Will car prices fall under the EVFTA?

VCN - The Vietnam - EU Free Trade Agreement (EVFTA) has been signed. As usual, cars are a group of products that are of great interest when the roadmap to reduce import tax will be implemented after 7-10 years. When taxes decrease, will auto prices fall?
will car prices fall under the evfta

Will prices fall?

Theoretically, after the import tax from the EU falls to 0%, a car costing 1.5 billion VND in Germany will only have to pay 900 million VND special consumption tax (SCT), registration fee 10%, price cars to consumers at about 2.6 billion VND, half the current price.

On the other hand, this is also a matter of 7 to 10 years. During this period, the government's policy regarding goods will see very rapid changes.

More importantly, the car tax is not necessarily reduced. This is evident in the implementation of the ASEAN Trade in Goods Agreement (ATIGA). In January 2018, implementing ATIGA, the import tax on cars (reaching the localization rate of 40%) from ASEAN member countries to Vietnam is 0%. However, in 2018, domestic car prices did not fall as expected. Brands with major imported vehicles from ASEAN such as Toyota, Honda or Ford have reasons to explain why there is no price reduction such as cost adjustment, previous losses or additional equipment.

Therefore, it is expected that the imported models from EU will decrease when the tax reduction is considered to be far away.

Problem from production

With the EVFTA, businesses will have 7-10 years to prepare to "confront" imported cars from the EU.

Currently, cars imported from the EU are mostly from Germany. According to data from the Vietnam Register Department, in 2018 there were 1,197 cars imported from Germany registered for circulation in Vietnam.

In Vietnam, two strong brands, accounting for the majority of the German luxury car market share are BMW (managed and distributed by Truong Hai-THACO Motor Company) and Mercedes (by Mercedes Benz Vietnam - MBV produces, imports and distributes).

Mercedes is currently being implemented by MBV in parallel and imported. German automaker Mercedes-Benz joined the Vietnamese auto market very early on, starting in 1995. Although Mercedes-Benz is the most popular EU automobile brand in Vietnam (in 2017, MBV's sales reached 7,108 units. In 2018, reached 6,269 units and in the first quarter of 2019, reached 1,423 units), but this number was not enough for MVB to boost production and assembly, so its investment in production in Vietnam was limited.

For BMW, this brand has just been taken over by THACO, which is still in complete import, not yet manufactured and assembled in Vietnam. Although THACO did not hide its intention and wished to bring some BMW models assembled in Vietnam, this intention has not yet been implemented.

In addition, THACO also owns another car brand from France – Peugeot – and this brand is being promoted in domestic production. THACO has just inaugurated a Peugeot production plant in Chu Lai, with investment of 4,500 billion VND and a capacity of 200,000 vehicles/year. Currently, a number of locally produced Peugeot models are helping THACO grow quickly (in 2017 Peugeot sales reached 431 units, in 2018 thanks to two domestic assembly lines of 5008 and 3008 total Peugeot sales reached 4,463 units). This increase is said to be a record for a luxury brand in the Vietnamese market, but for production it is not "worth it".

In addition, there are many automobile brands from the European Union such as Audi, Jaguar, Porsche, Volkswagen, Ferrari, Fiat and Bugatti. However, these cars are all imported. Exports are expensive, so there are no impressive sales in Vietnam.

The investment for each business must balance the calculation of the cost and quantity of products. At present, the production of locally assembled cars has reached an average localization rate of about 7-10%. Compared to other countries in the region, the localization rate of Vietnam is far lower (on average, 65-70% is achieved, Thailand is 80%).

In order for the industry to support development with products of good quality and high technology in the current situation, it is very difficult. Few Vietnamese suppliers meet the criteria for participating in the supply chain because of a lack of licensing or technology transfer or licensing agreements from genuine suppliers.

On the other hand, product output is an important factor determining the price and competitiveness of products. Data from VAMA show that there are currently only 11 models of locally produced cars reaching a volume of more than 6,000 vehicles/year.

In particular, the highest is Toyota Vietnam’s Vios model with 27,000 units/year, followed by Grand i10 of Hyundai Thanh Cong with 22,000 units/year. The others are between 6,000 to 15,000 vehicles/year. According to calculations, to develop the automobile industry, a model must reach 50,000 units a year, double the sales of current best-selling cars, to be effective.

Among the current investment projects, Vinfast is the project that will have the highest localization rate, because of the investment in the car body stamping workshop and engine manufacturing workshop; THACO and Thanh Cong are also reaching 40%. However, as stated, to develop, a model must have a turnover of 50,000 cars/year or more, with the same engine production, it must be achieved scale of 50,000-100,000 units/year to be effective.

With FTAs ​​that have been and will be signed, around 2030 the Vietnamese automobile market will be fully open to major automobile production centers in the world including ASEAN, Japan, Mexico and the EU.

It is forecasted that the Vietnamese automobile market will reach 1 million vehicles per year by 2030. People's incomes are increasing and the period of motorization will take place after 2020. Vehicle consumption will increase gradually from the current 300,000 units/year to 1 million units/year in 2030.

So not discussing the price reduction, consider the domestic investment problem to be able to compete with imported products. When it is enough to rise to dominate the domestic market, product prices will then decrease.

By Nguyen Ha/ Huu Tuc

Related News

Lang Son Finance, Tax and Customs agencies needs to proactively capture information to develop the border gate economy

Lang Son Finance, Tax and Customs agencies needs to proactively capture information to develop the border gate economy

VCN - That was the direction of Deputy Minister of Finance Nguyen Duc Chi at a working session with leaders of the Provincial People's Committee and the Lang Son Departments of Finance, Tax, and Customs on March 19.
Why not reduce export tax on fertilizer products to 0%?

Why not reduce export tax on fertilizer products to 0%?

VCN - Clarifying a number of contents related to the draft Decree amending and supplementing a number of articles of Decree No. 26/2023/ND-CP on Preferential Export Tariffs, Import Tariffs, List of Goods and Rates Absolute tax, mixed tax, import tax outside the tariff quota regarding the export tax rate for some types of fertilizers, the Ministry of Finance has clarified the reason why it does not adjust the export tax rate for this product.
Tax Industry actively supports during the peak month of tax settlement

Tax Industry actively supports during the peak month of tax settlement

VCN – With the goal of facilitating taxpayers in complying with tax law polices, especially tax finalization procedures, the Tax industry actively supports enterprises and people in this work. Local tax departments have held online and offline meetings to promptly remove difficulties and obstacles in the tax finalization process.
C.D.M.A Mobile Phone Center enforced to suspend customs procedures for overdue tax debts

C.D.M.A Mobile Phone Center enforced to suspend customs procedures for overdue tax debts

VCN – C.D.M.A Mobile Phone Center has been enforced by the Customs to suspend its imports and exports for overdue tax debts worth about VND16 billion.

Latest News

ASEAN, RoK agree on transposition of AKFTA product specific rules

ASEAN, RoK agree on transposition of AKFTA product specific rules

ASEAN member states and the Republic of Korea (RoK) have reached a consensus on the transposition of ASEAN-RoK Free Trade Agreement (AKFTA) Product Specific Rules from the Harmonised System Codes HS 2017 to HS 2022.
Opportunities for digital technology businesses to go global

Opportunities for digital technology businesses to go global

Finding solutions and directions to promote and develop Vietnamese digital technology enterprises is an important task, which will promote the stability and sustainability of the country's economy, heard a recent conference.
Vietnam, China eye stronger border trade

Vietnam, China eye stronger border trade

Border provinces of Vietnam and China should continue close coordination and enhance trade promotion between the two sides, stressed the recent talks between the management boards of the economic zone of the northern province of Ha Giang and the Malypo border economic cooperation zone of China’s Yunnan province.
Improve competitiveness and sustainable development of the seafood industry

Improve competitiveness and sustainable development of the seafood industry

VCN - In early 2024, seafood exports have prospered. This is the driving force that helps seafood businesses hope for a stronger recovery this year. Ms. Nguyen Thi Thu Sac, Chairwoman of the Vietnam Association of Seafood Exporters and Producers (VASEP) shared with Customs Magazine.

More News

Business environment reform needs further promotion: expert

Business environment reform needs further promotion: expert

Resolution 02 issued by the Government creates pressure for the ministries, sectors and localities to make changes for the business community as well as the socio-economic development.
Singapore is the largest foreign investor in VN in Q1

Singapore is the largest foreign investor in VN in Q1

The disbursed FDI rose by 7.1 per cent in the first quarter to reach $4.63 billion, a signal that the disbursement will continue the positive trend, the agency said.
Thai Binh boosts investment, trade cooperation with Germany

Thai Binh boosts investment, trade cooperation with Germany

A delegation from the northern province of Thai Binh, led by Deputy Secretary of the provincial Party Committee Nguyen Khac Than, visited several localities and business organisations in Germany from March 25 to 27, in a bid to enhance trade cooperation with and attract direct investment from the European nation.
Lifting obstacles to develop industrial parks

Lifting obstacles to develop industrial parks

VCN - Attracting investment and developing industrial zones (IZs) and economic zones (EZs) is one of the important contents to implement the policy of developing a multi-component, open, attract investment and resources from all economic sectors to develop the country. In addition to the results achieved, there still limitations that need to be removed to draw investments to develop industrial parks and economic zones, including financial problems for industrial parks.
Unlock capital flows and create favorable conditions for investors

Unlock capital flows and create favorable conditions for investors

VCN - Talking with the press, Dr. Ngo Cong Thanh (Photo), Provisional Executive Committee member of the Vietnam Industrial Park Finance Association (VIPFA), said that it is necessary to open up capital flows and create conditions for investors to access key factors. Facilitate production and business factors and innovate investment promotion activities to more effectively develop industrial parks.
More than 300 businesses, manufacturers to attend VGMF 2024

More than 300 businesses, manufacturers to attend VGMF 2024

More than 300 domestic and foreign businesses and manufacturers will attend the Vietnam Global Manufacturing Forum 2024 (VGMF2024) to explore investment and business cooperation opportunities.
Connecting with FDI firms helps boost wood exports: insiders

Connecting with FDI firms helps boost wood exports: insiders

Strengthening linkages and cooperation between foreign-invested and domestic enterprises will contribute to promoting the sustainable development of the Vietnamese wood industry, according to insiders.
Doosan Vina exports nearly 2,000 tonnes of modules to US

Doosan Vina exports nearly 2,000 tonnes of modules to US

The Doosan Enerbility Vietnam (Doosan Vina) specialising in heavy industries announced on March 26 that it has just exported a batch of nine modules weighing nearly 2,000 tonnes to the Golden Triangle Polymers company in Texas, the US.
Wood processing enterprises strive to increase the proportion of individually designed goods

Wood processing enterprises strive to increase the proportion of individually designed goods

VCN - Many wood and furniture processing enterprises are promoting investment in design activities, helping to increase the proportion of individually designed products (ODM) in exports, thereby affirming the industry's capacity Vietnamese wood in segments with higher added value.
Read More

Your care

Latest Most read
ASEAN, RoK agree on transposition of AKFTA product specific rules

ASEAN, RoK agree on transposition of AKFTA product specific rules

ASEAN member states and the Republic of Korea (RoK) have reached a consensus on the transposition of ASEAN-RoK Free Trade Agreement (AKFTA) Product Specific Rules from the Harmonised System Codes HS 2017 to HS 2022.
Opportunities for digital technology businesses to go global

Opportunities for digital technology businesses to go global

Finding solutions and directions to promote and develop Vietnamese digital technology enterprises is an important task, which will promote the stability and sustainability of the country's economy, heard a recent conference.
Vietnam, China eye stronger border trade

Vietnam, China eye stronger border trade

Border provinces of Vietnam and China should continue close coordination and enhance trade promotion between the two sides, stressed the recent talks between the management boards of the economic zone of the northern province of Ha Giang and the Malypo border economic cooperation zone of China’s Yunnan province.
Improve competitiveness and sustainable development of the seafood industry

Improve competitiveness and sustainable development of the seafood industry

In early 2024, seafood exports have prospered. This is the driving force that helps seafood businesses hope for a stronger recovery this year.
Business environment reform needs further promotion: expert

Business environment reform needs further promotion: expert

Resolution 02 issued by the Government creates pressure for the ministries, sectors and localities to make changes for the business community as well as the socio-economic development.
Mobile Version