Foreign-invested auto firms make a U-turn in Vietnam
Leading auto firms are embarking upon domestic production, reversing from a planned shift to imports.
They have been prompted to do so by the government’s firm stance on boosting domestic production and the placing of stricter import controls via Decree 116 issued last October.
The auto industry, including supporting industries, has accounted for the lion’s share of the foreign direct investment in the manufacturing sector in the first seven months of this year, according to the General Statistics Office (GSO).
VinFast automotive manufacturing complex in Hai Phong city
Newly-registered FDI and expanded capital of existing projects flowing into manufacturing during this period amounted to $8.43 billion, or 46.4 percent of the total, the GSO said.
In terms of equity acquisitions, $1.06 billion came into the repair, maintenance and servicing of motor vehicles, motorcycles and other vehicles.
The auto industry has attracted new entrants to the market, registering their investment plans.
Pyeong Hwa Automotive Co., Ltd of South Korea, in June, got a license to build a $16.7 million automobile parts factory in the Dinh Vu – Cat Hai Economic Zone in the northern city of Haiphong. Construction is set to begin later this year and production in September 2019.
Also licensed for operation in the zone is a $60 million joint venture between Thai-owned AAPICO Hitech Public Company Limited and VinFast Manufacturing and Trading Company Limited, a subsidiary of real estate giant Vingroup. AAPICO holds a 51 percent stake in the venture.
The venture will manufacture bodies and chassis for VinFast sedans and sports utility vehicles.
It will be the first company to set up shop in the auto supporting industry complex that Vinfast is building with a 9.1-hectare plant.
These two projects mark the beginning of the creation of an automotive ecosystem in the northern city, which has deep-sea ports to facilitate auto and autoparts exports.
They are also expected to provide a boost to the auto supporting industry in Vietnam, which has struggled to take off over the past two decades, limiting the nation’s plans to increase localization.
Meanwhile, some foreign automakers in Vietnam have made headlines with their plans to expand production, reversing previous claims that they would stop assembling and turn to imports after tariffs on vehicles imported from ASEAN were abolished under the ASEAN Free Trade Area (AFTA) deal this year.
In June, Toyota reportedly stated that it would invest $40 million to increase its annual capacity from 50,000 vehicles to 90,000 by 2023.
Besides expanding its welding and painting workshops, the firm will also upgrade its car test sites to comply with Decree 116 - a bold government move to catalyze domestic auto manufacturing.
Ford Vietnam was also observed with expansion plans.
The decision by the northern province of Hai Duong, home to Ford’s factory, to approve an environmental impact assessment last November followed the company’s request to increase its capacity by half to 20,800 units a year.
The detailed plan of the Ford plant, ratified by Hai Duong authorities, shows that new welding and assembly facilities will be set up along with a new car painting workshop and a test site.
Mitsubishi Motors Vietnam is seeking a location for its second plant in Vietnam, adding to the one it has built in the southern province of Binh Duong.
Toru Kinoshita, head of the automotive working group of the mid-term Vietnam Business Forum (VBF) 2018, said that market size and steady growth would be key factors in attracting investment in the country’s auto manufacturing and supporting industries.
A steadily growing market should have a reasonable balance of both domestic manufacturing and imports, he said.
Economist and former head of the Ministry of Finance’s Price and Market Research Institute, Ngo Tri Long, said the foreign firms’ about-face was due to pressure from Decree No.116 and the government’s tough stance on developing the domestic auto industry.
The decree prescribes strict import regulations related to testing and vehicle type approval from exporting countries, causing an increase in import and delivery time and higher costs, he said.
Only 12,380 automobiles were imported in the first half of this year, a steep 75.7 percent fall year-on-year, according to Vietnam Customs.
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