Vingroup has shocked the public when investing in automobiles and electric motorcycles, with a US$1.5 billion Vinfast plant in Hai Phong being built to manufacture the first Viet branded automobile after next 2 years. Also, THACO announced its plan to invest US$1.78 billion and attract additional US$0.89 billion investment from other enterprises to develop big projects in Quang Nam province. Both corporations have their explanation for these investments.
According to the ASEAN Free Trade Agreement, from January 1, 2018, the import duty on cars imported from ASEAN countries into Vietnam will be slashed from 30% to 0%. The price of imported cars will, therefore, fall sharply, putting enormous pressure on domestic assemblers. Vingroup and THACO would also have to compete with other foreign automobile giants.
However, Chairman of THACO Tran Ba Duong believes that the government would adjust the import duty on components in order to encourage and maintain the domestic automobile assembly industry.
As expected, the Ministry of Finance is consulting the two options to reduce the import duty on car component from 2018 to 2022 for cars that have less than 9 seats, 2,000cc or less cylinder capacity and for under 5-ton trucks. The reduction in import duty on cả components would help enterprises to lower selling price, increasing the competitiveness with imported cars and promoting domestic production as well as export, which is the target of both Vingroup and THACO.
However, in order to be permitted to export automobiles to ASEAN nations with the 0% tax, enterprises must show the localization rate of 40%, an extremely high number in Vietnam. Tran Ba Duong still confidently believes that despite a long period of time, THACO can reach its target thanks to its long time experience in the field, existing platform as well as the market that has developed stably and would grow in the upcoming time, especially after 2018.
THACO plant (Photo: Ngoc Hai)
Despite having just been constructed, Vinfast announced to reach the localization rate of 60%; but there has not been any answer to the question concerning the realization of this ambition.