Vietnam Auto Part Industry: Ready for a breakthrough

‹#›
Vietnam Auto Part Industry: Ready for a breakthrough
16th October 2019 | Global TransportTech 2019
Presented by: Le Xuan Dong, CFA, Head of Market Research and Consulting Services
Financial Information | Business Information | Market Research

Contents
Overview of Automotive Industry in Vietnam
1
Auto part industry in Vietnam
2
Domestic auto part suppliers & potential partnership
3
FiinGroup's recommendation on market entry
4
Financial Information | Business Information | Market Research 2

Local automotive sector keeps the strong momentum thanks to increasing domestic
demand and strong support from Vietnamese Government
Section 1: Overview of Automotive Industry in Vietnam
1. Market Overview
Source: FiinGroup, GSO, General Customs
Forecast is based on sales growth of VAMA & Hyundai Thanh Cong in
8M2019
Figure 1: Car sales volume in Vietnam, thousand units Figure 2: Production volume & imported CBU cars, thousand
units
Source: FiinGroup, VAMA, GSO
134.0
192.8
254.9
243.4
268.4
71.0
125.5
112.5
97.3
82.9
2014 2015 2016
Production vol. (CKD/SKD)
2017 2018
Import (CBU)
173.5
271.1
308.2
281.4
340.3
408.3
2014 2015 2016 2017 2018 2019f

Total designed capacity stays at 814,000 units p.a. with the commercial launching of
VinFast and Thaco Luxury car plant in May 2019 and the industry is expected to witness
a surge by 590,000 units p.a. in designed capacity by 2025.
1. Market Overview
Figure 3: Automotive designed capacity in Vietnam, thousand units p.a.
Source: FiinGroup
Existing
Capacity
Planned
New
Capacity
Expected
Total
Capacity
2019 2025 2025
VinFast 250.0 250.0 500.0
VinFast - GM Vietnam plant 30.0 30.0
Thaco 207.0 120.0 327.0
Huyndai Thanh Cong 102.0 150.0 252.0
Toyota 50.0 20.0 70.0
TCIEV (Nissan) 37.0 37.0
VEAM 30.0 30.0
Do Thanh 22.5 22.5
Vinamotor 16.0 16.0
Ford 14.0 14.0
Honda 10.0 10.0
Mitsubishi 5.0 50.0 55.0
Others 40.5 40.5
Total 814.0 590.0 1,404.0
Unit: thousand units p.a.
544.0
270.0
590.0
814.0
1,404.0
2018 2019 2025

64.1
56.0
30.7
29.0
27.1
Toyota
Hyundai Thanh Cong
Vinamazda
Thaco Kia
Honda
22.2
8.7
7.5
6.8
6.6
Thaco Truck
Ford
Hyundai Thanh
Cong
Do Thanh
Isuzu
1. Market Overview
Passenger cars accounted for over 70% of total car sales volume in 2018
Figure 4: Car sales volume by category, 2018
PCs
72.9%
CVs
25.4%
SPVs
1.7%
Source: FiinGroup, VAMA
PCs (i.e Passenger cars) include sedans, SUVs, MPV, convertible cars and hatchback. CVs (i.e Commercial vehicles) include trucks, buses. SPVs (i.e Special
purpose vehicles) include ambulance, fire-fighting trucks, refrigerated trucks, etc.
THACO

96
66 64
27
25
12 10
7 7 7
THACO Toyota Hyundai Honda Ford Isuzu Suzuki Do Thanh
1. Market Overview
Thaco is #1 automotive manufacturers in terms of sales volume in 2018
Figure 5: Car sales volume by auto makers in 2018, thousand units
123% -14%
GM Vietnam Mitsubishi
17% 54% -7% 14% 25%7% 11% 106%
2017 vs. 2018 Y-o-Y Growth

99%98%
80% 77%
55%
38%
Thaco Toyota Honda Ford TotalHuyndai
Thanh Cong
CKD & SKD CBU
 81,609 cars were imported
to Vietnam in 2018, mainly from
Thailand and Indonesia given
zero import tariff for CBU car
with a localization value of not
less than forty per cent
calculated using the formula set
out in ATIGA.
 CKD & SKD are popular
in Vietnam, accounting for 77%
of total car sales volume in
2018. Average localization rate
stays low since automotive
supporting industries in Vietnam
are under-developed.
Source: FiinGroup, General Customs, VAMA
1. Market Overview
CKD/ SKD cars accounted for 77% of car sales volume in 2018
Figure 6: Breakdown of sales volume by category: CKD/SKD vs. CBU, 2018
Sales volume 2018 (thousand units)96.1 65.9 63.5 27.1 24.6 340.3

Vietnam government plans local automotive industry to achieve the average localization
rate of 30% and 40% by 2020 and 2025, respectively …
Source: Decree No. 1211/QD-TTg on Development Plan of Automobile Industry in Vietnam by 2030
2. CKD/SKD vs. CBU
2020 2025 2030
Government general objectives for
localization rate
Cars with 9
seats or fewer
Cars with 10
seats or more
Trucks
Special
vehicles
30% - 40% 40% - 45% 55% - 60%
35% - 45% 50% - 60% 75% - 80%
30% - 40% 45% - 55% 70% - 75%
25% - 35% 40% - 45% 60% - 70%

Source: FiinGroup, In-depth interviews with OEMs
2. CKD/SKD vs. CBU
…, however, actual average localization rate of Vietnam automotive industry remained
low at less than 20% as of June 2019
Figure 7: Localization rate of top OEMs in Vietnam, 2019
Less than 10% 60%Less than 10%(Fadil)
COMPANY’S AVERAGE PASSENGER CARS TRUCK BUS TARGET
15% - 18% 15% - 18% 35% - 45% 60% 60%
20% 37% (Innova) 45%
12% 12% (Accent) 40%
30% 30% (Honda City) 40%
10% 10% 40%

2. CKD/SKD vs. CBU
30,000 to
40,000 auto
parts are
needed to make
a car. However,
almost auto
accessories and
parts are
supplied by
parent
companies and
other foreign
companies
Key challenges for auto part suppliers in Vietnam include low car sales volume per model,
heavy reliance on imported raw materials and underdeveloped local supporting industries
Main reasons for low localization rate
1 Small car sale volume
2 Heavy reliance on imported raw materials
3 Underdeveloped local supporting industries

3. Regulatory framework
Auto part manufacturers in Vietnam are entitled to enjoy incentive policies offered by the
Government in accordance to Decree No. 111/2015/ND-CP dated on 3rd November 2015
Corporate Income
Tax
Import tariff
 Corporate Income
Tax (CIT) is set at
10% for 15 years
(compared to
standard CIT rate
of 20%).
Preferential credit
policy
Surface water/land rent
 0% import tariff
applied for
machines/equipments
imported to create
fixed assets of the
auto part projects
 Provincial People’s
Committees shall
provide further
incentives for large
auto part
manufacturing
projects beside the
Government’s rent
exemption/reduction
policy
 Auto part
manufacturers shall
be granted loans at
preferential interest
rates from the
Government’s
funding sources.
SOME KEY INCENTIVE POLICIES
Source: Decree No.111/2015/ND-CP

1
2
3
A copy of overseas Vehicle Type Approval (VTA) issued by a
foreign competent authority
A quality control certificate prepared by a foreigncar
manufacturer/assembler for cars
Valid documents by foreign competent authority on
quality assurance for the CBU car manufacturing plants
outside Vietnam
In Oct 2017, the Government issued Decree 116/2017/ND-CP to encourage domestic
automotive manufacturing in Vietnam with technical barriers for CBU cars
3. Regulatory framework
SIMPLIFICATION OF
REQUIRED PROCEDURES
FOR IMPORTING CBU CARS
TECHNICAL
1 BARRIES/REQUIREMENTS
FOR CBU CARS
2
The Government is planning to issue an amendment on Decree
116/2017/CP to simplify procedure for importing CBU cars after
receiving feedbacks from OEMs players and car importers.
Lot by lot test requirement for technical and
environmental safety inspection
4

Contents
1
2
3
4

Domestic
Automobile
Manufacturing &
Assembly
CBU Imported Cars
Automobile
Components, Parts
Distribution
Channels
1S – Auto Showroom
2S – Auto Garage for
Repair & Maintenance
3S = 1S + 2S
23%
77%
Section 2: Auto part industry in Vietnam
1. Market structure
Vietnam automobile sector is fragmented with 241 auto part manufacturers (134 FDI & 107
local) in Vietnam
Figure 8: Vietnam Automobile Sector Structure

Given the favorable tariffs, imported auto parts surpassed US$3.5bn in 2018
Source: FiinGroup, , General Customs
2. Auto part import
Figure 9: Total import value (US$mn) of auto parts, 2014-
2018
Figure 10: Import value of auto parts by country, 2014-2018
Source: FiinGroup, General Customs
2,183
3,028
3,571
3,276
3,580
2014 2015 2016 2017 2018
25% 23%
22% 22% 22%
25% 24% 24%
20% 22%
19% 20% 19% 20% 17%
16% 19% 19% 16% 17%
4%
5% 6%
13%
4%
11%
4%
12% 14% 16%
2014
Thailand
2015
Japan
2016
Korea China
2017
Indonesia
2018
Other

Thaco imported over US$1.7bn in auto parts, focusing on CKD units and electronic parts
Figure 11: Import value (US$mn) of Thaco by auto part groups & country,2018
2. Auto part import
43%
52%
51%
31%
26%
41%
25%
40%
% 32%
CKD Kits
Electric & Electronic Parts
Body Parts
Engine Parts
Powertrain System 5
Japan Korea China Thailand Others
692
284
220
194
136
96
34
26
129
CKD Kits
Body Parts
Engine Parts
Powertrain System
Interior Parts
Climate Control System
Brake Parts
Others

30
21
167
Body Parts 106
Engine Parts 104
Powertrain System 103
Electric & Electronic Parts 89
Interior Parts 47
Climate Control System 36
Brake Parts
Suspension Parts
Others
Toyota Vietnam imported over US$703mn for auto parts
Figure 12: Import value (US$mn) of Toyota Vietnam by auto part groups, 2018
2. Auto part import
65% 31%
33% 52%
26% 8
%
51%
1
0 %
60% 24%
Body Parts
Engine Parts
Powertrain System
Interior Parts
Japan Korea China Thailand Others

Hyundai Thanh Cong imported primarily from Korea with over 80% of total value
Figure 13: Import value (US$mn) of Hyundai Thanh Cong by auto part groups, 2018
2. Auto part import
67%
85%
87%
89%
68%
27%
13%
12%
11%
27%
Body Parts
Engine Parts
Powertrain System
Interior Parts
Korea India Turkey China
148
122
90
48
44
21
20
19
81
Body Parts
Engine Parts
Powertrain System
Interior Parts
Steering Parts
Brake Parts
Wheel & Tire
Others

Ford imported primarily from China with over 78% of total value
Figure 14: Import value (US$mn) of Ford by auto part groups, 2018
2. Auto part import
Body Parts 83%
Interior Parts 88%
Engine Parts 77%
Powertrain System 80%
Electric & Electronic Parts 65%
China Thailand Netherlands U.S Others
Body Parts 43
Interior Parts 35
Engine Parts 29
Powertrain System 28
Electric & Electronic Parts 17
Climate Control System 9
Wheel & Tire 6
Brake Parts 5
Others 19

Honda also imported primarily electronic parts from parent companies
Figure 15: Import value (US$mn) of Honda by auto part groups, 2018
2. Auto part import
50%
92%
88%
20%
56%
Body Parts
Interior Parts
Powertrain System
Engine Parts
Thailand Japan China Indonesia Others
21
19
18
13
10
8
5
4
13
Body Parts
Interior Parts
Powertrain System
Engine Parts
Climate Control System
Suspension Parts
Steering Parts
Others

Contents
1
2
3
4

42% 64% 69% 0% 11% 50% 43% 40% 0% 33%% local
firm
Section 3: Domestic auto part suppliers & potential partnership
1. Domestic auto part suppliers
Majority of auto part manufacturers in Vietnam are in Electric & Electronics Parts, Wheel
& Tire and Body Parts
Figure 16: Number of auto part companies by auto part groups, 2019
73
28 27
13
9 9 7 5 3 4
45
Electric &
Electronic
Parts
Wheel &
Tire
Body Parts Interior
Parts
Powertrain
System
Climate
Control
System
Suspension
Parts
Exhaust
System
Brake Parts Engine
Parts
Other(*)
51%
Source: FiinGroup. The analysis is based on our comprehensive database of 241 auto part manufacturers in Vietnam including both foreign owned
and local private companies
(*): Others include Fastener,Plug, Clamp, Protector, Trap, Rivet, Oil seal, Nozzle, Rubber mounting/bushing…

PRICE
CAPABILITY
• Low order quantity due to small car sale volume
• Reliance on imported raw materials (must
purchase raw materials from suppliers
appointed by car manufacturers)
High product
selling price
• Quality management system requirement
• Low technical skill
• Lack of experience in producing high end
products
• Weak R&D capacity
• Lack of funding sources to purchase modern
facilities
• High defect rate
• Management capacity (late delivery, etc.)
Difficulties to meet
high technical
requirements from car
manufacturers
SALES AND
MARKETING
• Sales and marketing activities are weak at almost local auto part companies.
Local auto part manufacturers is lacking skilled sales staff for auto part industry.
Normal sales staffs don’t have enough technical know-how to convince
customers while technical engineers don’t have sales skills to win contracts. It’s
common that the auto part company’s CEO or owner will take responsibilities of
sales activities
1. Domestic auto part suppliers
Some key challenges for local private auto part makers in Vietnam
Source: FiinGroup from In-depth interviews with a sample of 30 leading auto part manufacturers in Vietnam

FiinGroup follows Kotra’s classification of 12 auto part groups. It is noted that amongst 12 groups, 3 auto part groups namely Climate Control System,
Steering Parts and Exhaust System are imported and not manufactured in Vietnam.
2. Potential partnership with domestic auto part suppliers
Potential partnership opportunities amongst top 30 domestic auto part suppliers in Vietnam
No. Company name
Country
Net sales
(US$mn)
Year Auto part group Detail of opportunities
1 The Southern Rubber Industry (Casumina) Vietnam 167.4 2018 Wheel & Tire Trading and land leasing
2 Kumho Tire Vietnam Korea 157.2 2018 Wheel & Tire Trading
3 Vietnam Precision Industrial No.1 (VPIC1) Taiwan 146.3 2018 Body Parts Co-R&D, JV and trading
4 Estec Vietnam Korea 134.0 2018 Interior Parts Trading
5 Dry Cell And Storage Battery (Pinaco) Vietnam 127.6 2018 Electric & Electronic Parts Co-R&D, JV and trading
6 Enkei Vietnam Japan 48.9 2018 Wheel & Tire Trading
7 CX Technology (Vietnam) Taiwan 48.1 2018 Brake Parts Co-R&D and trading
8 Hanoi Plastic Vietnam 46.7 2018 Body Parts Co-R&D, JV and trading
9 Futu 1 Vietnam 38.3 2018 Engine Parts Co-R&D and trading
10 Tam Hop Group Vietnam 34.9 2018 Body Parts Co-R&D and trading
11 Cosmos Industrial No.1 Vietnam 32.7 2018 Body Parts Co-R&D, JV and trading
12 Export Mechanical Tool (EMTC) Vietnam 23.0 2018 Body Parts & Toolkits Co-R&D, JV and trading
13 Nidec Tosok Vietnam Japan 21.5 2014 Powertrain System Trading
14 Bando Manufacturing (Vietnam) Japan 12.0 2014 Engine Parts Trading

Contents
1
2
3
4

Typical procurement procedure in automobile industry
Section 4: FiinGroup's recommendation on market entry
1. OEMs’ requirements
*Note: Depending the actual situation, OEMs could skip or add some more steps
Step 1
Step 2
Step 3
Step 4
Step 5
Step 6
Information exchange between car
manufacturers and auto part makers.
Site visit by car manufacturers to assess auto
part supplier’s production capability
Car manufacturer provides standard technical
drawings and technical requirements
Auto part company provides sample & quotation
Sample Product Verification & Contract
Negotiation
Receive a license and sign the contract

1. OEMs’ requirements
PRICE: The price offered by potential auto part suppliers must be lower than that of other
existing suppliers or that of imported parts.
EXPERIENCE/TRACK RECORDS: The car manufacturers prefer to work with auto part
suppliers that are existing suppliers of their parent companies in the world. They also consider
to work with suppliers of other car manufacturers.
PRODUCTION CAPACITY: Auto part companies must have enough capacity to provide
products upon request from car manufacturers. Since an auto part company is permitted to
provide products to several car manufacturers, they must commit that there’s no conflict of
work loads among orders from different car manufacturers.
Some key criteria required by car manufacturers for auto part suppliers
PRIORITISATION
More
QUALITY: The quality of auto parts offered must meet the technical requirements of
each car manufacturers or some international standard such as AITF, ISO, etc.so that auto
part companies may get the licenses for auto part production from the car manufacturers.
Less

2. Potential partnership with OEMs
OEMs in Vietnam are open for collaboration with Korean auto part suppliers
Open for
collaboration
Note
• Honda Vietnam indicates that “pass through” collaboration may be the most
appropriate approach to enter that market as well as cooperate with them for
now.
• VinFast is open to cooperate with leading Korean auto part makers.
• Domestic makers (with manufacturing plants in Vietnam) should be an
advantage
• Thaco is open for collaboration with Korean part suppliers. However, key
challenge is high offering price by Korean auto part makers compared to those
by its auto part subsidiaries.
• Potential auto parts: body parts & interior parts
• Toyota Vietnam aims to increase the average localization rate from 20 per
cent to 45 per cent with further supplier base development in Vietnam
• Potential auto parts: body parts, interior parts and others
• Thanh Cong Group (the Vietnamese partner in the JV) is willing to cooperate
with Korean partners to produce auto part manufacturers for its Huyndai JV and
other car makers. Thanh Cong Group is also developing Viet Hung IP (Quang
Ninh) which has favorable location for auto part plants.
• One of key factors for choosing auto part makers is good offered price
compared to Ford Vietnam’s existing international auto part suppliers.

Increasing demand for higher localization rate
• The Ministry of Finance proposed a draft regulation on new special tax calculation for domestically-produced cars to
encourage automotive makers to increase localization rate. Taxable price for domestically-produced automobiles with 9
seats or less will be exclusive of the value of the auto parts produced domestically, encouraging automotive makers to
increase the localization rate and enhance price competitiveness of domestic assembled cars.
• To enjoy the tax incentives from the regulation, car manufacturers are expected to increase their localization rate via the
cooperation with domestic auto part suppliers.
Good feedback from local OEMs
• As our discussion with leading car manufacturers,
they aim to increase their localization rate to over
40 per cent via further development of local
supplier base. For example, Toyota Vietnam’s key
focuses for localization in Vietnam include Seats,
Body parts and Plastics auto parts.
• OEMs are leveraging existing motorcycle supplier
base to find new auto part suppliers.
Demand from VinFast
• The company plans to achieve the production
capacity of 250,000 car per year from 4Q2019 and
500,000 cars per year by 2025. Thus, their demand
for auto parts in Vietnam in the coming period is
expected to increase significantly.
• According to our discussion with both auto part
companies and OEM competitors, VinFast is
aggressively seeking for domestic auto part
suppliers. Almost key auto part companies in
Vietnam are approached by VinFast. Some of them
are providing products to VinFast (domestic
products or imported products) while others are on
negotiation stage
3. Recommendations on market entry
Potential advantages for auto part companies to do business in Vietnam

POTENTIAL COLLABORATION
• Collaboration opportunity: LOW
• Collaboration type: Become their potential
suppliers (preferred for Korean auto part
makers have manufacturing plants in Vietnam
already)
• Most of tier 1 auto part companies in Vietnam
are FDIs who produce auto parts upon the
orders from their parent companies or foreign
customers. Majority of their output products
are exported while small portions are supplied
to local car manufacturers.
• Collaboration opportunity: HIGH
• Collaboration type: R&D co-operation or
become their clients or suppliers
• Local companies are open for cooperation with
new partners and clients. However, most of
them are small-scale businesses and able to
provide small and simple auto parts only. They
would be good candidates for Korean auto part
makers in pass through collaboration since they
have existing manufacturing plants in Vietnam
and are open to cooperate.
3. Recommendations on market entry
For the market entry strategy, we suggest that Korean auto part makers may start with
Pass-through first to test the market demand and then set up factories later on
• Key requirements for such “pass through” collaboration are as follows:
o Be an existing auto part suppliers for OEMs’ overseas plants
o Have a local partner with an existing manufacturing plant in Vietnam
o Providing key input materials or parts for further processing in Vietnam and supplying to OEMs to test the
market demand.

Thank you!

‹#›
Contact us
Dong Le, CFA
Director, Head of Market Research and Consulting Services
M: +84 (024) 3562 6962 (ext. 110)
T: +84 (0) 912 057 529
E: dong.le@fiingroup.vn
W: www.fiingroup.vn
Head Office
5th Floor, Anh Minh Building
36 Hoang Cau Street
Hanoi, Vietnam
+ 84 (24) 3562 6962
Ho Chi Minh City Branch
3rd Floor, Profomilk Plaza Bldg
51-53 Vo Van Tan, District 3
Ho Chi Minh City, Vietnam
+ 84 (28) 3933 3586

Vietnam Auto Part Industry: Ready for a breakthrough

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