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Challenges and Ambitions of VinFast in the Global Electric Vehicle Market

GOOVER DAILY REPORT June 26, 2024
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TABLE OF CONTENTS

  1. Summary
  2. Overview of VinFast
  3. Domestic Challenges for VinFast
  4. VinFast's Global Expansion Efforts
  5. Financial Backing and Sustainability
  6. Conclusion

1. Summary

  • The report examines the challenges and strategic moves of VinFast, an emerging electric vehicle manufacturer from Vietnam, in its attempt to secure a strong position in both domestic and global markets. It covers the company's background, product lineup, manufacturing facilities, and the hurdles it faces in consumer trust and technical reliability within the Vietnamese market. The report highlights VinFast's global expansion efforts, strategic initiatives like battery leasing, and its extensive financial support from Vingroup. Despite ambitious global expansion plans, VinFast grapples with significant financial losses and consumer skepticism, undermining its competitive stance in the electric vehicle (EV) landscape.

2. Overview of VinFast

  • 2-1. Background and Ownership

  • VinFast is a part of Vingroup, the largest conglomerate in Vietnam. Founded by Pham Nhat Vuong, a Vietnamese entrepreneur who began his business journey with Technocom Corporation in Ukraine, VinFast benefits considerably from Vingroup’s diverse business operations. Vingroup's influence is extensive within Vietnam, deeply integrated into multiple facets of a citizen's life, from healthcare and education to real estate and retail. This extensive background and strong financial support from Vingroup provide a solid foundation for VinFast's ambitions in the electric vehicle market.

  • 2-2. Product Lineup

  • VinFast offers a diverse lineup of electric vehicles, including cars, two-wheelers, and electric buses. Notable models include the entry-level VF 5, the slightly larger VF e34 which is suitable for fleet usage, the stylish and spacious VF 7, and the premium VF 9 designed for VIPs and politicians. Each of these models is built with a focus on smart technology, incorporating advanced software and continuous updates. Middle and high-end models feature a center screen as the main interface and a heads-up display in lieu of a traditional instrument panel.

  • 2-3. Manufacturing Facilities

  • VinFast's headquarters and primary manufacturing facility are located in Hai Phong, approximately 120km from Hanoi. The facility spans 3.35 square kilometers and has a target production capacity of 300,000 electric cars and 250,000 electric scooters per year. Emphasizing Industry 4.0 principles, the plant boasts a high degree of automation, aligning with the latest technological standards in the automotive industry.

3. Domestic Challenges for VinFast

  • 3-1. Consumer Skepticism and Trust Issues

  • VinFast, despite having strong brand recognition in Vietnam, has faced significant challenges in earning consumer trust. Many potential buyers, like Ngo Trong Tu, have opted for more expensive imported vehicles, such as Honda, due to doubts about the reliability and quality of VinFast EVs. Social media reports cite numerous complaints about faults in VinFast EVs, contributing to consumer skepticism. Common issues highlighted include battery problems, malfunctioning smart keys, and other software issues. In a notable incident, an electric vehicle caught fire in Nghe An province, although VinFast stated that the fire was not due to a defect in their vehicle.

  • 3-2. Reported Technical Issues

  • VinFast electric vehicles have been plagued by multiple technical issues, which include problems with battery performance, smart keys, virtual assistants, accelerators, and air conditioners. Complaints from consumers, as reported by local media and YouTube channels specializing in EV reviews, have drawn attention to these reliability issues. The company has acknowledged these problems and stated that they address complaints promptly through their service centers. Despite several software updates and upgrades, the reliability issues have persisted, impacting consumer confidence.

  • 3-3. Sales Performance in Vietnam

  • VinFast's sales performance in the Vietnamese market has been underwhelming. Of the approximately 280,000 new passenger vehicles sold in Vietnam in 2022, VinFast sold only 7,400 units, even though EV options in the country are limited. Sales data from the first half of 2023 shows 11,000 units sold, but more than half of these sales were to a taxi company owned by VinFast's parent company, Vingroup. Factors contributing to poor domestic sales include technical issues, underdeveloped charging infrastructure, and widespread consumer skepticism. Analysts have noted that VinFast has not yet secured consumer trust, which is vital for its success in a market where national pride alone cannot drive sales.

4. VinFast's Global Expansion Efforts

  • 4-1. Key Target Markets

  • VinFast has identified five key target markets for its global expansion: the United States, Canada, France, Germany, and the Netherlands. These countries have been chosen partly due to their robust EV adoption policies, which aligns well with VinFast's shift from internal combustion engine vehicles to electric vehicles. The Canadian arm of the company will be located in Burnaby, B.C., further indicating the company's commitment to expanding its presence in international markets.

  • 4-2. Global Launch Plans

  • VinFast's global launch plans include setting up operations in the United States, France, Germany, the Netherlands, and Canada by next year. The company introduced its first electric offering, the VF e34, in January 2021. This will be followed by the VF e35 and VF e36 in March 2022. All three models are SUVs. The EVs are available for preorder with deliveries expected to be completed later in the year. VinFast received 25,000 domestic preorders for the e34, which retails for about US$29,000. The company's direct-to-consumer business model in Canada aims for rapid retail and aftersales facility expansion over the next 12 months.

  • 4-3. Strategic Initiatives for Competitive Edge

  • To gain a competitive edge, VinFast is employing several strategic initiatives. The company plans to offer a battery leasing scheme for its vehicles, which should provide some initial price relief for consumers. Additionally, VinFast is working on a fleet of vehicles with varying levels of autonomous driving capabilities. The company has received permission to test these vehicles in California and plans to have two models offering autonomous driving available for sale in North America and Europe by 2022. VinFast's research and development for autonomous vehicles is carried out at its institutes in San Francisco, Australia, and Vietnam.

5. Financial Backing and Sustainability

  • 5-1. Financial Investments by Vingroup

  • VinFast, backed by Vingroup, Vietnam's biggest conglomerate, benefits from significant financial support. Vingroup was founded by Pham Nhat Vuong, Vietnam's richest person, who transitioned from selling dried noodles in the Soviet Union to building a $5 billion empire with interests in real estate, tourism, and education. This substantial backing has allowed VinFast to open showrooms in major international markets, including the United States, France, Germany, and the Netherlands. The company reported that despite the challenges and financial losses, Vingroup's deep pockets have enabled VinFast to continue its operations and expansions in the EV market.

  • 5-2. Financial Losses and Profitability Challenges

  • Despite strong financial backing, VinFast faces significant profitability challenges. In the third quarter of a recent fiscal year, VinFast recorded a net loss of more than $600 million. Since its debut on the Nasdaq in August, VinFast's shares have exhibited volatile fluctuations, initially soaring to a market value surpassing auto giants like Ford and General Motors before plummeting. The company has ambitious targets, including delivering up to 50,000 cars globally within the year; however, it has sold around 21,000 thus far. This highlights the struggle VinFast faces in establishing a viable financial and operational strategy for sustainable growth. James Guild, a Southeast Asia trade expert from the S. Rajaratnam School of International Studies in Singapore, emphasized that Vingroup's financial support can't continue indefinitely, posing a critical challenge for VinFast's long-term sustainability.

6. Conclusion

  • VinFast's journey in the EV market, backed by Vingroup's substantial resources, reflects both the opportunities and challenges faced by emerging automotive companies. The main findings indicate that while VinFast boasts a diverse product lineup and advanced manufacturing facilities, consumer trust and technical reliability issues remain significant obstacles. The company’s financial losses and reliance on Vingroup's ongoing support highlight the need for a sustainable operational and financial strategy. VinFast's global expansion plans, including investments in autonomous vehicle technology and strategic markets, may offer growth opportunities but require overcoming current domestic hurdles. Ultimately, VinFast's success hinges on improving product quality, consumer perceptions, and achieving financial viability in a competitive and rapidly evolving EV market.

7. Glossary

  • 7-1. VinFast [company]

  • VinFast is a subsidiary of Vingroup, Vietnam's largest conglomerate, and was founded with the aim of producing electric vehicles, two-wheelers, and buses. Known for its high-tech facilities in Hai Phong, VinFast's lineup includes entry-level, mid-range, and luxury vehicles. Despite its recent emergence, VinFast is ambitiously pursuing global market presence and competitive positioning in the EV industry.

  • 7-2. Vingroup [company]

  • Vingroup is Vietnam's largest conglomerate involved in several sectors, including real estate, retail, healthcare, and education. The company is the financial backbone of VinFast, supporting its venture into the electric vehicle market and global expansion plans.

  • 7-3. EV Market [market]

  • The electric vehicle (EV) market consists of manufacturers and consumers of electric cars, two-wheelers, and buses. It's characterized by increasing competition, technological advancements, and growing consumer awareness. Key players include Tesla, Nissan, and emerging companies like VinFast, each striving to gain market share through innovation and reliability.

8. Source Documents