Automobile and motorbike industry expects a breakthrough from electric vehicles

After strong growth in 2022, vehicle consumption is forecast to decelerate in 2023 due to economic difficulties. In that context, electric vehicles are expected to create a new breakthrough, but also need more supportive policies of the Government.

According to the consolidated financial statements of the fourth quarter of 2022 of City Auto Joint Stock Company – the largest Ford car dealer, although the net profit of the fourth quarter of 2022 decreased slightly by nearly 5% compared to the same period in 2021, but profit after tax still recorded an impressive growth of up to 125% in 2022.

According to Mr. Nguyen Hoang Minh Tien, General Director of City Auto, in 2022, many versions of Ford cars have been upgraded with models suitable for consumers, which has stimulated the demand to buy cars to increase. Especially, in the first 9 months of 2022, the auto business market excelled with supportive policies of the State to stimulate the purchase volume of customers, which helped the company’s profits increase sharply. However, the demand for car purchases decreased in the fourth quarter of 2022 when tight credit policies, high interest rates, and difficult access to credit room made it difficult for consumers to access credit.

Similarly, Hang Xanh Automobile Service Joint Stock Company reports its net revenue and profit after tax in the fourth quarter of 2022 both decreased sharply by 26% and 62% respectively compared to the same period in 2021. But these two indicators still grew by 22% and 50%, respectively, to 6,775 billion and 240 billion VND for the whole year. Although the demand for cars decreased in the fourth quarter, the positive situation in the first 9 months still helped the company’s full-year profit grow strongly, said Mr. Do Tien Dung, Chairman of the Board of Directors of Hang Xanh Automobile Company.

Besides, the Vinfast brand also has positive profit results thanks to good consumption. The filing for IPO listing in the US shows that Vinfast recorded a revenue of VND 10 trillion ($439 million) in the first nine months of 2022. The company sold a total of about 22,900 cars in the 10 months of 2022 (the company does not provide sales figures for October and November), of which about 7,000 electric vehicles were sold. The company recently shipped 999 electric vehicles to San Francisco, USA with the goal of entering the US market.

Pent-up demand and support from the Government are the two main drivers of automobile and motorbike sales in 2022. In 2022, about 3 million motorbikes were sold (up 20% compared to same period), but still lower than the pre-Covid level about 0.2-0.3 million vehicles. While for four-wheeled vehicles, 404,635 vehicles (up 33% over the same period) were sold from members of the Vietnam Automobile Manufacturers Association (VAMA) and this figure far exceeds the numbers before Covid. The 50% reduction in registration fees for locally assembled cars also promotes people’s demand to buy cars.

On the other hand, the factor hindering the recovery is the shortage of semiconductor chips for manufacturing activities. However, according to SSI Research, this creates an opportunity for dealers to raise prices.

Notably, the consumption of CBU imported cars is catching up with domestically assembled cars. Imported cars increased by 35% year-on-year in 2022, while domestically assembled cars increased by 31% over the same period (according to VAMA). Imported cars accounted for a significant proportion of total vehicle sales in recent years (about 30-40%). This increasing trend is due to a series of new brands entering the Vietnamese market, especially Chinese brands sold at attractive prices.

SSI Securities Research experts believe that imported car consumption will increase thanks to the exchange rate advantage and some imported cars are now more affordable than locally assembled cars. Moreover, the import tax exemption (from 50-70% to 0%) for cars imported as complete units (CBUs) from ASEAN countries, applied from 2018, will continue to be extended for 5 years. from 2023 to 2027 (according to Decree No. 126/2022/ND-CP). Currently, the import tax rate for non-ASEAN countries is still kept at 50-70%.

Follow strong growth in 2022, vehicle consumption is forecasted to decelerate in 2023 with vehicle sales increasing by only 5% compared to 2022, surpassing the milestone of 500,000 vehicles – according to the department of risk forecast, analysis and advisory (EIU) under the Economist Group (UK). The difficult economic situation brings many challenges.

Specifically, due to worsen economic conditions, car consumption and car sales at dealerships may not be as high as in 2022, as consumers reduce spending during a recession. Besides, buying a new vehicle in installments will be more expensive and difficult. Government support (including cutting the registration fee and delaying the payment of excise tax) has ended, as consumption has returned to pre-Covid levels.

In that context, automobile enterprises increase production in Vietnam, helping to reduce car selling prices. Truong Hai Group Joint Stock Company – THACO, a Vietnamese automobile manufacturer, has recently successfully negotiated to locally assemble a number of BMW brand models (X3, X5, 3-Series, 5-Series), putting pressure on other luxury car brands. In addition, TC Motor, the affiliate brand between Thanh Cong Group and Hyundai Motor, also inaugurated phase 1 of their second factory in Vietnam. The USD 140 million factory will supply 100,000 units a year when completed in 2025.

According to SSI Research, electric vehicles have the potential to create a breakthrough for the automotive industry in Vietnam. In 2022, Audi and Mercedes-Benz have officially announced a number of electric models for the luxury car segment. In the popular car segment, Hyundai and Kia both introduced electric models (IONIQ5 and EV6) in Vietnam. However, it is too early to assess the impact of electric vehicles on the automobile industry in Vietnam.

Car manufacturers have just begun to test and sell to gauge the interest of consumers and the Government in switching to this type of vehicle when Vietnam has not yet had a strategy to develop charging station infrastructure for electric vehicles.

Moreover, the price of electric cars is still high compared to gasoline models. Experts from SSI Research said that in order to increase the rate of electrification of the automobile industry, the Government should consider a preferential tax policy for electric vehicles; increase taxes on fossil fuel-powered cars and invest in charging station infrastructure.


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