EV maker VinFast’s challenges raise risks for parent company Vingroup -April 12, 2024 at 2:01 am.

Vietnam’s largest conglomerate Vingroup is doubling down on its electric car business with ambitious global expansion plans, but faces mounting financial risks from its loss-making VinFast Auto unit.

VinFast’s rapid growth depends on sales to partners, which will continue this year, according to a Reuters analysis of recent securities filings and information provided by the company, as it struggles to attract buyers and faces weak global demand for electric vehicles.

The results also underscore the risks for parent company Vingroup, as VinFast has lost a total of $5.7 billion over the past three years. Vingroup’s share price has fallen 38% since listing on US VinFast in August last year and financing costs have risen.

VinFast received $11.4 billion in capital injections from Vingroup, its affiliates and the group’s billionaire founder Pham Nhat Vuong between its founding in 2017 and December 31, 2023, according to a U.S. Securities and Exchange Commission filing in late March.

Vingroup last month announced a $1.6 billion stake and asset sale in its Vincom Retail unit, one of its profit drivers along with subsidiary Vinhomes, which remains profitable but faces a challenging property market. Vingroup told Reuters that part of the proceeds will go to VinFast, which it said has high growth potential.

But VinFast is struggling to penetrate even its home market, getting 82% of its $1.1 billion in sales last year from companies that are part of Vingroup or owned by Vuong, who is also VinFast’s CEO, and in fact about 98% of Nasdaq. – listed EV maker.

Almost all of VinFast’s retail sales in Vietnam were also helped by deep discounts offered through a joint marketing campaign with Vinhomes, Reuters found.

The extent to which VinFast relies on Vingroup companies for sales and financing has not been previously reported.

The company has so far said that about 70% of its vehicle deliveries last year went to Green SM (GSM), a taxi operator and rental distributor that is 95% owned by Vuong.

In addition to selling EVs and scooters worth $839 million to GSM, VinFast also had a $57 million EV sales contract with Vinhomes last year, a $1 million EV sales contract with Vingroup and a $7 million sale in electric buses. for VinBus.

VinFast also gave out vouchers worth 350 million dong ($14,000) each to new home buyers from Vinhomes last year. Discount program EV sales generated about 14% of EV revenue, the filing showed, which can reach almost all of Vietnam’s retail sales.

The heavy discounts reflect the level of sales pressure facing VinFast, as its product lines, from the VF8 sports utility vehicle to the VF5 crossover, have yet to attract much interest from retail buyers, leaving production at unprofitable levels.

The 35,000 EVs sold last year, below the target of 50,000, represented only a fraction of the Haiphong plant’s production capacity of 300,000 vehicles. This year the company is targeting 100,000 sales as it expands internationally.

“NOT CONTINUOUS

GSM, which has driven VinFast’s sales growth since its inception last year, signed a previously undisclosed $419 million initial contract with VinFast late last year to supply an additional 14,600 EVs, the filing showed.

Vingroup, which handles communications for VinFast and GSM, told Reuters that the taxi company wants to more than double the number of drivers this year to 50,000.

Unlike Southeast Asian rivals Grab and GoTo’s Gojek, GSM owns its taxis and also puts drivers directly on the payroll, a strategy that helped the company grow quickly but also increased its costs. GSM held 18% of Vietnam’s ride-hailing market in the fourth quarter, industry data showed, behind Grab.

Kengo Kurokawa, head of research firm Asia Plus, said he does not think the GSM business model is sustainable due to the high cost and low profit market structure. It is largely understood as a promotional tool for VinFast, he said.

Vingroup said the benefits for GSM will not be immediate, but will be “before 2030” and that drivers can also become partners instead of employees if they own a VinFast vehicle. Vingroup declined to provide a forecast for VinFast’s expected GSM car sales this year, but said the taxi operator was in discussions with VinFast “to further expand its fleet.”

CONCERNS OF INVESTORS

VinFast’s target of nearly tripling vehicle sales this year is now looking more difficult due to weakening global demand for EVs. This could force the company to seek more financial support from the group as it struggles to find strategic investors that were already lined up when it went public last year.

Shares of the EV maker have fallen 97% since peaking shortly after its debut, when its market capitalization overtook that of US carmaker Ford. VinFast is now valued at $9.2 billion.

As VinFast widened losses, Vingroup’s profit margin nearly halved last year to 1.2%.

“We hope that investors’ concerns will gradually disappear,” Vingroup said, adding that it will “fulfill its remaining obligations to VinFast,” which in turn will move toward “greater financial independence.”

VinFast plans up to $1.5 billion in capital spending this year, according to the filing, and its founder has committed $400 million to building payment centers in Vietnam.

Vingroup said Vuong is committed to investing more in VinFast if necessary, a strategy he admitted last year did not make economic sense.

“If it was just business and making money, Vingroup’s leadership would not be so stupid as to venture into a difficult area like car manufacturing,” Vuong said at a shareholder meeting in May.

“Vingroup decided to create VinFast out of social responsibility and patriotism.”

($1 = 24.950,0000 dong)