Vietnamese real estate conglomerate to make dream of domestically-made cars a reality

12:00 | 05/09/2017

Vingroup is expected to start introducing 'Made in Vietnam' cars to the market within the next two years.

Vehicles are seen along a street in Hanoi. Vingroup on Saturday launched construction of a car factory

in a project worth $1-1.5 billion in the first phase. Photo by Reuters/Kham

Vietnamese real estate conglomerate Vingroup JSC on Saturday broke ground on its subsidiary VINFAST's new car manufacturing complex in the northern port city of Hai Phong.

The 335-hectare (828-acre) complex would start manufacturing electric scooters in 12 months, sedans and SUVs in 24 months and electric cars in 3 years. By 2025, VINFAST is expected to be producing 500,000 cars a year, making it a leading automobile manufacturer in Southeast Asia.

“Through the automotive industry, Vingroup hopes to help boost the growth of Vietnam's heavy industry and manufacturing, contributing to the country's industrialization and modernization," Nguyen Viet Quang, Vingroup's vice chairman, said at the groundbreaking ceremony. “The birth of VINFAST shows the aspiration to build a world-class Vietnamese brand.”

VINFAST has signed a memorandum of understanding with a Swiss investment bank regarding a potential loan for as much as $800 million, though it plans to fund most of the project itself, according to Bloomberg.

The company will also be working with German partners in product development and management of the new manufacturing complex. Its cars will be designed by Italian design houses, while main components such as engines will be bought in from the U.S. and European companies.

However, VINFAST will still cooperate with Vietnamese companies to manufacture most car accessories. The company's products will have a localization rate of 60 percent, making them qualify for tax incentives when exported to other countries in the region.

The new complex, which would also include a research and development (R&D) center, is expected to create 25,000 new jobs and boost the economy in Hai Phong's island district of Cat Hai.

VINFAST's R&D center is expected to attract European experts, and will be cooperating with many large R&D centers in Europe. The company will be using technology transfer contracts to help improve its expertise in product development.

Its cars will use eco-friendly technologies to meet Euro 5.0 and Euro 6.0 emission standards. VINFAST will also be using green energy in its factories and plans to invest in a facility to treat used batteries.

Prime Minister Nguyen Xuan Phuc and Hai Phong officials at the groundbreaking ceremony. Photo by VnExpress/Duc Huy.

Speaking at the groundbreaking ceremony, Prime Minister Nguyen Xuan Phuc stressed the importance of having a domestic brand in the increasingly important automotive industry.

In Malaysia, domestic automakers Perodua and Proton dominate the country's market.

In China, while still struggling, domestic brands now account for about 43.5 percent of total sales, according to the China Association of Automobile Manufacturers, and have been reaching out to the international market.

Vietnam will emerge as the second fastest-growing production hub for cars in Southeast Asia after the Philippines between 2017 and 2021, according to BMI Research, a part of Fitch Group.

The Ministry of Finance has also proposed new tax policies favoring automobiles assembled in Vietnam. The proposals include a special consumption tax exemption on the domestically generated value of assembled cars and an import tax waiver for main car components.

Hovewer, Vingroup's car project is going to be a “very difficult” challenge, Bloombergquoted Michel Tosto, head of institutional sales and brokerage at Viet Capital Securities JSC, as saying.

“It doesn’t have the expertise nor the capital for that,” Tosto said. “It’s a highly competitive space dominated by foreign brands.”

The cost of vehicle production in Vietnam is around 20 percent higher than in other regional countries due to the country’s heavy reliance on imported parts.

From 2018, import tariffs on automobiles imported from Southeast Asian countries will be cut from the current 30 percent to zero, which is likely to hurt the local auto manufacturing industry, according to BMI.

e.vnexpress