According to many experts, 2023 will be a challenging year for the global economy. The Vietnamese automobile sector, however, still has a lot of opportunity for expansion and provides a “promising land” for enterprises that receive foreign direct investment (FDI).

The market is still modest

According to the Department of Industry (Ministry of Industry and Trade), there are 377 automobile enterprises nationwide, including 169 FDI enterprises, accounting for 46.43%. The number of manufacturers and suppliers in the automotive industry is modest. The total number of products in this industry is 1221, of which the majority are supporting industry products, with medium and low technology content, with a small value in the value structure of an automobile.

On the other hand, Vietnam’s car ownership rate is 23 cars/1,000 people, only 1/10 of Thailand and 1/20 of Malaysia. However, the Vietnamese auto market has the second highest growth rate in Southeast Asia. In the past 2022, car sales in the whole market exceeded 600,000 units, the highest ever. The above figures show that the auto industry in Vietnam has both challenges and opportunities for investors.

Dr. Nguyen Bich Lam, former General Director of the General Statistics Office, said “The investment environment in Vietnam is very favorable. We have 8 advantages to attract foreign investors, including a stable macroeconomic environment, clear and consistent policies, cheap labor, and very good geo-economic location.”

According to the report of the Foreign Investment Department (Ministry of Planning and Investment), the total FDI registered to Vietnam as of January 20, 2023, including newly registered capital, adjusted registered capital, and value of capital contribution and share purchase by foreign investors reached 1.69 billion USD. In which, wholesale and retail, repair of automobiles, motorcycles, motorcycles, and other motor vehicles newly licensed foreign direct investment impressed with the registered capital of 651.9 million USD, accounting for 54.1% of the total newly registered capital. If including adjusted registered capital of licensed projects from previous years, FDI in this industry has reached 660.8 million USD. This shows that, while some industries face difficulties and declines such as real estate, the auto industry still has a great attraction for foreign investors and has a great impact on the trade balance of the country.

According to data from the General Department of Customs, in 2022, the total import-export turnover will reach 730.2 billion USD, up 9.1% (equivalent to 61.2 billion USD) over the same period in 2021. This is a record number of import and export activities so far and Vietnam continues to be in the top 30 largest import and export countries in the world. Notably in this data is that FDI enterprises contribute a very large proportion with import and export turnover of 506.83 billion USD.

Regarding the supply market, in 2022, Vietnam imported 173,467 CBU cars of all kinds. In particular, Indonesia first surpassed Thailand to become the largest automobile exporter to Vietnam with 72,671 units, up 64.2% over the same period in 2021.

Vietnam’s auto parts and accessories market is mainly imported from Asian countries such as Korea, China, Thailand, and Japan… In particular, Korea is the largest component import market, accounting for about 26% of the country’s total import turnover of this product group. To explain this, famous cars like Kia Morning, Hyundai Grand i10, and Hyundai Accent are still selling well in Vietnam, so the demand for replacement parts is always high. Most users after buying a car, after the warranty period expires, often have to return to the garage, dealer, or car shop to repair and replace components and spare parts. In the first half of January 2023, the import turnover of auto parts and accessories into Vietnam reached over 174 million USD.

What opportunities for Vietnam?

Mr. Phan Duc Hieu, a Standing Member of the Economic Committee of the National Assembly, said that the global economy in 2023 is forecast to decline and continue to face difficulties. In particular, if we look more deeply into the markets that have trade partners such as the US and EU, they are forecast to decline significantly. In addition, it is difficult to predict the impact of the Russia-Ukraine conflict on the economy, such as food issues, input materials, commodity exchange, etc.

“There are also emerging policies to respond to these impacts. For example, in tax matters, the EU will levy a carbon tax on all goods in the EU market, in addition to a global minimum tax rate. This will greatly affect the investment attraction, resource mobilization of Vietnam as well as other commercial issues…”, Mr. Phan Duc Hieu added.

Even so, the auto industry in Vietnam seems to be an exception to the impact of the economic downturn. The strong development of vehicles under 9 seats, especially electric cars, is promising a bright business year for manufacturers. In addition, the breakdown of components supply has also been improved. Some domestic and foreign manufacturers have expanded their investment in building factories in Vietnam, helping to increase supply and attractive prices.

Another explanation for the prospect of FDI in the domestic auto industry is that in the context that the world economy may fall into recession in 2023, the financial market will enter a sideways phase, and many investors will tend to reallocate investment proportions towards small and emerging markets to find their fortunes. These “far-sea fishing” cash flows will most likely end up in potential markets like Vietnam. This is a completely feasible scenario because Vietnam is oriented to attract large enterprises and corporations with high technology, source technology, and promote the digital economy, especially in the automotive industry. At the same time, this also helps to facilitate Vietnamese enterprises to participate more deeply in the value chain.

However, experts also said that considering the proportion of foreign investment in Vietnam also needs to be carefully calculated. When FDI into the auto industry is merely assembling finished products and then re-exporting, the actual benefits brought to the country’s economy, as well as people’s incomes, are not much, the majority of profits still flow to foreign countries.

“FDI investment in Vietnam also needs to be selective so that we can become the world’s factory, but not the ‘buffer zone’ of developed countries, avoiding conflicts, trade wars, and economic sanctions of big countries”, recommended Dr. Nguyen Bich Lam.

Source: VnEconomy Automotive