Automobile sector – Policies to re-ignite demand for cars

• Automobile sales volume in the whole domestic market in 5M23 decreased by 36% yoy, reaching 113,527 units.
• We expect that preferential policies from the Government are the key drivers for the recovery of the automobile industry in 2H23F.
• Our stock picks are HAX and VEA, while HUT is in our the watchlist.

Headwinds surrounded the automobile industry in 5M23
According to the Vietnam Automobile Manufacturers Association (VAMA), automobile sales volume in the domestic market in 5M23 decreased by 36% yoy, reaching 113,527 units. In which, completely knocked down (CKD) car and passenger car sales plunged by 43%/40% yoy in 5M23 mainly driven by 1) end of registration tax reduction incentives; 2) weak demand due to high interest rates on car loans. We see difficulties will last at least until end-2Q23 due to high inventory.

Preferential policies are key drivers for the recovery in automobile sales 2H23
The Government has just issued Decree No.36 extending the deadline for paying excise tax for domestically manufactured or assembled cars. In addition, the Government has approved a proposal to reduce the registration fee for domestically CKD automobiles by 50%, coming into effect from 01 Jul 2023 to the end of 2023. Shown in the past, after being applied to reduce the registration fee in 2H20 and 1H22, the total car sales volume of the whole market recorded a strong recovery. Specially, cars sale in 2H20 reached 189,451 units, soaring 76% vs. 1H20 and 33% yoy, while this figure in 1H22 achieved 252,932 units (+36% yoy). As a result, we expect that preferential policy from the Government is the key driver for the recovery of the automobile industry in 2H23F.

Go green – Electric Vehicle (EV) is not the far future anymore
Global passenger electric vehicle (EV) sales volume in 1Q23 rose 32% yoy, according to the latest research from Counterpoint’s Global Passenger Electric Vehicle Model Sales Tracker. The International Energy Vehicle Agency (IEA) forecasts that global EV sales will accelerate to 14m units in 2023, rising 35% yoy and reaching a total market share of around 18% of sales. We expect large EV company such as Vingroup (VIC-HOSE) to take advantage from EV trend. Currently, Vinfast owns a range of popular car products from size A to E, including VFe34, VF3, VF5, VF6, VF7, VF8 and VF9.

Our stock picks are HAX and VEA, while VEA is on our watchlist
We expect HAX to take benefits from preferential policy from the Government as most of HAX’s car model is assembled in Vietnam. While for VEA, we believe Toyota will continue to gain market share in 2H23-24F due to its attractive price/feature profiles such as Corolla Cross (CBU, compact SUV) and Veloz (CBU, MPV) and taking advantage from reduction registration tax.

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