The Japanese automaker has poured nearly US$90 million into its factory in Vietnam for 22 years. The additional investment will be used to build new test roads to meet the requirements of Decree 116/2017/ND-CP on the manufacture, assembly and import of automobiles and to increase its manufacturing scale.

Toyota’s decision to double its auto manufacturing capacity in Vietnam comes in the wake of many other automakers moving from assembling automobiles locally to importing completely built-up (CBU) vehicles from other ASEAN countries as the automobile import tariff has gradually been lowered to zero.

Early last year, Toyota Vietnam also stopped assembling Toyota Fortuner cars locally and has imported them from Indonesia since then.

According to Toyota Vietnam, the price of Fortuner automobiles imported from Indonesia is not much lower than that of locally assembled ones despite the low import duty.

However, market watchdogs have suggested Toyota’s strategy is easy to understand as the Vietnamese auto market is growing fast and is on the threshold of motorization given local consumers’ rising demand. Moreover, Toyota has outpaced its rivals in the domestic passenger car market.

In reality, Toyota’s factory in Vinh Phuc has exceeded its capacity to manufacture 50,000 units per year.

When Decree 116 takes effect early this year, Toyota Vietnam and other auto firms will still be waiting to import vehicles from Indonesia and Malaysia as they have not yet obtained Vehicle Type Approval certificates from exporting countries. However, the locally assembled auto sales of Toyota Vietnam have surged monthly.

The company sold more than 4,750 cars excluding Lexus models and imported cars last month, down a mere 8% year-on-year, but sales of Toyota Vietnam’s locally assembled vehicles, such as Vios, Innova, Camry and Corolla Altis, rocketed 45% over the year-ago period.

Besides this, Toyota Vietnam has reduced the number of models made in Vietnam, from five prior to last year to four last year and possibly two to three this year, to focus on raising the outputs of the remaining models, thus reducing costs and boosting its competitiveness.

According to analysts, another reason for Toyota’s decision is the application of Decree 116 as scheduled and the government’s preferential tax policies for imported vehicles.

Enterprises assembling automobiles in Vietnam will be entitled to multiple incentives, such as zero duty for auto parts imported from other ASEAN countries within qualified volumes. In addition, reductions in tariffs on auto parts imported from other regions have been proposed, with cuts from 14-16% to 7-11% being discussed.

Therefore, it is unnecessary for a firm as large as Toyota Vietnam to downsize its production.

Other automakers, such as Mazda, Mitsubishi Motors, Ford Vietnam and Hyundai Thanh Cong, have also expanded their production in Vietnam.