The Government’s bold moves, such as the recent auto registration fee cut and the deadline extension for special consumption tax, are expected to provide a much-needed boost for the automotive industry’s recovery in the second half of the year.

Demand wanes Cars are considered non-essential consumer goods, so their sales are greatly influenced by the overall macroeconomic conditions and consumer demand. When the economy hits stumbling blocks and people’s incomes decline, the demand for cars would be certainly affected. According to the Vietnam Automobile Manufacturers’ Association (VAMA), car sales in the domestic market during the early months of this year reached 113,527 units, down 36% year-on-year. Sales of private vehicles and completely knocked-down (CKD) cars plummeted by 43% and 40%, respectively. Several factors contribute to this decline, including the expiration of the registration fee cut and high interest rates for car loans. TC Group, the assembler and distributor of Hyundai cars in Vietnam, has also reported slipping sales performance with a drop of 28.6%, equivalent to only 22,903 units sold. Similarly, VinFast, an emerging player in the Vietnamese automotive market, reported a 30.4% decrease in sales, selling 8,483 units during the early months of the year. Projections for the automotive industry According to VNDirect Securities Company, the challenges facing the automotive industry persisted until the end of the second quarter of this year, primarily due to high inventory levels. In the first few months of the year, Vietnam imported 61,974 completely built-up (CBU) cars, a 21% increase against the same period last year. To address the challenge of high inventory, car manufacturers and distributors have taken strong measures, such as implementing substantial price reductions, including 100% waivers on registration fees, and introducing other appealing promotions. Nevertheless, the persistently weak demand might continue to impede car sales. Despite the current challenges, there is optimism that car sales will hit their lowest point and recover in the third quarter of 2023. The prevailing low interest rates in the market, resulting from consecutive interest rate cuts by the State Bank of Vietnam, are expected to stimulate demand for luxury goods, including cars. Currently, the 12-month term deposit rate offered by commercial banks is below 8% per annum, indicating a favorable environment to boost consumption of non-essential goods like automobiles. Government policies to drive recovery In addition to market factors, favorable government policies are expected to play a crucial role in the automotive industry’s recovery in the second half of 2023. Recently, the Government issued Decree 36, extending the deadline for payment of special consumption tax on domestically produced and assembled cars. The decree, effective from June 21, 2023 until the year’s end, extends the deadline for paying the excise tax for June, July, August, and September until November 20, 2023. After the specified extension period, the excise tax will be paid according to the current regulations. This marks the fourth time since 2020 that the deadline for payment of special consumption tax on domestically produced and assembled cars has been extended to support businesses in recovering from the impacts of the Covid-19 pandemic. Moreover, the Government has also approved a plan to reduce the registration fee by 50% for domestically produced cars, effective from July 1 until the end of 2023. Previously, the implementation of reduced registration fees in the second half of 2021 and the first six months of 2022 contributed to a strong recovery in the overall car sales market. Car sales for the second half of 2021 reached 189,451 units, a 33% rise versus the same period the previous year, while the figures for the first six months of 2022 reached 252,932 units, up 36%. Hence, there are compelling grounds to anticipate that this recent decrease in registration fees will further bolster the automotive industry’s revival in the second half of the year. Embracing the electric vehicle trend When it comes to the prospects and development trends of the automotive industry, there is a widespread consensus among experts that electric vehicles (EVs) will gradually become the norm. A recent study by Counterpoint shows that global EV sales increased by 32% in the first quarter of 2023 compared to the corresponding period of the previous year. The study further indicates that one in every seven cars sold is an electric vehicle. Battery Electric Vehicles (BEVs) accounted for 73% of total EV sales, while Plug-in Hybrid Electric Vehicles (PHEVs) made up the remaining share. The International Energy Agency (IEA) forecasts that global EV sales will reach 14 million units in 2023, a 35% increase from 2022, capturing around 18% of the global market. This trend presents a significant opportunity for companies focusing on electric vehicle production. Another notable company, according to VNDirect, is Hang Xanh Motors Service JSC (HOSE: HAX). It is expected to benefit from government incentives as most of its car models are assembled domestically. HAX is currently the leading distributor of Mercedes-Benz in Vietnam, commanding nearly 40% market share. Its net profit is likely to rebound from the third quarter of 2023, thanks to significant advantages gained from government incentives, as the majority of its car models are assembled in Vietnam. Additionally, the GLC300 model for 2023 is expected to maintain its dominance in the luxury SUV market during the second half of 2023 and 2024, offering superior design and competitive pricing. Meanwhile, Vietnam Engine and Agricultural Machinery Corporation (UpCOM: VEA), which holds stakes in three major companies including Honda Vietnam (30%), Toyota Vietnam (20%), and Ford Vietnam (20%), is also anticipated to reap advantages. Toyota is expected to sustain its market share during the latter half of 2023 and throughout 2024 by capitalizing on the appealing features and competitive pricing of models such as the Corolla Cross (a completely built-up compact SUV) and the Veloz (a completely built-up multi-purpose vehicle). Additionally, it may take advantage of the auto registration fee cut to further strengthen its position in the market. Another noteworthy stock is Tasco JSC (HNX: HUT). During its 2023 shareholders’ meeting, the firm approved the business plan for 2023, targeting revenues and post-tax profits of VND22.5 trillion and VND600 billion, respectively, up a staggering 400% compared to the year-ago period. It attributed the surge to the merger with SVC Holding – the parent company of Saigon General Service Corporation (HOSE: SVC), which is a distributor for various car brands including Toyota, Ford, Hyundai, Honda, and Volvo, with 62 showrooms across Vietnam.