VinFast pins hopes on USD 10,000 Mini EV to reverse struggling fortunes

Vietnamese automaker VinFast, which briefly held the position of the third-most valuable car company globally, is currently grappling with a significant challenge of insufficient sales to sustain its operations. The company's idle production facilities are draining its financial resources, putting its fiscal stability at risk.
After struggling to gain a foothold in the competitive U.S. market, VinFast is now pinning its hopes on its smallest and most affordable vehicle to date - the VF3. This compact electric mini-SUV, measuring approximately 10 feet in length and priced at USD 9,200, is being positioned as Vietnam's potential "national car" with the aim of capturing the hearts of consumers across Asian markets.

The VF3 has been specifically engineered for Vietnamese and other Asian markets, with VinFast setting its price point to achieve "mass appeal." According to Le Thi Thuy, the chairperson of VinGroup (VinFast's parent company), the company anticipates higher sales volumes for the VF3 compared to its previous models, which were primarily intended for export to Western nations.

VinFast's journey began with ambitious aspirations of joining the ranks of global automotive giants. The company launched its sales operations in the United States last year and listed its shares on the Nasdaq stock exchange. For a brief period in late August, VinFast's market valuation surpassed that of established automotive behemoths like General Motors Corp. and Ford Motor Co.

However, the initial investor enthusiasm has since waned considerably. VinFast's share price has plummeted from its peak of USD 82.35 to below USD 4, reflecting the market's growing skepticism about the company's prospects.

Adding to its woes, VinFast is encountering several operational challenges. The construction of its USD 4 billion factory in North Carolina has been delayed, prompting the company to review and evaluate all aspects of the construction process. Legal troubles have also emerged, with VinFast facing litigation over a tragic crash in California that resulted in four fatalities. Furthermore, the company is grappling with allegations of patent infringement, which could potentially impact its technological credibility and future innovations.

The fate of VinFast holds significant importance for Vietnam on multiple fronts. Firstly, the company's ambitions align closely with the goals of the country's Communist Party, making it a symbol of national industrial progress. Secondly, VinFast's parent company, Vingroup, plays a substantial role in the Vietnamese economy. What began as a modest instant noodle company in Ukraine during the 1990s has evolved into a diverse conglomerate with interests spanning various sectors.

Despite a 90 per cent increase in revenue, VinFast reported a staggering net loss of USD 2.39 billion in the previous year. To address its financial difficulties, Vingroup has taken drastic measures, including the sale of its profitable commercial property arm, Vincom Retail. Pham Nhat Vuong, the founder of Vingroup, has personally committed USD 1 billion of his wealth to support VinFast.

This is in addition to the USD 11.4 billion in financing that the parent company injected into VinFast between 2017 and 2023, as disclosed in a filing with the U.S. Securities and Exchange Commission. Vuong's unwavering commitment to the venture was evident in his statement to Vingroup shareholders at their annual general meeting in April, where he declared, "We will never let VinFast go."

The VF3 is initially slated for release in emerging Asian markets, where VinFast believes it can capitalize on the transition of consumers from motorcycles to four-wheeled vehicles. Tu Le, founder of the consultancy Sino Auto Insights, suggests that these markets may be more receptive to VinFast's offerings compared to the more discerning American consumer base. The compact dimensions of the VF3 - 3.1 meters in length and 1.6 meters in both width and height - make it well-suited for navigating the narrow streets of Asian cities while still accommodating five passengers.

VinFast has set an ambitious sales target of 20,000 VF3 units in Vietnam for this year, with deliveries scheduled to commence in August. The company has adopted an innovative sales approach, offering the vehicle through Shopee, a popular Southeast Asian e-commerce platform, with an initial deposit requirement of approximately USD 2,000. The strategy appears to be gaining traction, with VinFast reporting that over 27,000 potential buyers expressed interest in purchasing the car within the first three days of opening orders on May 13.

The VF3 is attracting attention from first-time car buyers like Dieu Linh, a 32-year-old businesswoman. Linh and her husband are considering transitioning from motorcycles to a car, motivated by the increased safety and comfort it offers during extreme weather conditions. However, she remains cautious, stating, "The VF3 price is tempting. But I'll wait and see how it performs on the road before I make my deposit."

VinFast's expansion plans for the VF3 extend beyond Vietnam. The company intends to introduce the model in the Philippines later this year, followed by launches in Indonesia, Thailand, the United States, and Europe in the following year. VinFast has already established a presence in Indonesia, opening its first showroom in Jakarta in April and reporting sales of approximately 600 SUVs to Indonesian companies. The automaker has also initiated the construction of a manufacturing facility in India, signaling its commitment to penetrating the world's third-largest car market.

However, VinFast faces formidable competition in Asian markets, particularly from Chinese EV manufacturer BYD, which has already achieved economies of scale in its production processes. Chinese EV makers, including BYD and Haima, are aggressively expanding their presence in Southeast Asia.

Nevertheless, VinFast may have some advantages in its home market of Vietnam. The company's near-monopoly over charging infrastructure, with charging stations widely distributed across both urban and rural areas, combined with consumer skepticism towards Chinese products and a sense of national pride, could provide VinFast with an initial edge, according to Le Hong Hiep, a visiting fellow at Singapore's ISEAS-Yusof Ishak Institute.

To improve its financial position, VinFast must significantly increase its sales volume to reduce per-unit costs at its expansive factory in Haiphong province, northern Vietnam. The facility has the capacity to produce around 250,000 EVs annually but is currently operating well below this level. As Tu Le, the auto consultant, pointedly remarks, "An idle factory just burns through money."

While India presents a promising market due to its scale, VinFast faces challenges in penetrating this price-sensitive market. Even at $9,200, the VF3 would be considered expensive for many Indian consumers due to high import taxes, according to Ishan Raghav, the managing editor of Indian car magazine autoX. To be competitive, VinFast would need to establish local manufacturing facilities to benefit from policies that protect domestic carmakers. Raghav suggests that while the VF3 might appeal to Indian families seeking a compact car for urban use, establishing a presence in the market will require significant investments in manufacturing, sales networks, and charging infrastructure - all of which are capital-intensive and time-consuming endeavours.

Recognising the importance of charging infrastructure, Vingroup has launched a subsidiary called V-Green to develop its own charging network in Vietnam and other key markets. In Thailand, VinFast plans to build its own charging infrastructure, as confirmed by Vu Dang Yen Hang, the CEO of VinFast Thailand, in an interview with The Associated Press in March.

VinFast finds itself in a race against time to achieve profitability and establish a sustainable market presence. Despite prioritising sales in the United States, the company sold fewer than 1,000 cars in North America last year and only around 35,000 cars globally, falling short of its target of at least 40,000 units. About two-thirds of VinFast's revenue in 2023 came from sales to a taxi service owned by Vingroup, as disclosed in a filing to the U.S. Securities and Exchange Commission.

Le Hong Hiep emphasizes that VinFast's primary challenge lies in improving its financial performance. He warns, "If they cannot sustain it long enough, they may go bankrupt." The coming months and years will be crucial in determining whether VinFast can overcome its current obstacles and establish itself as a significant player in the global electric vehicle market.