Vietnam’s auto industry paradox: Fast growth, but localization remains 'near zero'

Vietnam’s automobile market expanded rapidly in 2025, yet localization rates - particularly for passenger cars - remain stubbornly low, highlighting a structural gap in the industry’s development.

Strong growth momentum

According to PwC Vietnam’s Autofacts® Market Update – March 2026, vehicle sales in Vietnam rose 20.3% in 2025, making it the second fastest-growing market among the ASEAN-6. However, the localization rate, especially for five-seater passenger cars, remains "stable" at 10-20%.

The ASEAN-6 refers to the six most economically advanced, original, or largest economies within the Association of Southeast Asian Nations: Indonesia, Malaysia, Philippines, Singapore, Thailand, and Vietnam.

The expansion came amid uneven regional performance, where macroeconomic volatility and shifting trade dynamics continued to weigh on growth.

PwC attributed the Vietnam increase to robust economic fundamentals, including GDP growth of 8.02% and rising income levels, with GDP per capita reaching about $5,026 - enabling more households to afford entry-level cars.

Vietnam recorded record figures in both imports and domestic production in 2025.

Customs data showed imports of completely built units (CBUs) reached 205,630 vehicles in 2025, up 18.6% year-on-year, with passenger cars of below nine seats accounting for over 74%. Import value rose 31.1% to $4.74 billion.

Meanwhile, domestic output climbed to around 484,500 units, up more than 39% year-on-year, according to the National Statistics Office.

Total market sales reached 604,134 vehicles, based on combined data from the Vietnam Automobile Manufacturers' Association (VAMA), VinFast, and TC Group (Hyundai). VinFast alone delivered a record 175,099 electric vehicles, while VAMA members sold 375,736 units.

The results position Vietnam to potentially enter Southeast Asia’s top three auto markets, alongside Malaysia and Indonesia, and narrow the gap with Thailand, where sales have shown signs of stagnation at around 600,000 units.

VAMA further analyzed that while VinFast made a leap forward, doubling its sales in 2024 (reaching over 175,000 vehicles), traditional car manufacturers showed a clear divergence: sales in the VAMA group increased slightly by 10%, while Hyundai recorded a decrease of approximately 21%.

Despite rapid growth, car ownership remained low at an estimated 55-68 vehicles per 1,000 people in Vietnam - equivalent to less than 10% of the population - indicating significant room for expansion.

Although sales are approaching Thailand's (expected to surpass it by 2026), with a market of 100 million people, Vietnam's ownership rate remains much lower than countries like Thailand (where over 50% of the population owns a car).

Localisation remains weak

However, beneath the growth story lies a persistent weakness.

A report by the Ministry of Industry and Trade shows that, excluding VinFast, localization rates for passenger cars in Vietnam remain at just 10-20%, far below targets and heavily dependent on imported components.

While some commercial and specialized vehicles have achieved localization rates above 40%, the supporting industry remains underdeveloped, with high production costs undermining competitiveness.

At a recent policy forum, Nguyen Van Hoi, head of the Institute for Industry and Trade Strategy and Policy Research, said that despite more than 30 years of attracting foreign direct investment (FDI), Vietnam has failed to meet its localization goals.

“Many investors committed to localization and technology transfer, but results so far have been limited,” he said, noting that the 40% localization target set for 2020 remains unmet.

Industry veteran Ngo Nhat Thai added that while buses and trucks have reached around 40% localization, passenger cars - particularly small vehicles - remain at just about 10%, far below regional peers such as Thailand, Malaysia and Indonesia.

According to Prof. Dr. Hoang Van Cuong, member of the 15th National Assembly and Vice Chairman of the State Council of Professors, a 10% localization rate is “effectively negligible” and does not qualify as meaningful domestic production.

“With such a low ratio, it is difficult to consider these vehicles as ‘made in Vietnam’ by global standards, which typically require at least 40% localization,” he said.

Structural bottlenecks

Experts point to several structural issues behind the weak localization performance.

Although Vietnam has introduced incentives such as tax breaks, credit support and industrial policies - including the government Decree 111/2015 and its amendments - to promote supporting industries, these measures have yet to deliver the desired results.

Bui Van Thanh, vice president of the Vietnam Industrial Park Finance Association (VIPFA) and managing lawyer of New Sun law firm, said Vietnam’s FDI strategy has prioritized speed over depth, with limited requirements for technology transfer or integration with domestic firms.

“Many projects operate like ‘production islands’ - importing components, assembling products and exporting them- without deep linkages to the local economy,” he said.

Domestic private enterprises, largely small and family-run, often lack the scale and capability to meet the demands of global supply chains, further limiting localization progress.

Thanh suggested building a dedicated database or platform to connect foreign investors with Vietnamese supporting industries, arguing that better information flow could help foster partnerships and improve integration.

Outlook

While Vietnam’s auto market continues to expand rapidly, bridging the gap between growth and localization will be critical for building a sustainable and competitive domestic industry.

Without stronger policy enforcement, deeper supply chain integration and more capable local suppliers, the sector risks remaining reliant on imports despite its rising scale.