VinFast, a Vietnamese company, must pass a tough test in electric vehicle sales to maintain its high valuation.

VinFast, a Vietnamese company, must pass a tough test in electric vehicle sales to maintain its high valuation.

Vietnam’s VinFast Faces Challenges in Overseas Expansion

VinFast, Vietnam’s electric vehicle (EV) champion, has successfully secured a listing on Nasdaq, impressing investors with a valuation of over $85 billion. This valuation places VinFast ahead of established automakers like Ford and General Motors. However, now comes the real challenge for VinFast – accelerating overseas expansion.

To achieve its ambitious annual sales target of 50,000 EVs, VinFast needs to revamp its sales strategy. Currently, the company primarily sells through its own platform, taking inspiration from Tesla. However, to reach its stretch target, VinFast plans to bring in distributors and dealers, enabling it to tap into a wider network. This shift will require significant efforts and restructuring.

One critical aspect of VinFast’s strategy to compete effectively lies in reducing costs. To be competitive with industry powerhouse Tesla, VinFast needs to bring its products’ prices down. Tesla has leveraged its economies of scale and industry-leading margins to cut prices, intensifying pressure on its competitors. VinFast recognizes the need to adjust its cost base to remain competitive.

The successful debut of VinFast on Nasdaq led to a surge in the company’s shares. However, as 99% of the company is controlled by VinFast’s founder, Pham Nhat Vuong, the stock’s limited float makes it subject to increased volatility. Other EV special purpose acquisition company (SPAC) deals, such as Lucid, have experienced share price declines after listing. VinFast’s future valuation trajectory may also be influenced by its capital-raising activities. The company is in talks with various investors, including sovereign wealth funds, and aims to secure additional funding in the next 18 months.

VinFast’s Nasdaq listing opens up possibilities for the company to offer share-based compensation, which can help attract and retain senior executives. This move could be instrumental in overcoming previous challenges related to executive retention.

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CEO Le Thi Thu Thuy revealed that VinFast plans to shift to a hybrid model for sales, incorporating distributors and dealers for overseas markets. While initially relying on its own showrooms, VinFast now seeks to accelerate its growth by collaborating with partners. Thuy acknowledged that while opening their own stores is beneficial, it is time-consuming. Joining forces with partners aligns with VinFast’s goal of expediting expansion.

As of June, VinFast has established 122 showrooms globally, with a particular focus on the U.S. West Coast. Founder Vuong expressed confidence that the company could achieve sales of 50,000 EVs this year. In the first seven months, VinFast sold over 16,000 EVs, including domestic sales in Vietnam. Notably, in the U.S., VinFast has only sold 137 units of its VF8 model, its sole offering in the market.

CFO David Mansfield reassured stakeholders that VinFast remains on track to achieve its annual sales target. Even if VinFast manages to sell 50,000 EVs, it would only represent a fraction of the production capacity of its Haiphong, Vietnam plant. A new facility in North Carolina is currently under construction and is expected to commence operations in 2025.

Experts from consultancy firm AlixPartners estimate that EV manufacturers need to achieve annual sales of 400,000 vehicles to break even. This figure accounts for the fiercely competitive Chinese market, where most companies are involved in a price war to secure market share. VinFast faces the challenge of pricing its products competitively, especially considering Tesla’s recent introduction of more affordable versions of its Model S and Model X. The Tesla Model Y is nearly $7,000 cheaper than VinFast’s VF8, even after accounting for federal subsidies.

Thuy remains optimistic about VinFast’s ability to offer competitively priced EVs. She believes Vietnam’s low-cost base puts VinFast in a favorable position for cost reduction in the future. As the company continues to refine its operations and expand its global presence, cost reduction efforts will play a crucial role in sustaining its competitive edge.

In conclusion, while VinFast’s successful Nasdaq listing demonstrates investor confidence, the company faces significant challenges in achieving its ambitious sales targets and expanding overseas. By embracing a hybrid sales model, fostering partnerships, and focusing on cost reduction, VinFast aims to compete with established players like Tesla and break into the global EV market. As the company matures and continues to innovate, time will tell if VinFast can sustain its rapid growth and become a formidable presence in the industry.

References:

• Reuters. (2021, August 16). Vietnam’s VinFast Faces Uphill Battle After Scaling Manhattan Peaks. ANBLE. Link

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