Three decades ago, a
Vietnamese businessman began making a fortune selling
dried noodle soup in Ukraine. Today, that same
man wants to build an EV business in America. VinFast is the brand, and
it is laying the foundation to become a serious
contender in the United States and elsewhere around
the world. In fact, it is moving
aggressively. VinFast, a subsidiary of
Vietnamese conglomerate Vingroup, only began
selling cars in 2019, but it has already invested $2
billion in a factory in North Carolina and has
plans to open 30 showrooms in California by the end of
2022. It is also planning a U.S. IPO. U.S. market has a huge
potential. If you talk about the
number of vehicles running on the streets right now,
it's really huge potential. The company has yet to sell
a single car in the U.S. and it only sold 35,000 cars
in Vietnam in 2021. Most of them were gas
powered. Other foreign automakers
have spent years building their businesses in their
home markets before attempting to enter the
United States. VinFast is not waiting. They are going from 0 to 100
in in a matter of nanoseconds. It is just one of countless
new companies trying to enter the EV business. A lot of them are
underfunded. A lot of them will not make it. Getting into the vehicle
space itself, into the automotive industry is a
tough slog to climb. It has yet to be seen if
the buying public is willing to put down 40, 50, $60,000
on a new unknown brand from a country that has never
built a vehicle before. And VinFast is an unknown
brand from Vietnam, a country with no
international reputation for auto manufacture. But it is under the wing of
the $5.4 billion Vingroup conglomerate owned by that
country's richest man. They've been in property, in
education, in software, in motorcycles for years, and
whatever they've touched has turned to gold. So they feel quite
confident, Hey, we win where we go. Why not electric
vehicles too? Vingroup is the largest
company in Vietnam with a total value of about $35
billion through three publicly traded companies. It accounted for about 2.2%
of Vietnam's total GDP in 2020. Its founder was the
first Vietnamese billionaire, and he remains
the country's wealthiest person. His first business
success was a dried ramen noodle and mashed potato
manufacturer called Technocom. He founded it in
1993 in Ukraine. In 2001, he started the two
businesses that formed the core of Vingroup. Vingroup's portfolio
includes technology companies, hotels, resorts,
golf courses, homes, shopping malls, commercial
real estate and even schools and universities. The company also made
Vietnam's first locally produced smartphone. The food business was sold
to Nestlé in 2010. Soon after that, leadership
turned its attention to cars. His dream, along with many
other very wealthy people, is to have his own car
company. His goal is to raise
Vietnam economically on the world stage. Creating a car brand and a
car company is really contributing to the
developing of Vietnam. VinFast opened a factory in
Vietnam in 2017. It unveiled its two
internal combustion lux models, a sedan and SUV, at
the Paris Auto Show in 2018. In 2021, the company
launched EVs meant for ordinary consumers. The VF e34 was a compact
SUV for the Vietnamese market. The larger all
electric premium VF 8 and VF 9 SUVs were intended for
the global market. All were part of the
company's plan to go fully electric by 2023. This year is really a
critical year for VinFast as we are going global to
other markets as the fully electric automaker. The company has an unusual
business model. It plans to sell the car
and then lease the battery separately. Chinese
manufacturer Nio has tried a similar strategy in its own
country, but VinFast's strategy appears to be
unique in the U.S. There are two subscription
plans. The cheaper one offers 310
miles per month and charges by the mile after that. A more expensive option
offers unlimited mileage. In the U.S., the VF 8 will
start at $40,700 and the VF 9 at $55,500, plus the
monthly cost of a battery subscription. For
comparison, Tesla's smallest SUV, the midsize Model Y,
starts at a price of $65,990. Tesla's larger
Model X starts at $120,990. Like other
electric vehicle makers, VinFast plans to sell
direct to consumers. It plans to open six
showrooms in California in the summer of 2022 and at
least 30 by the end of the year. As for its planned
IPO, it was initially slated for 2022. Due to market uncertainty,
it might need to be delayed to 2023. Making electric cars removes
one big barrier to entry normally faced by
automakers. It allows you easier access
to the automotive industry. If you build an ICE
vehicle, you have to get through emissions. It will cost you millions
of dollars per vehicle just to get it emissions tested
in each country. However, there is a lot of
competition. Every manufacturer on the
planet now that makes ICEs is looking at EVs. We're tracking them through
a startup book that we put together, and our EV
startup book contains about 150. Plus there are probably
hundreds that we're missing, especially in China. We'll look at the markets
where infrastructure is ready, where the policies
are there, the systems are there, the legal systems
are there, and also a lot of supporting policies are
there. And U.S. is the perfect location v
enue for us. New car sales in the U.S. exceeded 17 million in 2019
before the pandemic wrought havoc on supply and demand. The U.S. market is also one
with strong demand for higher priced vehicles such
as pickup trucks, SUVs and luxury cars. But it is not for the faint
of heart. The United States is one of
the most, if not the most, competitive automotive
industry. There's not a lot of space
for a new player. And if you do come in, you
have to chip away at Toyota or General Motors or Ford
or Honda or Hyundai or one of these established
players who's not going to give you market share just
because you came in. Some of those players have
had a fair bit of trouble establishing themselves in
the U.S., and for those foreign automakers who have
been successful, it's taken at least about two decades. When South Korea came in
with Hyundai, it literally took them two decades
before they established themselves as a reasonable
replacement for your Toyota, for your Honda, for your
Chevrolet or Ford. Prior to that, Japan came
in here in the late fifties, and it wasn't until the mid
seventies that they became a reasonable replacement for
domestic products. And then before that it was
Germany. Volkswagen came in here in
the late forties and they were a hit in the sixties. New entrants have to add
something incumbents don't have. That is tough in a
market already so saturated. We know that it's also a
very tough and demanding market. We've come in with
our competitive strategies like reasonable prices and
excellent services. We believe that we'll be
there and we'll win the trust from the U.S. customers. The dominant EV player in
the U.S. is Tesla. We wouldn't be talking right
now probably if it weren't for for Tesla. So I think
that's a revolutionary brand in and of itself. And I
think they've deserved the name brand recognition that
they've earned. But the thing about
VinFast, I think maybe in contrast to Tesla, is we
are built on sort of a foundation of vehicle and
system and materials quality as well
as vehicle innovation, excellent service, and
finally, attainability. It has been common for
underdog importers to gain a foothold in the U.S. by selling cheap. While that can help move
units in the short term, it has meant brands have had
to spend decades luring higher end buyers. Perhaps trying to avoid
this, VinFast plans to sell right in the middle of the
market. The other concern is whether the company will be
around in a few years. Many brands, even entire
manufacturers, have left the U.S. Consumers need to be sure
that the automaker will be around. The last thing you
want to do is buy a vehicle that may be $60 or $80,000. And in two years, the
automaker is no longer in market. And how do you get
your vehicle serviced and let alone your residual
value? Its battery leasing model,
the company calls it a subscription, is one way
for VinFast to distinguish itself from rivals. The customer pays a
subscription fee and the company repairs and
replaces the battery as needed. For example, it
will change the battery when capacity dips below 70%. For the customers that it's
put in the reservations and buy the car in this year
and next year. We will maintain a flat and
fixed battery subscription for the whole life cycle of
the vehicle. EV batteries degrade with
use, and the potential effects of battery
degradation on cost of ownership and resale value
have been a prominent topic of speculation, research
and debate. So make it very affordable
to get into a VinFast and take the risk out of owning
a VinFast by saying the battery is owned by
VinFast. We take all the the risks
and we take all the cost of the battery by introducing
the battery leasing model. Chances are, many consumers
already pay for other things in the same way. I think there's a very
strong proxy for this, which is, of course, our cell
phone bills where many of us have a new handset that
we're paying down and we pay that every month. And then
at some point that handset price expires and then
we're left with the service side of the business. And
that's what VinFast is trying to do, is create a
service side for the battery leasing side. The company wants to perform
service with a mobile team that goes to the customer. The key is really
after-sales services. You can go into our app and
then you want to book the mobile services and then
we'll get you and then we talk to you and then we'll
come to you. It's something that Tesla
has done and can do. The challenge, of course,
with the model is scalability. As you get
big, it becomes pretty difficult to maintain a 1
to 1 service relationship with customers like that. The company is also staffed
with many alumni of other automakers. The leadership team that
I've met from VinFast is composed of a lot of
sophisticated veterans from the automotive industry. So they're aware of this
point. They've worked for the
Hyundais and Toyotas and Fords before. VinFast has also established
partnerships with established suppliers:
Korea's LG Chem and China's Gotion for batteries, the
German supplier ZF for automated driving systems,
and the Italian firm Pininfarina for design of
both vehicles and other projects, such as booths at
auto shows. That makes VinFast's
strategy somewhat different from those employed
historically by other Asian automakers. If you looked at Korea and
Japan, again, China, those countries have historically
been sort of inward looking, we'll do it
ourselves, we'll incrementally get there. Vietnam is saying there's
no way we can do that by ourselves. Let's be
realistic and let's go out and align ourselves with
world class players from day one. VinFast may have another
kind of wind at its back: a contentious relationship
between the United States and China. The day after
VinFast announced its plans to build its North Carolina
plant, it received congratulatory remarks from
President Joe Biden. Those were followed by
similar salutations from Secretary of Energy
Jennifer Granholm and Secretary of Commerce Gina
Raimundo. Well, what's going on here? This kind of welcome
certainly has not been given to any Chinese automaker. And when you contrast the
two experiences, it's crystal clear what's going
on. U.S. allying with Southeast Asia,
Vietnam, Indonesia, Thailand as a counterbalance to a
rising China. VinFast has a lot of other
things companies don't: support from a large parent
corporation, industry veterans and key roles and,
apparently, encouragement from top American
politicians. However, it will need more money. It requires billions over
many years to sustain the growth of an automated,
capital intensive industry. So not the best time for
it, but they need to get to capital markets. It will also likely require
support from the Vietnamese government. The leadership of Vietnam
would say, yes, you are our national championship. We are your eventual
backstop in the event you need that extra billion to
see your way through. But funding is like
gravity. There's no way around it. You have to face up to the
need for billions of dollars over a period of 5 to 10
years. That's going to be an
enormous challenge for VinFast. And it will have to endure
what Tesla CEO Elon Musk has called production hell, the
ramping up of manufacturing capacity needed to become a
truly serious and large automaker. In the case of China or
Korea or Japan, they can rely on strong protected
home markets to make their profits. Vietnam's a small
market. VinFast last year sold only
30,000 cars in its home market. It's really
dependent on success globally, even before
success at home. Those are high hurdles to
clear. A lot of that production
will be done in North Carolina in a $2 billion
factory that at full capacity is expected to
employ 7500 people. This is something that shows
a commitment that very few startups so far outside of
perhaps Tesla and Rivian have done, which is to show
we're going to be manufacturing here,
employing workers in the U.S., which lends some kind
of credence to we're going to be here for the long
haul.
I'm not renting the battery in my car. No thanks.