Vietnam's automobile localization rate: Reality and ambition.
Despite pessimistic assessments, the localization rate of automobiles in Vietnam is showing positive signs, with major players such as Toyota, Thaco, and VinFast.
Domestic automobile assembly production is on a strong growth trajectory, reaching 338,400 vehicles in the first three quarters of the year, an increase of over 52% compared to the same period last year. However, the debate about the localization rate and the position of Vietnam's automotive industry continues. Although still lagging behind Thailand, Indonesia, and Malaysia in the region, the actual picture of domestic production capacity is not as pessimistic as some assessments suggest.
Recently, there have been claims that the localization rate of automobiles in Vietnam is only between 5-20%, a figure that has raised many doubts. However, data from major manufacturers tells a completely different story, reflecting their persistent efforts in building supply chains in Vietnam.
A realistic picture from major manufacturers.
Established businesses with large market shares in Vietnam have achieved impressive localization rates. Toyota Vietnam, one of the earliest brands to enter the market, achieved an average localization rate of 40% for domestically assembled models as of February 2023. Notably, the Toyota Vios B-segment sedan reached 43% localization according to the ASEAN value-added formula. The Japanese automaker currently collaborates with 58 suppliers in Vietnam, including 12 purely Vietnamese companies, with a total of 1,000 localized products.
Meanwhile, Thaco not only assembles vehicles for many international brands such as Kia, Mazda, Peugeot, and BMW, but also independently produces many important components. Thaco's product portfolio includes seats, interior components, glass, wiring harnesses, car bodies, and even air conditioners. The company is also an OEM component supplier for Hyundai, Toyota, and Isuzu, and has exported products to demanding markets such as the US, Canada, Japan, and South Korea.
VinFast, despite only starting operations in 2019, has made a breakthrough by announcing a localization rate of over 60% for its electric vehicle lines, including key components such as the body, engine, and suspension system. The Vietnamese automaker has set an ambitious goal of increasing this figure to 80% by 2026, a testament to its strong investment strategy in domestic production.
The relationship between sales and localization rate
The story of increasing localization rates and sales is reciprocal, similar to the "chicken and egg" paradox. For a manufacturer to confidently invest in localizing components, they need a sufficiently large production volume to ensure economic efficiency. Conversely, increasing localization rates helps reduce costs, secure supply, thereby creating a competitive advantage in pricing and attracting customers, boosting sales.
In fact, leading car manufacturers such as VinFast (with over 87,000 vehicles sold last year) and Toyota (66,576 vehicles) also have the highest localization rates. This shows that a large market share is a solid foundation for car manufacturers to attract partners and invest in the domestic supply chain.
Prospects and challenges for the future
Despite significant progress, Vietnam's automotive industry still has a long way to go to reach the 90% localization rate of Thailand or Indonesia. However, the increasing number of international brands choosing Vietnam as a manufacturing location is an optimistic sign, promising to boost the development of the supporting industries.
In an increasingly competitive market, investing in production and increasing localization rates is no longer an option but a matter of survival. Businesses with the resources and determination to pursue this strategy will gain an advantage in capturing market share, while those who hesitate will face the risk of being left behind.
