Workers work at the Vinfast auto plant during its opening ceremony in the city of Hai Phong, Vietnam on June 14, 2019 (Reuters file photo)
HANOI: The billionaire behind six-month-old Vietnamese auto start-up VinFast predicts a feat that even Toyota Motor Corp and Hyundai Motor Co couldn’t do in their early days: to sell a car in the United States.
Pham Nhat Vuong, the richest man in Vietnam and now in charge of the new automaker, is so determined to export electric vehicles to the lucrative American market in 2021 that he is investing up to $ 2 billion of his own fortune. to reach this goal. His money would represent half of the capital investment in VinFast, which started delivering cars to Vietnamese consumers with BMW-licensed engines earlier this year and aims to expand into electric vehicles.
“Our ultimate goal is to create an international brand,” the 51-year-old mogul said in an interview at the Hanoi headquarters of parent company of auto company Vingroup JSC, which Vuong founded and holds the title of chairman. “It will be a very difficult road and we will have to put in a lot of effort. But there is only one road to go.
Local cars made under the vast Vuong real estate conglomerate face an uphill battle to be successful overseas: automakers such as India’s Tata Motors Ltd. and Malaysian Proton Holdings Bhd. have struggled to convince consumers to move away from their territory. Even in Vietnam, VinFast Trading and Production LLC has tremendous competition from established foreign players such as Toyota, Ford Motor Co and Hyundai.
Vingroup shares fell 1.6% at 1:56 p.m. local time, on the verge of its lowest close since June 18. The benchmark VN Vietnamese stocks fell 1%.
VinFast follows a long list of Chinese automakers who have also had ambitions to sell vehicles in the United States for over a decade. Although the plans have yet come to fruition, Guangzhou Automobile Group Co., Zotye Automobile Co. and others have set up local sales units and research and development operations to show how serious they are. Some Chinese brands have also participated in American auto shows in recent years.
The mogul, whose net worth is $ 9.1 billion, according to the Bloomberg Billionaires Index, is fearless. Vingroup sold a few shares last year and Vuong plans to sell up to 10% of its own shares to raise funds for this ambitious project. He owns 49% of VinFast, while parent Vingroup owns 51%.
The automaker will not be profitable for five years, Vuong said, adding that the local market is “too small” and overseas sales are essential to become profitable. Vuong directly owns 26% of Vingroup, according to Bloomberg data. Vietnam Investment Group JSC, in which Vuong owns around 92%, owns 31.6% of Vingroup.
And VinFast will have to overcome an even tougher task of winning over discerning consumers in the United States and other developed markets, where emissions and crash standards are strict.
To add to these challenges, successfully manufacturing and selling electric vehicles. Many Chinese startups, backed by billions of dollars in funding, are betting on the prospects for electric vehicles in the world’s largest auto market, but few are making any money. BAIC BluePark New Energy Technology Co, China’s largest pure-electric car maker, predicts a loss in 2019. The unprofitable New York-traded NIO Inc has struggled to allay fears of running out of cash in the middle of the request for VE.
VinFast’s first electric vehicle won’t roll off its assembly line until the end of next year, but Vuong said it plans to export these vehicles to the United States, Europe and Russia in 2021.
VinFast must overcome several significant hurdles to compete outside Vietnam, said Michael Dunne, managing director of automotive consultant ZoZo Go LLC, which specializes in the Asian market. “It will be some time before the company is ready to compete in the United States – still the toughest market in the world,” he said. “You need a strong brand.”
Many consumers prefer a used Honda Motor Co or Toyota vehicle to a new car with an unknown brand name, Dunne said. The Vietnamese automaker will need to produce at least 100,000 vehicles per year to be competitive, develop a global brand and establish a parts and service network, he said. Still, VinFast has the opportunity to break into smaller Southeast Asian markets, Dunne added.
VinFast, which operates a 335-hectare factory in the northern port city of Haiphong, sells its first range of vehicles – a sedan, sedan and SUV – at a price below cost. The sedan sells for the equivalent of $ 17,000, while the four-cylinder sedan costs $ 47,400 and its SUV is priced at $ 60,400. The company aims to produce 500,000 vehicles per year by 2025. The carmarker also manufactures electric scooters.
Over the next few years, Vingroup will have to spend “several trillion dong per year” to cover VinFast’s losses, estimated at 18 trillion dong (23.6 billion baht) per year, Vuong said. These losses include financing and depreciation, and up to 7 trillion dong each year to absorb the success of selling cars at a lower price, he added.
Vingroup will divest into other units to fund VinFast while other subsidiaries have been ordered to cut costs, Vuong said, without providing details. VinFast will also seek additional title loans, in addition to the roughly $ 1.95 billion in international loans it has already raised. Vuong also plans to list VinFast on a Vietnamese exchange and possibly overseas, he said, without giving further details.
“We have the desire to build a Vietnamese brand that enjoys a world-class reputation,” he said. “Our biggest challenge is that Vietnamese products do not have an international brand. For many international friends, Vietnam is still a poor and backward country. We will have to find a way to market and prove that our products represent a dynamic and developing Vietnam that has reached the highest standards in the world.