HÀ NỘI — Việt Nam’s auto industry must increase the local procurement rate to reduce reliance on imports and build a more resilient supply chain for breakthrough developments, a forum held by the Government’s e-portal heard on Thursday.

At the forum, Nguyễn Văn Hội, director of the Vietnam Institute of Strategy and Policy for Industry and Trade under the Ministry of Industry and Trade, said that auto manufacturing is an important industry with widespread impacts on socio-economic development.

It not only creates jobs, but also promotes the development of supporting services and industries, from rubber to electronics, he noted.

The domestic car market has seen rapid expansion, with sales reaching 580,000 units in 2024. Demand is projected to climb up to one million units per year by 2035, translating into an annual growth rate of 12-15 per cent per year.

“Such a strong market outlook requires the auto industry to scale up,” Hội said.

The auto industry has undergone more than three decades of development in Việt Nam, but the local procurement rate remains a bottleneck, he noted.

Statistics show that the industry spends nearly US$10 billion annually on imported parts, while export products remain weak and fragmented. The reliance on imported components has led to trade imbalances, low domestic added value and the failure to establish a domestic supply chain or build high-tech manufacturing capacity.

Ngô Nhật Thái, an auto expert with more than 30 years of experience in the industry, said that the local procurement rate remains far below expectations. With only about 10 per cent local procurement for small passenger cars, Việt Nam lags behind Thailand, Malaysia and Indonesia. Specialised vehicles, trucks and buses see rates of around 40 per cent, but these vehicles account for just a modest portion of sales.

Thái pointed out that limited domestic output is one of several reasons for the low local procurement rate.

Annual sales stand at around 500,000 vehicles, of which 175,000 were completely built-up units, compared with Thailand’s one million in domestic sales and one million exports.

With such small volumes spread across dozens of brands and models, it is difficult to attract investments in parts production, Thái said.

Foreign carmakers have also established their own supply networks globally, making it hard for Vietnamese firms to enter supply chains without targeted policies, he added.

Tax incentives not enough

Thái called for a review of tax incentives to shift the focus towards production of critical components and future technologies like drivetrains, electronics and control systems instead of the traditional gasoline, diesel engines and car bodies.

A proper tariff system will encourage carmakers to increase local procurement rates, he said.

“Lowering costs through higher localisation is the only way for automakers in Việt Nam to compete on exports, as domestic car prices remain significantly higher than global averages,” he said.

Citing Thailand as an example, where a single specialised parts market can serve numerous carmakers, Thái urged policies to attract foreign investments in building local production chains.

With projected demand reaching one million units within a decade, there is a solid basis to support stronger localisation, Thái said, adding that Việt Nam must look ahead to new technologies to avoid trailing behind.

“Việt Nam’s policy on localisation lacks effective tools beyond tax incentives, which are losing impact as tariffs fall under trade liberalisation,” National Assembly Deputy Hoàn Văn Cường said.

The local procurement rate should be made compulsory for carmakers with binding timelines and targets, he noted. Specific requirements for localisation will force manufacturers to work together and shift supply chains to Việt Nam.

Cường said that it is also critical to regulate technology transfer, adding that Việt Nam has yet to make it a serious condition in attracting foreign investment.

He noted that China has imposed strict requirements for technology transfer, enabling fast localisation and giving domestic firms an essential role in production chains.

In a small and fragmented market like Việt Nam, it is also important to create policies requiring carmakers to cooperate, use common components and shift production to Việt Nam to form an ecosystem for the automobile industry, he added.

“The difficulty is now to monitor the process effectively. Still, the participation of Vietnamese enterprises in the supply chain is critical,” Cường said.

According to Hội, over the past three decades, the local procurement rate and technology targets have largely not been met despite a number of land, tax and credit incentives for foreign carmakers entering Việt Nam. The Government set a 40 per cent local procurement rate by 2020, yet passenger car rates stand at just 10 per cent.

Foreign investors all pledged localisation and technology transfer, but in reality, those commitments carried no legal weight, Hội said.

He called for a focus on technology and innovation to make breakthroughs and enable domestic firms to play a role in global supply chains, stressing the importance of building an automotive industry support centre.

Việt Nam should also establish its own standards, Hội said, including for batteries, charging stations and even bolts and screws, while awaiting a draft law on strategic industrial development expected to provide a firm ground for the industry's development.

According to Nguyễn Văn Phụng, former director of the Taxation Department for Large Enterprises under the Ministry of Finance, the participation of both automakers and parts suppliers is critical to attract investment and increase the local procurement rate in Việt Nam.

Policies must take into account the need to increase local procurement as well as creating a supply industry for parts in Việt Nam to meet global demand, Phụng stressed. — VNS