Toru Kinoshita, CEO of Toyota Vietnam and chairman of the Vietnam Automobile Manufacturers Association (VAMA), said a manufacturer needs to import around 80 percent of car parts whereas the figure is just 10-20 percent in Thailand and Indonesia.

Thus, cars in Vietnam cost 10-20 percent more than elsewhere in other Southeast Asia, he said at a recent forum.

The reason manufacturers are forced to import is that there is not enough local supply. There are only 200 auto part suppliers in Vietnam compared to 2,000 in Thailand, according to official figures.

Minister of Industry and Trade Tran Tuan Anh said despite policies to support local production, Vietnamese firms remain in the low-value segment of the supply chain.

Local firms only supply simple parts such as wires and seat cushion, while more sophisticated parts such as engines and gearboxes have to be imported, he said.

"Domestic production and assembly of vehicles has not yet achieved the standards of a real car industry. Local firms have not mastered core technologies, and there is no ecosystem of large raw materials suppliers and part producers."

The industry has called for incentives to boost production. Tran Ba Duong, chairman of major car manufacturer Truong Hai Auto, has proposed scrapping import duties on parts that local businesses are not capable of producing to reduce car prices.

He also called for scrapping special consumption tax on parts produced locally. The government needs to have policies in place to develop quality mechanical engineers, Duong added.

Minister Anh said the trade ministry would propose polices to incentivize large car projects, including electric and fossil fuel vehicles.

The incentives could be in the form of land or subsidies on research or acquiring technology to produce engines and gearboxes locally, he added.

There are 40 businesses manufacturing or assembling autos in Vietnam with a total annual capacity of 680,000 units. Last year they produced 258,100 vehicles, according to Vietnam Register.

In the first eight months of this year sales of imported cars rose 178 percent year-on-year to 82,800 units, while that of locally-made vehicles dropped 14 percent to 119,700 units, according to VAMA.