Vietnam’s richest man vies to dethrone SE Asia’s ride-hailing king, Grab

Pham Nhat Vuong’s Xanh SM has big ambitions, but critics question its growth potential in a fiercely competitive market.

When Dat had to choose a ride-hailing app to work with as a gig driver, he purposely decided against Grab, the leading player in Southeast Asia.

Instead, the 23-year-old was persuaded by the environmentally friendly marketing and homegrown status of Xanh SM, an electric taxi and motorbike service founded by Pham Nhat Vuong, the chairman of the Vietnamese mega-conglomerate Vingroup and Vietnam’s richest man.

“Xanh SM will definitely be more popular than Grab in the future,” Dat told Al Jazeera.

“I ended up working for Xanh SM as it saves fuel cost, it’s friendly for the environment and lastly, it’s a Vietnamese company.”

Unlike its rival Grab, Xanh SM rents out vehicles to gig drivers in addition to providing ride-hailing services through its app.

While Xanh SM’s mint-hued electric cars and scooters have become ubiquitous on Vietnam’s streets since starting operations in April 2023, some analysts question the company’s growth potential and Vuong’s strategy of using the platform to push Vinfast, his brand of Vietnamese electric vehicles (EVs).

Vuong’s Vingroup founded Vinfast as the country’s first auto brand in 2017.

Since shipping its first batch of 999 cars across the Pacific from northern Haiphong to California, United States, in 2022, the company has been beset with losses and delayed factory openings.

Vinfast’s financial records show that 82 percent of its sales in 2023 came from other companies owned by Vuong, including Xanh SM.

Xanh SM spent $839m buying electric taxis and scooters that year, as well as signing a $419m deal to buy 14,600 more EVs, according to a report by the Reuters news agency.

Zachary Abuza, a professor at the National War College who focuses on Southeast Asian politics and security issues, said that selling Vinfast cars to Xanh SM is a win-win strategy in the short term for Vuong, who holds more than a 90 percent stake in both firms.

Still, the Vietnamese government’s backing of Vuong’s larger EV ambitions has led to risky business practices, Abuza said, pointing to the founder’s willingness to pour large sums of money into Vinfast, an unproven brand.

“I think that it’s quite smart what they’re doing with the taxis,” Abuza told Al Jazeera. “[But] the problem with these national champions is that they become too big to fail,” he added.

“The government has this vested interest in them staying alive, which allows them to do very risky things, kind of creating this moral hazard knowing that the government will ultimately bail them out.”

Since debuting in the country’s capital Hanoi, Xanh SM has expanded its fleet of Vinfast EVs to 20,000 cars and 22,000 motorbikes, made its services available in nearly half the country, and expanded into neighbouring Laos.

In a survey carried out by Ho Chi Minh City-based market researcher Decision Lab earlier this year, 36 percent of respondents chose Xanh SM as their preferred ride-hailing app, making it second only to Grab, which was chosen by 62 percent of those surveyed.

Spending eight to 12 hours daily navigating the streets of Ho Chi Minh City, a full-time Grab driver, who asked to remain anonymous, said he has seen Xanh SM’s growth firsthand.

“I can’t tell or predict their future but I can see that they are becoming more popular,” the man in his 40s told Al Jazeera.

Long Nguyen, marketing director at local electric motorbike company Dat Bike, said consumers are increasingly looking for non-gasoline powered options like the ones Xanh SM is providing.

“The demand for electric bikes has been growing steadily at around 30 percent each year. This trend shows that consumers are increasingly shifting from gasoline to electric,” he said.

But like Vinfast, Xanh SM’s ambitions reach further afield.

“Xanh SM’s long-term objective is to become one of the leading providers of electric mobility solutions in the region,” a Vingroup spokesperson told Al Jazeera by email, adding that the company plans to expand into three or four more countries by 2025.

Abuza said that Xanh SM would face high costs going international, with hefty expenses involved in setting up operations, shipping vehicles, dealing with customs and tariffs and establishing charging infrastructure for EVs.

“I’m not saying they can’t do it. It’s just not going to be as cheap or easy as they might think,” Abuza said, adding that the ride-hailer is unlikely to receive the same government support given to Vuong on his home turf.

“They get very cheap land, they get access to capital. There are plenty of ways in a socialist system for the government to subsidise them,” he said of Vuong’s business empire.

The Vingroup spokesperson said the company recognises the challenges to expansion and does not receive special treatment in Vietnam.

“Vingroup enjoys support from the government and the public,” the spokesperson said.  “However, we do not receive any special rights nor privileges.”

Xanh SM may face challenges at home, too.

The Ho Chi Minh City Grab driver who wished to remain anonymous said some of his acquaintances complain about the quality of Xanh SM’s electric scooters and the fact they can be held liable for the cost of any damage to their vehicle if they are deemed to have been negligent.

“People told me many of their drivers returned the bikes and quit working,” he said. “I was told if their bikes got broken, the company will deduct a lot of their money.”

While Xanh SM is working to establish dominance in Vietnam and expand, Vuong faces stiff competition in the EV industry and heavy losses at Vinfast.

Despite the sales to Xanh SM and other Vingroup-affiliated brands, Vinfast reported in a September 20 statement that it lost $773.5m in the second quarter of this year amid rocky expansion efforts.

The loss was a 20 percent increase from the first quarter and up 40 percent from the same period in 2023.

In July, Vinfast announced it would push back plans for a $2bn manufacturing plant in the US state of North Carolina to 2028.

“It is a tough industry. It requires a lot of money to get in the game, and it requires a lot of scale to stay in it, to make money at it,” Bill Russo, former Chrysler executive and founder of the Shanghai-based consulting firm Automobility Limited, told Al Jazeera.

Russo said that competition is especially fierce around cost.

“Another thing that Vinfast will struggle with is [that] their dream is only possible if you can come in at a very affordable price point,” he said, adding that China’s BYD offers EVs at cheaper prices.

Abuza also noted Vinfast’s prices and the poor reviews of its EVs.

“They get panned in every review. They’re expensive. You can buy a much better car for less money,” he said.

The Vingroup spokesperson acknowledged that Vinfast faces challenges as a “young electric vehicle manufacturer” and an “emerging brand”.

“VinFast has a long-term vision and has reserved the necessary capital to support its establishment phase,” the spokesperson said.

Vingroup, however, also seems to be facing financial struggles and selling off subsidiaries to stay afloat.

In March, it sold 41.5 percent of its stake in Vincom Retail, its shopping mall subsidiary with 83 locations across the country.

“They’re desperately trying to raise capital,” Abuza said.

Vuong does not appear to be disheartened.

In a June interview with Bloomberg, Vuong was asked how long he would continue pouring money into Vinfast.

“Until I run out of money,” he replied. “I’m still working every day to make money for Vinfast.”

In a November 19 statement, Vingroup said it would lend Vinfast $1.4bn by the end of 2026 and that Vuong would personally give $2.1bn to the EV maker.

But with a downturn in the EV market and stiff competition, Vuong could run out of money before Vinfast succeeds, Russo said.

“They have, obviously, the founder’s money, but it’s not going to last forever,” he said.

In Ho Chi Minh City, Dat is happy with his choice of a Xanh SM EV, overall.

“The only disadvantage of Xanh SM I can think of is that the bikes cannot ride instantly like fuel bikes,” he said.

“But to me, it’s not really a disadvantage as I can rest while it is charging.”

By Govi Snell & Nguyen Hao Thanh Thao – Al Jazeera – November 27, 2024