Chinese automakers are expanding their footprint across Southeast Asia at pace. In response, regional governments are acting to bolster domestic manufacturing capabilities and hedge against over-reliance on foreign capital.

Mounting pressure

A Q2 2026 financial analysis by Nikkei Asia revealed that vehicle sales across Southeast Asia’s core markets rose roughly 11% year-on-year, driven primarily by the shift toward new energy vehicles (NEVs).

Indonesia maintained its position as the region’s largest automotive market, recording 227,545 vehicle sales in Q2 2026 – a 34% surge compared to the same period last year. Growth was largely fuelled by targeted government incentives alongside a flood of battery electric (BEVs) and plug-in hybrid vehicles (PHEVs) supplied by Chinese conglomerates.

Faced with this aggressive market penetration, Indonesia’s Minister of Industry indicated that the government is evaluating a revamped EV incentive framework – one designed to protect and incubate domestic brands.

Vietnam’s automotive market is likewise expanding rapidly, with electric vehicles serving as the main catalyst following a growth rate exceeding 70% in the first half of 2026. Unlike Indonesia, which relies heavily on Chinese imports, Vietnam’s electrification rollout has been spearheaded by a homegrown brand.

However, the Chinese presence in Vietnam is intensifying. Chery Group’s joint venture with a local partner has brought its first manufacturing plant, rolling out competitively priced, locally assembled models. Competitors including Geely, SAIC, and Changan are actively pursuing similar joint ventures to construct local assembly lines.

Local assembly offers Chinese manufacturers a clear tariff advantage. While complete built-up (CBU) units imported from China face a 50% tariff, knock-down (CKD) component kits attract duties under 10%.

The competitive heat from Chinese brands is rising sharply, fought not only on aggressive pricing but also on rapid product iteration cycles. The core question remains: what does Vietnam actually gain from this inflow of FDI?

Building national brands

According to engineer Nguyen Minh Dong, Director of the Vietnam-Germany Technology Company in Ho Chi Minh City, Chinese investments in local facilities do not automatically translate to genuine technology transfer or local supply chain integration.

“If foreign firms set up basic screwdriver assembly lines, the added value for Vietnam is minimal,” Dong noted. “Vietnam has run contract assembly for decades with little long-term gain. If these plants simply bring their own vendor networks from China to build an isolated ecosystem, local firms will be priced out of their own backyard.”

China possesses a massive automotive ecosystem, particularly in NEVs, backed by end-to-end supply chains across battery technology, raw materials, electronics, and software. In contrast, Vietnam’s key vulnerability lies in its limited supply base—characterised by small scale, low technology readiness, and limited access to high-value manufacturing segments.

Dong argues that Vietnam must shift toward a performance-based incentive model. Rather than awarding tax breaks based solely on capital outlay or plant footprints, incentives should be strictly tied to tangible outcomes: local content ratios, domestic value addition, supply chain integration, technology transfer, and local R&D investment.

Furthermore, policy must explicitly favour national brands. Vietnam now possesses a handful of domestic automotive players with genuine scale. These firms need target support to act as "lead cranes" – anchoring national technology ownership, driving industrial strategy, and fostering a resilient domestic ecosystem that pulls smaller suppliers into the value chain.

Without a decisive strategy to leverage this pivotal moment, Vietnam risks building a massive automotive consumer market, paired with fragile internal capability, while remaining structurally dependent on external players.