Why Investors Should Consider Vietnam’s Electric Vehicle Market

• Vietnam’s electric vehicle market remains in its infancy, but there are plenty of opportunities as we are likely to see a paradigm shift from gasoline to electric-powered vehicles.
• With a rising population and an expanding middle class, consumers are increasingly aware of the environment, fuel efficiency, and increasing pollution levels in cities.
• Vietnam Briefing outlines the opportunities in Vietnam’s electric vehicle market despite the slow progress till date.

The electric vehicle market in Vietnam has not garnered as much attention compared to other countries in the region and globally, but this doesn’t mean that opportunities are not there. Electric vehicles are an irreversible trend and will be the future as governments move towards clean energy and consider the environment. This means that investors that are interested can set up the groundwork including production facilities, supply chains, and manpower to prepare for this future shift.

With a population of more than 96 million, about half of Vietnam’s population owns motorcycles, while car ownership is at a ratio of 23 per 1,000 people. Major cities such as Hanoi and Ho Chi Minh City are gridlocked with motorbikes on streets, alleys, and even sidewalks. This in turn has resulted in increased pollution and congestion. Hanoi and Ho Chi Minh City have ranked high in pollution levels globally several times. A poll by IQAir listed Vietnam as the 15th most polluted country in the world.

In fact, major cities like Hanoi and Ho Chi Minh City have a plan to restrict and gradually ban motorbikes by 2030. City officials also stated that if the public transport system improves then the ban can be implemented even earlier.

As per Bloomberg, the global electric automobile market is expected to reach more than 90 million vehicles by 2030; Hanoi alone is expected to have 11 million motorbikes by 2025.

Vietnam’s government is looking to use technology as its develops its major cities into smart cities. Electric automobiles meet the criteria of smart city concepts as more and more people move to urban centers. Vietnam’s urbanization rate is about 3 percent per year with the middle class increasingly wealthy and aware of their personal choices. While rising fuel prices work in favor of the electric vehicle market, rising electricity prices do not.

Vietnam’s policies for the electric automobile still lag behind its peers such as Thailand, Malaysia and Indonesia. Nevertheless, change is slowly but surely happening in Vietnam. Electric vehicles transporting tourists can be seen in Hanoi, Ha Long Bay, and Da Nang, while younger students are also seen driving electric motorbikes in Ho Chi Minh City. Da also opened its first public charging station in 2017.

Vietnam’s first-ever domestic car manufacturer VinFast part of VinGroup is ambitious and has big plans for being a leading automobile manufacturer in Vietnam. While demand is still not ripe, VinFast sold 50,000 e-motorbikes in 2019.

While Vietnam has no specific incentives for electric automobiles, private businesses have attempted to promote the industry.

No specific government incentives but private players active

Vietnam has no explicit policy and incentives for the electric vehicle industry, the government has proposed preferential tax programs for environmentally friendly vehicles that run on electricity, are hybrid (run on gas and battery), bio-fuel powered vehicles, and vehicles that run on compressed natural gas (CNG). Currently, the import of electric vehicles is not sustainable due to high import taxes. Apart from this, electric vehicles that are imported are subject to additional special consumption taxes which range from 15 percent to 70 percent.

We understand that the Ministry of Transport is working with the relevant government authorities on implementing strategies for developing environmentally friendly transport including preferential policies for electric automobiles, batteries, and parts.

Nevertheless, Vietnam’s government policy is to reduce CO2 emission (-8 percent by 2030) and ease public health concerns, though this is mostly geared towards improving the urban public transportation system rather than electric vehicles.

In the absence of strong government support, private players have stepped up and have already made investments in this field. For example, in 2017, DiMora Enterprises signed a Memorandum of Understanding (MoU) on a US$500 EV-manufacturing project with Thanh Hoa province. Mitsubishi Motors in 2018 signed a MoU with the Ministry of Industry and Trade (MoIT) on R&D for electric automobiles. In 2019, VinFast set up a joint venture with LG to produce lithium-ion batteries for electric cars and scooters.

Being a domestic manufacturer and ambitious, VinFast is one of the leading manufacturers with investment in electric vehicles. Vinfast entered into a partnership with Kreisel Electronic to make batteries for electric cars and buses. Vingroup has also established VinBus to operate passenger buses in Hanoi, Ho Chi Minh City, Haiphong, Da Nang, and Can Tho. By 2022, VinFast expects to build 20,000 electric cars and around 1,500 buses.

VinFast’s first electric scooter named the Klara was first introduced in 2018 and is made from its factory in the Dinh Vu Economic Zone. Pega, a local start-up producing electric scooters opened a factory with an annual production capacity of 40,000 units in Bac Giang province in 2017. The company also won an order worth US$3 million with a partner to export its e-bikes to Cuba.

Industry opportunities

While government incentives are not forthcoming, the presence of private players underlines the attractiveness of the market and shows that electric automobiles will play a part in Vietnam’s future. Businesses that do invest may gain a first-mover advantage and may reap dividends when the market is finally ripe.

In addition, electric vehicles involve a complete chain of suppliers and associated services from power supply and distribution, charging stations, and batteries including charging, recycling, and disposal. This will create a complete ecosystem of buyers, suppliers, distributors, and customers contributing to jobs and the economy.

Looking ahead, Vietnam is well-positioned to become a low-cost nickel sulfate producer for the region’s EV lithium-ion battery market given the country’s nickel, cobalt, and other mineral ores.

Vietnam’s participation in free trade agreements is another opportunity for investors. With the recent EU-Vietnam free trade agreement (EVFTA), investors can manufacture and export to international markets. Most recently, Irish e-bike startup Modmo, which produces electric bikes in Ho Chi Minh City, received increased orders from Europe. As the pandemic took hold, more people in Europe bought e-bikes rather than use public transportation. As a result, 86 percent of sales were from Germany. The company now has plans to sell its e-bikes to the US market.

Investor challenges

Regulatory issues

Vietnam has a long way to go for establishing the electric automobile industry. As mentioned earlier, the government has not rolled out any specific incentives for the industry, while this may change soon – it’s a barrier for entry. However, given the benefits of the industry, the government can be expected to roll out incentives in form of tax breaks, land rents, support for manufacturers in the industry, as well as R&D.

High costs

The industry is expensive. Electric vehicles can cost twice as high compared to gasoline-powered vehicles of a similar model due to the expensive cost. While this price gap is expected to narrow in the near future, it still remains a concern for manufacturers.

Infrastructure

Vietnam has limited infrastructure regarding electric vehicles. There are very limited public charging stations in the country and progress has been slow. While VinFast has announced plans to build between 30,000 to 50,000 charging stations, only around 200 charging stations have come into operation. The company plans to have around 2,000 charging stations by the end of this year. Charging stations can be costly with estimates of up to US$200,000 for one, which is likely a factor in the slow roll-out.

Electricity

Being a growing economy, Vietnam’s electricity demand is increasing at an average rate of 9 percent a year as per Fitch Ratings. The MoIT in a Reuters interview acknowledged that the country may face power shortages from 2021. Typically, while major cities like Hanoi and Ho Chi Minh City are immune, smaller towns in provinces do face power cuts from time to time. If public charging stations do come into operation, Vietnam can expect to experience between 3 to 32 percent overload in select transmission lines.

Recommendations and takeaways

Given the lack of infrastructure, investors can look into hybrid electric vehicles (HEV) which are known for fuel efficiency and low emissions. HEVs do not need charging stations; rather its batteries are charged by the vehicle’s gasoline engine due to movement. Frost & Sullivan forecasts that HEVs will account for 30 percent of Vietnam’s vehicle market by 2030. This would be a significant jump from 0.3 percent at present. While HEVs are attractive, a significant barrier for ownership is the high cost of owning one, however, this is where government incentives can help. HEVs can also bridge the gap between gasoline-fueled cars and electric vehicles.

Vietnam’s motorcycle market will remain an attractive market for manufacturers. E-bikes do not need any extra charging stations and can be plugged in at peoples’ homes. The growth of e-bikes currently are hampered by costs and power. However, Vietnam is tightening vehicle regulations and setting emission standards for new vehicles. In addition, as mentioned earlier, major cities plan to limit motorbikes in inner-city areas by 2030. This will likely be a catalyst for e-bikes and investors can use the opportunity to plan their investment.

Lastly, as electric vehicles become more prominent, the government is likely to come up with clear goals on the number of electric vehicles, emission reductions, environmental regulations, and so on. While this change will be gradual and maybe even slow, investors can begin to lay the groundwork for this paradigm shift and gain first-mover advantage. We are already seeing this as investors slowly but surely enter this market.

Even if Vietnam is not ready, investors can begin to set up production facilities, take advantage of Vietnam’s free trade agreements and sell to the international market. Manufacturing locally will enable the investor to make use of Vietnam’s tax incentives and free trade agreements while benefiting from a local and more efficient supply chain.