Auto industry seeks to develop components segment

While the automotive industry’s target of using 35-45 percent locally made parts remains elusive, auto companies are increasing investments in supporting industries.

Vietnam car, Vietnam auto industry, components segment, supporting industries

On September 22 TC Motor began construction of the 340 ha Thanh Cong Viet Hung Complex for Automotive Supporting Industries in northern Quang Ninh Province.

A spokesperson for the Ninh Binh-based auto firm believed that the complex would attract many companies in the auto ecosystem.

TC Motor is also clearly interested in making parts for Hyundai cars produced in Vietnam. The South Korean brand, which it assembles and distributes, topped the market in the last 10 months.

Next to Quang Ninh is the VinFast plant that makes cars, motorbikes and electric bikes in the Dinh Vu-Cat Hai industrial zone in Hai Phong City. A third of the 335-ha plant is used to produce auto and motorbike parts.

The last of the big three local auto companies, Truong Hai (Thaco), is no exception to this trend, making large investments in supporting industries.

Thaco says that it currently has 12 plants in the 1,200 ha Chu Lai-Quang Nam industrial zone making both internal and exterior parts for buses, trucks and cars; composite parts; automotive glass; air conditioners for trucks, buses and passenger cars; bumpers for passenger cars; seats and seat covers; wires; springs; car body parts and more.

This producer of Kia and Mazda vehicles is the second largest in the Vietnamese market after TC Motor. Its ambition is to become an original equipment manufacturer (OEM) for not only the domestic market but also exports.

Where is Vietnam on the automotive map?

While the Vietnamese car market ranks fourth in Southeast Asia in terms of scale, sales and production, the country’s supporting industry ranked considerably lower.

In a report in 2018 the Ministry of Industry and Trade said the use of locally produced parts in the Vietnamese auto industry was just 7-10 percent on average, miles away from the 40 percent goal set in 2004.

While Vietnam is still struggling to develop its supporting industries, an important requirement for auto manufacturing, other Southeast Asian nations like Thailand and Indonesia have already surpassed the 70-80 percent mark.

To bolster production, it is necessary to have strong supporting industries and steady market growth, said experts. Vietnam is behind only Myanmar in Southeast Asia in terms of sales growth, but weak supporting industries and small number of parts suppliers limit production to mere assembly of imported parts.

The high costs of imported parts have also led to a paradoxical situation of locally made cars being more expensive than imported ones.

Statistics from the Vietnam Automobile Manufacturers Association (VAMA) show that its members source around 15 percent of tier 1, or low-technology, parts like chairs and wires domestically, and import the rest.

Thailand and Indonesia only import 10 percent of tier 4 parts, which include the most important like gearboxes and engines.

In 2018 there were around 2,100 part suppliers in Thailand and only 276 in Vietnam.

Auto manufacturing costs in Vietnam are around 15-20 percent higher than elsewhere. A steel filler cap costs around $1.5 in Thailand, but $3.8 in Vietnam.

With even lower tier parts being expensive in Vietnam, reducing the costs of higher tier parts like car body, electronics, engines, and gearboxes seems infeasible, said some experts.

The inability of suppliers in Vietnam to make parts more complicated than tires, seats and wires require the domestic industry to import about $2 billion worth of car parts each year, mostly components like the braking and steering system, from countries like Japan, China and South Korea, according to a report by the Ministry of Industry and Trade.

Car sales in Vietnam reached 385,600 units last year, but the size of the Indonesia and Thailand market was 2.6 times bigger and that of Malaysia, 1.6 times.

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