Sales Growth Source: Thailand report, VAMA, ASEAN Automotive Federation 3,121,023 Motorbikes Key Driver for Car domestic growth: 270,820 Cars - Rising income and socio-cultural trends: With increasing disposable income, Vietnamese would like to opt a transportation which is more convenient and safer instead of motorbikes, traditional two wheels transportation. - Liberalized trade environment: From 1 st January 2017, ASEAN Free Trade Area (AFTA) agreement cut down 10% import tariff. NIM Vietnam

3 Overview of Vietnam Automotive Market Popular Auto Brands In Vietnam, automotive brands which are popular with Vietnam automotive market, are Korean and Japanese brands. Auto market share by nationality (2016) Source: Thailand report Top auto sales by brand (2016) OTHERS 45,910 23% Japanese Brands SUZUKI 7,780 15% 271,833 Units 48% Korean Brands USA Brands Others HONDA CHERVOLET 8,510 9,726 14% FORD VN 29,011 - Japanese brands: cover majority of vehicles in Vietnam because of high resale, sustainability and less corruption. - Korean brands: are more popular with Vietnamese people due to their affordable prices, various models and good quality. TOYOTA VN 57,036 THACO Source: VAMA Vietnam Automotive Manufacturers Association 112,847 NIM Vietnam

4 Overview of Vietnam Automotive Market Cars market in Vietnam is dominated by Toyota as well as brands assembled by the major local player such as Thaco, Hyundai, etc. Viet a s vehi les share arket y e terprises, 6 3% 4% 4% 11% 15% 22% 41% Thaco Toyota Ford Honda GM Isuzu Others Source: Truong Hai Auto Corporation (Thaco): a Vietnamese auto assembler and distributor which currently assembles for Mazda, Kia and Peugeot. Recently, BMW make a decision to choose Thaco as an investor and importer of BMW and MINI automobiles in Vietnam from January 1, On March, 26 th 2017, Thaco Truong Hai has begun construction of new manufacturing Mazda models factories in Chu Lai Economic Zone and expected to officially active in April Hyundai Thanh Cong: On March, 3 rd 2017, Hyundai Thanh Cong has officially signed a cooperation agreement with Hyundai Motor Korea Group for cooperating, expanding manufacturing and assembling cars of Hyundai in Vietnam NIM Vietnam

5 Vietnam Automotive Market Key Locations Using automotive vehicles are focused on Vietnamese s key economic cities. Ho Chi Minh City and Hanoi are two cities which have the most number of the registered passenger vehicles in Vietnam. Due to different lifestyle, vehicles customers have dissimilarity in buying vehicles in spite of being in the same country. Hanoi: Customer characteristics - Thinking long term of car usage and convenience due to the draconic weather. - Tends to be savers. - Prefer the small-sized vehicles such as sedan and hatchback. Car type preferences: Ho Chi Minh City: Customer characteristics - Thinking short-term and willing to try new things. - Because of the harmony weather, they can purchase the vehicles they like. - Tends to opt medium-sized or large-sized vehicles since they often go out with many people at weekend or holiday, such as SUV and MPV. Car type preferences: Toyota Vios Mazda 3 Toyota Fortuner Toyota Innova NIM Vietnam

6 Auto Market Outlook Key Issues Automotive industry in Vietnam mainly import more Completely Built-Up (CBU) vehicles from others countries, especially ASEAN countries. Through the ASEAN Trade in Goods Agreement (ATIGA), import tax off CBUS from ASEAN-member countries was reduced from 40% in % % % to 30% in 2017 and on 1/1/2018, import tax will be reduced to zero. On May 5, 2015, Vietnam and Korea signed Vietnam-Korea Free Trade Agreement (VKFTA) which is effective on December 20, In this agreement, import tariff on passenger vehicles with capacity from 3.0l has been falling down to 0% in 10-year period. Currently, special consumption tax rate for new car was lowered and for used car importing, tax rate was higher. Besides that, Vietnamese Government encourage automotive enterprises to develop supporting industry in automotive manufacturing. Vietnam is attempting to create an attracting automotive market and encourage global makers to invest to Vietnam. NIMVietnam

7 Auto Production Cluster in Vietnam In Vietnam, most of assemblers mainly focus on 3 key locations, i.e., Hanoi and surrounding cities in the North, Quang Nam Province in the Central and Ho Chi Minh City in the South. Hanoi, Vinh Phuc and Hai Phong city: Quang Nam Province: Vinh Phuc Hanoi Hai Phong Biggest auto assembler cluster Thanks to strategic location which is 159km from Hai Phong port Vietnam s largest port and proximity of Japan, China and South Korea ports, this is the main cluster of automotive assembling industry in Vietnam. A place where focuses on local joint venture with auto assembling of Japanese and South Korean brands such as Thaco, Vinastar Motor. Da Nang Quang Nam Ho Chi Minh City and Dong Nai Province: As a business center of the South of Vietnam, many assembling plants are established here for assembling some of high-end and large-sized vehicles. Ho Chi Minh City Dong Nai NIM Vietnam

8 Overview of Auto Production in Vietnam Vietnam has more 400 firms about automotive industry but most of them are small and medium-sized firms and focus on Completely Built Units (CBUs). After more 20 years of developing automotive manufacturing, domestic supporting industry has still limited. Production localization rates, 2016 Vietnam s vehicles production output Passenger vehicles Commercial vehicles 90% CAGR: : 34% 90,590 30% 93,039 Car production output in 2016 (Units) 145,571 Passenger vehicles Source: 90,560 Commercial Vehicles 32,185 41,488 40,297 58,352 56,160 77, , , NIM Vietnam

9 10% 45% 55% 70% Automotive Localization The localization rate of general automotive industry in Vietnam is 30%, however, the localization rate of passenger vehicles in Vietnam only 7% - 10%. Comparison localization rates of passenger vehicles between Vietnam, Thailand, Malaysia and Indonesia 2015 Source: Thailand report VIETNAM THAILAND INDONESIA MALAYSIA NIM Vietnam

10 Vietnam Auto Part Market With a limited supporting automotive industry, automotive enterprises must import most parts, especially sophisticated auto parts from abroad for assembling in Vietnam. Vietnam s passenger vehicles spare part import value thousand/usd Domestic capacity Brakes Electrical Lighting, Wipers and Windscreen Wheels and Tires Lithium-lons Accumulator Source: General Statistics of Vietnam 56,895 27, ,843 77, ,167 83, , , , , , Most of local auto parts producers in Vietnam are Small-sized and Medium-sized Enterprises (SMEs). So, they mainly focused on assembly, welding, painting and cleaning automotive vehicles. These SMEs are capable to produce mostly fundamental and low auto parts, such as, accumulator, tires, lights, seats, mirrors, hot melt film, windscreens. Under the context of ASEAN Free Trade Area (AFTA) in 2018, the importation auto parts for assembling will make Complete Knocked-Down Unit (CKDs) cost 20-25% more than Complete Build Units (CBUs) imports from Thailand and Indonesia. Hence, many local automotive companies are reconsidering their business. NIM Vietnam

11 Vietnam Taxes and Fees for Automotive Industry In Vietnam, high taxes and fees are two factors of limitation the number of cars on road despite of strong growth in vehicles market. With reducing import tariffs and rising congestion, further taxes and fees can be considered to protect local automotive vehicle industry and reduce pollution. Type Name Detail Tax and fees for passenger vehicles in Vietnam, 2016 In Vietnam, passenger vehicle users must pay three kinds of taxes and types of fees which limit congestion in Vietnam s road. Though automotive industry market is growing, those taxes and fees are higher than Thailand, Malaysia and Indonesia. Since July 2016, a special consumption tax has been enforced for vehicles with engines below 2.0l by lowering the consumption tax from 45% to 40%. Meanwhile, larger vehicles are given higher costs as tax is increased to % solely to accommodate the big engine size. The tax adjustments are mainly aimed at promoting the use of small-sized auto vehicles which have lower fuel consumption in an effort to lessen the impact on CO2 emissions. Taxes Stamp and Inspection Fees Import tariff CBU (Complete Build Unit) SCT (Special Consumption Tax ) 30%-70% % VAT (Value Added Taxes) 10% Stamp Duty 10%-15% Inspection fees Registration fees Road maintenance fees 15 USD USD 67 USD/year Insurance Liability insurance ~18 USD Source: NIM Vietnam

12 15, , , ,281 33, ,930 Vietnam Taxes and Fees for Automotive Industry Special Consumption Tax (SCT) Development 40% 35% 45% 40% 50% 50% 55% 60% 90% 90% 110% 110% 130% 130% 150% 150% BELOW 1.5L 1.5L-2.0L 2.0L-2.5L 2.5L-3.0L 3.0L-4.0L 4.0L-5.0L 5.0L-6.0L OVER 6.0L 1/7/ Source: Prices for different Toyota models by regional comparison 2015 (between Thailand, Indonesia and Vietnam) Thailand Indonesia Vietnam VIOS YARIS INNOVA CAMRY Source: NIM Vietnam

13 Conclusion Although Vietnam s automotive industry is still in developing stage, Vietnam is still an interesting market which attract foreign investors. Moreover, the rising passenger vehicle market is presenting opportunities for vehicles manufacturers. In brief, shape of Vietnam s passenger vehicle industry future brings opportunities and challenges: Opportunities: Impact of multilateral trade agreements and domestic tax rates Rise in aftermarket opportunities for parts and components Attracting more foreign players Preferential policies of Vietnamese Government for automotive industry. Challenges: High taxes and fees, increasing SCT Local manufacturing remains limited with a shallow supply base, as a result of a reliance of imports Low localization and low supporting industry in automotive. NIM Vietnam

14 Open Sources All the data and numbers in this report is get from: Vietnam Automotive Manufacturers Association General Statistics of Vietnam Solidiance s report Report ASEAN Automotive Parts Industry of Thailand ASEAN Federation Automotive Zing News Nhip Cau Dau Tu Magazine 24h Online News NIM Vietnam

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