Vietnam's richest man bets US$2 billion on selling cars to the US

Hanoi

THE billionaire behind six-month-old Vietnamese auto startup VinFast plans a feat even Toyota Motor Corp and Hyundai Motor Co couldn't pull off during their early days - sell a car in the US.

Pham Nhat Vuong, the South-east Asian country's richest man and now in charge of the new automaker, is so intent on exporting electric vehicles to the lucrative American market in 2021 that he's ploughing as much as US$2 billion of his own fortune to reach that goal. His cash would account for half the capital investment of VinFast, which began delivering cars to Vietnamese consumers with BMW-licensed engines this year and aims to expand into electric vehicles.

"Our ultimate goal is to create an international brand," the 51-year-old tycoon said in an interview at the Hanoi headquarters of the car company's parent Vingroup JSC, which he founded and holds the title of chairman. "It will be a very difficult road and we will have to put in a lot of effort. But there's only one road ahead."

The homegrown cars made under Mr Vuong's sprawling real estate-to-hospitals conglomerate faces an uphill battle to succeed overseas: carmakers such as India's Tata Motors and Malaysia's Proton Holdings struggled to win over consumers away from their home turf.

Even in Vietnam, VinFast Trading and Production has formidable competition from established foreign players such as Toyota, Ford Motor Co and Hyundai.

Shares of Vingroup fell 1.6 per cent as of 1.56pm local time, poised for its lowest close since June 18. The benchmark VN Index of Vietnamese stocks dropped 1 per cent.

VinFast follows a long list of Chinese automakers that have also nursed ambitions in the past decade to sell vehicles in the US. Though the plans have yet to come to fruition, Guangzhou Automobile Group, Zotye Automobile and others have set up local sales units and research-and-development operations to show just how serious they are. Some Chinese brands have also exhibited at American auto shows in recent years.

The tycoon, whose net worth on the Bloomberg Billionaires Index is US$9.1 billion, is undaunted.

Vingroup sold some shares last year and Mr Vuong plans to sell as much as 10 per cent of his own shares to raise funds for the ambitious project. He owns 49 per cent of VinFast, while the parent, Vingroup, holds 51 per cent.

The automaker won't be profitable for as many as five years, he said, adding that the local market is "too small" and overseas sales are key to becoming profitable.

VinFast will have to overcome an even more daunting task of winning over demanding consumers in the US and other developed markets, where emissions and crash standards are stringent.

Adding to these challenges is that of successfully manufacturing and selling electric vehicles (EVs). Many Chinese startups, backed by billions of dollars in funding, bet on the prospects for EVs in the world's biggest auto market, but few are making money.

BAIC BluePark New Energy Technology Co, China's biggest maker of pure electric cars, forecasts a 2019 loss. Unprofitable NIO Inchas struggled to assuage concerns that it is running short on cash amid sputtering EV demand.

VinFast's first EV won't roll off its assembly line until late next year, but Mr Vuong said he plans to export those vehicles to the US, Europe and Russia in 2021.

Many consumers prefer a second-hand Honda or Toyota over a new car with an unfamiliar brand name, said Michael Dunne, chief executive officer of automotive consultant ZoZo Go, which specialises in the Asian market.

The Vietnamese automaker will need to produce at least 100,000 vehicles a year to be cost-competitive, develop a global brand and establish a parts-and-services network, he said. Still, VinFast has an opportunity to crack smaller South-east Asian markets, the CEO added.

VinFast, which operates a 335-hectare factory in the northern port city of Haiphong, is selling its first line of vehicles - a hatchback, sedan and SUV - at below cost.

The hatchback retails for the equivalent of US$17,000, while the four-cylinder sedan goes for US$47,400 and its SUV, US$60,400. The company targets production of as many as 500,000 vehicles a year by 2025. The carmaker also makes electric scooters.

In the next few years, Vingroup will have to spend "many trillions of dong per year" to cover losses for VinFast, estimated at as much as 18 trillion (S$1 billion) annually, Mr Vuong said. Those losses include financing and depreciation, and as much as seven trillion dong each year to absorb the hit of selling cars below cost, he added.

Vingroup will divest stakes in other units to fund VinFast, even as other subsidiaries have been ordered to reduce costs, Mr Vuong said, without providing details.

VinFast will also seek additional loans, in addition to about US$1.95 billion of international loans it has already raised. He also plans to list VinFast on a Vietnamese exchange and possibly overseas. BLOOMBERG