The electric vehicle market in Vietnam has not attracted much attention compared to other countries in the region and in the world, but this does not mean that there are no opportunities. Electric vehicles are an irreversible trend and will be the future as governments move towards clean energy and respect the environment. This means that interested investors can set up a base including manufacturing facilities, supply chains and human resources to prepare for this future shift.
With a population of more than 96 million people, about half of Vietnam’s population owns motorbikes, while the rate of car owner is 23 per 1,000 people. Big cities like Hanoi and Ho Chi Minh City have suffered from increased pollution and congestion, and even several times ranked high position in pollution levels globally. An IQAir survey listed Vietnam as the 15th most polluted country in the world.
In fact, cities like Hanoi and Ho Chi Minh City has plan to gradually restrict and ban motorbikes by 2030. City officials also said that if the public transport system is improved, the ban could be implemented sooner. According to Bloomberg, the global electric car market is expected to reach more than 90 million vehicles by 2030; In particular, Hanoi is expected to have 11 million motorbikes by 2025. Vietnam is looking to use technology as it grows big cities into smart cities. Electric cars meet the criteria of the smart city concept as more and more people move to urban centers. Vietnam’s urbanization rate is around 3% per year with the middle class becoming increasingly affluent and aware of their personal choices. While rising fuel prices benefits the electric vehicle market, rising electricity prices is vice versa.
Vietnam’s policies towards electric cars are still lagging behind other countries such as Thailand, Malaysia and Indonesia. However, change is happening slowly but stably in Vietnam. Trams carrying tourists can be found in Hanoi, Ha Long Bay and Da Nang, while young students also ride electric scooters in Ho Chi Minh City. Ho Chi Minh. Vietnam’s first domestic car producer VinFast belongs to ambitious Vingroup Group and has big plans to become a leading car manufacturer in Vietnam. While demand has not yet been ripe, VinFast sold 50,000 e-scooters in 2019. Although Vietnam has no specific incentives for electric cars, private businesses have made efforts to promote the industry. Vietnam does not have clear policies and incentives for the electric vehicle industry, the Government has proposed tax incentives for environmental friendly vehicles powered by electric, hybrid (gas and batteries), biofuel vehicles and compressed natural gas (CNG) vehicles.
Currently, electric vehicle imports are not sustainable due to high import taxes. In addition, imported electric vehicles are subject to an additional special consumption tax ranging from 15% to 70%. The Ministry of Finance has issued a draft Decree halving the registration fee for electric vehicles. If accepted, the reduction will be applied for 5 years from the date the Decree takes effect. According to current regulations, the first registration for passenger cars with 9 seats or fewer is 10-15% of the vehicle’s value. The draft proposes that this fee will be reduced 5 to 7.1% for electric cars with the next registration at 2%. The Ministry of Transport is working with relevant Government agencies on the implementation of environmental friendly transport development strategies, including preferential policies for electric cars, batteries and accessories. However, government policy is to reduce CO2 emissions (-8% by 2030) and alleviate public health concerns, although this is primarily geared towards improving the public transport system in urban than electric cars. In the absence of strong support from government, private companies have stepped up and invested in this sector.
For example, in 2017, DiMora Enterprises signed a Memorandum of Understanding (MoU) on a $500 electric vehicle production project with Thanh Hoa province. Mitsubishi Motors in 2018 signed a Memorandum of Understanding with the Ministry of Industry and Trade on R&D for electric cars. In 2019, VinFast established a joint venture with LG to produce lithium-ion batteries for electric cars and scooters. As a domestic and ambitious manufacturer, VinFast is one of the leading manufacturers in terms of investment in electric vehicles. Vinfast cooperates with Kreisel Electronic to produce batteries for electric cars and buses. Vingroup also established VinBus to operate passenger cars in Hanoi, Ho Chi Minh City, Hai Phong, Da Nang and Can Tho. By 2022, VinFast is expected to produce 20,000 electric cars and about 1,500 buses. VinFast’s first electric car named Klara was first introduced in 2018 and manufactured at its factory in Dinh Vu Economic Zone. Pega, a local electric motorcycle manufacturer startup, opened a factory with an annual production capacity of 40,000 units in Bac Giang province in 2017. The company also won order worth $3 million with a partner to export electric bicycles to Cuba.
Opportunities in the industry
While government incentives have not materialized yet, the presence of private companies emphasizes the market’s attractiveness and shows that electric cars will play an important role in Vietnam’s future. Investment businesses can gain a first-mover advantage and can reap the benefits when the market is finally ripe. In addition, electric vehicles involve a complete chain of suppliers and related services from electricity supply and distribution, charging stations and batteries including charging, recycling and disposal. This will create a complete ecosystem of buyers, suppliers, distributors and customers that contribute to jobs and the economy. In the future, Vietnam is well-positioned to be a low-cost producer of nickel sulphate for the region’s EV lithium-ion battery market, with its nickel, cobalt and other mineral ores sourced from the country.
Vietnam’s participation in free trade agreements is another opportunity for investors. With the recent EU-Vietnam free trade agreement (EVFTA), investors can produce and export to international markets. Most recently, the Irish e-bike startup Modmo, which manufactures e-bikes in Ho Chi Minh City, has received many orders from Europe. During the pandemic, more people in Europe bought e-bikes than used public transport. As a result, 86% of sales are from Germany. The company now plans to sell its e-bikes to the US market.
Challenges for investors
Although there are many opportunities, investors may face four challenges such as: (1) Legal issues: Vietnam still has a long way to go to form an electric car industry. The government has not introduced any specific incentives for the industry, while this may soon change – it is a barrier to market entry. However, given the benefits of the industry, the government may offer incentives such as tax reduction, land rents reduction, support for manufacturers in the industry, as well as R&D; (2) High cost: The electric vehicle industry is quite expensive. Electric vehicles can cost twice as much as the same class of gas-powered cars due to their high cost. Although this price gap is expected to narrow in the near future, it remains a concern for manufacturers; (3) Infrastructure: Vietnam’s electric vehicle-related infrastructure is still limited. The number of public toll stations in the country is very limited and the implementation progress is very slow. While VinFast has announced plans to build between 30,000 and 50,000 charging stations, only about 200 charging stations have been put into operation. The company expects to have about 2,000 charging stations by the end of the year. Charging stations can be expensive with an estimation of about $200,000 per station, which could be a factor in slow rollout; (4) Electricity: As a developing economy, Vietnam’s electricity demand is growing at an average rate of 9% a year according to Fitch Ratings. If public toll stations come into operation, Vietnam may experience an overload of 3 to 32% for some transmission lines.
Direction for investors
Due to the lack of infrastructure, investors may consider hybrid electric vehicles (HEVs) known for their fuel efficiency and low emissions. HEV does not need a charging station; instead, its battery is charged by the vehicle’s gasoline engine due to motion. Frost & Sullivan forecasts that HEVs will account for 30% of Vietnamese car market by 2030. This will be a significant jump from the current 0.3%. While HEVs are attractive, a significant barrier to ownership is the high cost, however, this is what government incentives can help. HEVs can also bridge the gap between gasoline-powered cars and electric vehicles. Vietnam’s motorcycle market will remain an attractive market for manufacturers. The e-bike does not need any additional charging stations and can be plugged in at home. The development of electric bicycles is currently hampered by cost and energy. However, Vietnam is tightening vehicle regulations and setting emission standards for new vehicles. In addition, major cities plan to restrict motorbikes in inner-city areas by 2030. This will likely be a catalyst for e-bikes and investors can take advantage of the opportunity to invest.
Eventually, as electric vehicles become more prominent, the government will likely introduce clear targets for electric vehicle numbers, emissions cuts, environmental regulations, etc. While this shift will happen gradually and possibly even slow, investors can begin to lay the foundation for this paradigm shift and gain a first-mover advantage. Analysts noticed this as investors entered the market slowly but stably. Even if Vietnam is not ready, investors can start setting up production facilities, taking advantage of Vietnam’s free trade agreements and selling to the international market. Domestic production will allow investors to take advantage of Vietnam’s tax incentives and free trade agreements while benefiting from a more efficient and local supply chain.
Source : CongThuong
