Vietnam’s VinFast revving up in Western markets

But upstart electric carmaker will face a tough road to commercial success in American and European markets.

Seeking to do the “virtually impossible,” as one source put it, Vietnam’s largest conglomerate VinGroup is planning to expand its automobile subsidiary VinFast into American and European markets next year. 

VinFast, the country’s first fully-fledged domestic carmaker, announced in January that it plans to launch its first electric vehicle in Vietnam later in 2021 and to start selling battery-powered cars in the US, Canada and Europe by 2022. 

The following month, it said California had allowed it to start testing its autonomous electric cars in the American state. It is believed VinFast intends to launch five newly-developed electric car models and three smart car models, only some of which will be sold abroad. 

“It is high time for us, for Vingroup and for Vietnam, to realize the dream of going global and put our name on the global map,” Pham Nhat Vuong, VinGroup’s founder and Vietnam’s first billionaire, said at the firm’s annual general meeting in mid-June. 

However, industry experts are not so sure the enthusiasm will translate into success. 

“On face value, the stated ambitions appear to be unachievable,” said Peter Wells, professor of Business and Sustainability at Cardiff University’s Center for Automotive Industry Research.

“VinFast has limited production capacity, and tiny production volumes in the last calendar year,” he added. Indeed, it sold only 29,485 vehicles domestically last year.  

To make matters worse, with a new model and new technologies, it is attempting to enter several new markets that, while increasingly popular with consumers, are already inundated with large brands such as Elon Musk’s Tesla and Chinese-Swedish Lynk and Co.

Aiming high

Reports in June by the Vietnam Investment Review assert that VinFast had reduced its targets to sell only 15,000 electric vehicles next year, down from its earlier estimate of 56,000. 

However, it noted that the firm expects, within a few years, to capture 1% of the total American market share, equivalent to 160,000-180,000 electric vehicles annually.

“There does not appear to be enough distinction in the vehicles, the technologies or the market offer to make enough difference, unless VinFast can substantially undercut the prices of the competitors,” said Wells. 

That may well be the firm’s intentions, although no information has yet been released about pricing. The problem with undercutting “is that moving up-market subsequently is very difficult,” Wells added. 

“Everything about this company is about speed to market, and they seem to be born to be global,” said Bill Russo, head of Shanghai-based consultancy Automobility Ltd and a former Chrysler executive.

“Will Americans embrace Vietnamese cars? Japanese cars were cheap ‘econoboxes’ in the 1970s and Koreans were that in the 1980s. So, there is Asian precedent that companies can crack the market,” Russo added. 

“Europe may be a more difficult challenge in large markets like Germany or France, but they may have opportunities if it forms the right partnerships with downstream services players.”  

It’s by no means clear that VinFast is determined to fail, though. The firm has also assembled an experienced management team, many of whom are former executives from General Motors, the American car giant, who have experience in the market. 

Partnerships and an IPO

Arguably, VinFast’s success rests on two still unresolved issues. 

Perhaps the biggest game-changer for VinFast would be its rumored partnership with Taiwan-based Foxxcom, the world’s biggest contract electronics manufacturer. In March, it was reported that the two firms were in talks to develop battery and electronic vehicle parts. 

Foxxcom has invested heavily in Vietnam in recent years, after shifting production away from mainland China. Earlier this year, local media reported that the Taiwanese firm plans to invest an additional $700 million in Vietnam in 2021. 

“These two could constitute a radical departure from the mainstream automotive industry, but so far nothing concrete has emerged,” said Wells. 

The second game-changer would be a planned IPO in the United States, which would be the first for a Vietnamese firm. 

VinFast recorded net losses of $247.9 million in 2019, rising to $286.6 million in the first half of 2020. However, its finances are unlikely to be a major problem. 

For starters, VinSmart, another subsidiary of VinGroup, will bear the cost of producing and maintaining the rechargeable batteries used in VinFast’s cars. Through this clever accounting, VinFast’s has reduced its liabilities. Moreover, VinFast increased its charter capital to $1.9 billion in March. 

Working with JPMorgan and Deutsche Bank, it was reported earlier this year that VinFast plans to go public in America, with a potential valuation at $60 billion that would allow it to raise $2 billion in capital. 

But plans for an IPO have seemingly stalled as VinFast said that it prefers to have a US listing through merging with a Special Purpose Acquisition Company (SPAC), one way of taking a firm public. 

Investments and subsidiaries

But nothing has been heard about these plans since May, possibly because US regulators have begun to crack down on SPACs amid a flurry of activity during the Covid-19 pandemic. Going through a SPACs typically requires less regulatory scrutiny than traditional IPOs. 

VinGroup rose to become Vietnam’s largest privately-owned firm thanks to its investments in real estate in the 2000s. It has since expanded its operations through subsidiaries to every area of the economy, including the recently launched Vinbiocare, a biotech firm. 

“Vuong seems to have good visions for this new business, but how he will deliver on such visions matters more,” said Le Hong Hiep, a senior fellow at the Vietnam Studies Program at the ISEAS-Yusof Ishak Institute. 

Perhaps just as important for VinGroup, its plans to expand in developed Western economies is a symbolic demonstration of Vietnam’s growing importance in world politics and commerce. 

Some of the world’s leading companies, including Silicon Valley-based Apple and Foxxcom, have invested heavily in its economy in recent years, in part because the US-China trade war has seen tech firms move their operations away from China to rising markets like Vietnam.

South Korean tech giant Samsung’s considerable investments in Vietnam have made the country the world’s second-largest producer of smartphones, after China. 

Hiep said VinFast’s planned expansion to European and American markets “seems to be well received by both the Vietnamese government and the public because Vingroup is now considered one of the ‘national champions’ that can help transform the Vietnamese economy towards greater innovation and efficiency.” 

And even if the Western expansion of VinFast doesn’t live up to expectations, it certainly puts Vietnam’s rising “national champions” on the international map. 

By David Hutt – Asia Times – July 7, 2021