E-cars gear up for policy assistance

June 25, 2021 | 08:00
Not only VinFast could benefit if it is exempt from taxes and fees as proposed – the whole auto industry is also holding its breath waiting for policies.
Environmentally-friendly vehicles are going to be a neccessity for a greener world, Vietnam included, Photo: Duc Thanh
Environmentally-friendly vehicles are going to be a neccessity for a greener world, Vietnam included. Photo: Duc Thanh

In mid-May, Vingroup proposed piloting excise tax and registration fee for five years with electric cars, in a meeting with leaders of the government, ministries, and sectors.

The leaders agreed that there should be strong and drastic solutions to support the development of electric car production, and Vingroup’s proposal will be evaluated by the Ministry of Finance for completion.

The results of the meeting showed that VinFast is on the right track with the government’s wishes. The mission of the car models is more important – that is, pioneering a new development orientation for the country.

About five years ago, and especially since VinFast started construction of a 335-hectare complex on the northern city of Haiphong’s Cat Hai Island in 2018, the goal of developing the automobile industry was aimed towards domestic production and assembly, while limiting imports.

At this time, when Truong Hai Auto Corporation and Thanh Cong are still focusing on internal combustion engine vehicles, VinFast is focusing on electric vehicles, which involves many challenges in terms of both production and consumption. Estimates by experts around the world showed that the cost of producing electric cars, compared with traditional internal combustion engine cars of the same size, is still about 45 per cent more expensive. At the end of this decade, this figure will decrease to about 9 per cent, still more expensive to produce.

While electric cars have a simpler structure and are easier to manufacture, what makes the production cost more expensive than gasoline cars? The answer comes from the battery pack. Battery costs still account for about 40 per cent of an electric vehicle. The battery is the soul of an electric vehicle, but car manufacturers cannot hold this soul on their own, and depend on suppliers.

Encouraging electric

Currently, many companies are researching solutions to increase capacity and lifespan, reduce size and charging time, and lower battery cost, but have not been able to commercialise it at a cheap price. Therefore, car manufacturers must depend on and accept higher production costs than traditional cars.

In return, with good effects on the environment such as no smoke, no polluting emissions, and no need for lubricating oil or fuel, environmental experts said that electric vehicles are an inevitable trend worldwide, and especially necessary for the environment in Vietnam.

Professor Pham Ngoc Dang, vice president of the Vietnam Association for the Protection of Nature and Environment, has noted that up to 70 per cent of fine dust in the air comes from motorbikes and cars using internal combustion engines. In addition the greenhouse effect and noise pollution are also problems that electric vehicles will thoroughly solve compared to gasoline and diesel cars.

As for needing more electricity to charge cars, environmental experts said it is practically controllable. The amount of electricity in Vietnam is currently generated from 36 per cent hydroelectricity and renewable energy, meaning processes that do not pollute the environment. Although the majority is thermal power, with the potential of hydroelectricity and wind and solar power growing, these issues can be resolved to reconcile all benefits.

From an economic perspective, electric vehicles should also be encouraged. Bui Quang Tuan, director of the Vietnam Institute of Economics, said that this type of vehicle should be supported and provided with economic incentives such as exemption from excise tax and registration fees, as proposed by Vingroup.

Tuan analysed that there will be no need to worry about the budget deficit because when there are incentives, the car price will be cheaper and sales volumes will increase. In addition, the electric car industry is an amalgamation of many other industries, so if electric vehicles develop, the supporting industry also develops, which can create breakthroughs and solve macro problems such as employment and income as well as national status.

On a national scale, electric vehicles are the trend and ambition of most governments, from developed to developing countries. China was the world’s largest electric vehicle market in 2020 with nearly 1.38 million vehicles sold.

There are several groups of policies that China and other countries are applying, including deals for car manufacturers; car-buying subsidies, and administrative procedures for prioritising electric vehicles. Specifically, electric vehicle manufacturing companies are supported by the power grid from state-owned companies, a 30 per cent capital subsidy to build a charging station, and a subsidy of nearly $8,000 for each vehicle produced.

Meanwhile, people in this country have been supported with 50-100 per cent reduction in registration fees, and free or very low charging costs. With administrative procedures, customers using electric cars do not have to wait 6-12 months to be registered like petrol cars.

Synchronous policy

In Europe, where Norway was the only country in the world to sell more electric cars than petrol cars in 2020, the policies are equally rich. Electric car companies are exempted from a series of taxes such as sales, import, and VAT; and subsidised 50 per cent of production costs and subsidised charging station installation costs. Users are supported with nearly $5,000 when buying a car, though discounts for fast-charging services, free parking, use of bus lanes, and some road and ferry fees waived.

With the market and economic form closest to Vietnam, Southeast Asian countries such as Thailand, Indonesia, and Malaysia all have their own policies for electric vehicles. Based on the level of CO2 emissions to excise tax, electric vehicles in these countries can be subject to zero or a very small 5 per cent tax.

A synchronous policy system from production and consumption to use is being applied by countries to promote electric vehicles and limit petrol cars. The application of any kind of incentive depends on the reality of the economy and the state budget as well as the long-term orientations in each place. But according to experts, in order to popularise new vehicles, it is still necessary to have separate mechanisms for all processes as other countries are carrying out. Even if Vingroup’s proposal is approved, it may not be enough to motivate consumers to buy electric cars.

Moreover, if these incentives are effective but only VinFast makes electric cars, it will not solve the big picture. So these could be incentives for the whole auto industry, especially joint ventures, which already have products and research on this car line.

Currently, almost no car company besides VinFast intends to sell electric cars in the near future because of concerns about costs, infrastructure, and user habits, even though Nissan has registered to protect industrial designs for cars. Its Ariya electric crossover model has been registered for industrial design protection in Vietnam, while Thanh Cong’s TC Motor also has its own plans for electric and hybrid vehicles when its factory in the northeastern province of Quang Ninh comes into operation.

But when these proposals come to fruition and there are more attractive incentives, companies may have to accelerate the progress of bringing electric vehicles to Vietnam. If the platter is prepared, and it is full of delicious dishes, whoever is late will lose their share, said one vehicle industry strategist.

When electric cars from Toyota, Honda, Mitsubishi, Ford, and more are produced in Vietnam, the beneficiaries will be customers. Many companies can change the system together and obstacles decrease with customer numbers, the strategist said. As for the government, the problem of environmental pollution opens up part of a simple answer, which is a move towards more electric vehicles.

By Tran Duc Duy

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