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Vietnam's richest man bets US$2b to sell cars to US
[HANOI] The billionaire behind six-month-old Vietnamese car 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 carmaker, 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 earlier 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 Mr Vuong 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 Ltd and Malaysia's Proton Holdings Bhd struggled to win over consumers away from their home turf. Even in Vietnam, VinFast Trading and Production LLC has formidable competition from established foreign players such as Toyota, Ford Motor Co and Hyundai.
Shares of Vingroup fell 1.2 per cent as of 9.37am local time, poised for its lowest close since July 15. The benchmark VN Index of Vietnamese stocks dropped 0.3 per cent.
VinFast follows a long list of Chinese carmakers that have also had ambitions to sell vehicles in the US going back more than a decade. Though the plans have yet come to fruition, Guangzhou Automobile Group Co, Zotye Automobile Co 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 car shows in recent years.
The tycoon, whose net worth is US$9.1 billion, according to the Bloomberg Billionaires Index, is undaunted. He sold some of his shares in Vingroup last year and plans to sell as much as 10 per cent more to raise funds for the ambitious project. He owns 49 per cent of VinFast, while the parent, Vingroup, holds 51 per cent.
The carmaker won't be profitable for as many as five years, said Mr Vuong, adding the local market is "too small" and overseas sales are key to becoming profitable. Mr Vuong directly owns 26 per cent of Vingroup, according to Bloomberg data. Vietnam Investment Group JSC, in which Vuong has about a 92 per cent stake, holds 31.6 per cent of Vingroup.
And 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 successfully manufacturing and selling electric vehicles. Many Chinese startups, backed by billions of dollars in funding, bet on the prospects for EVs (electric vehicles) in the world's biggest carmarket, 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 Inc, which is traded in New York, has struggled to assuage concerns that it's 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.
VinFast must clear several high hurdles to compete outside Vietnam, said Michael Dunne, chief executive officer of automotive consultant ZoZo Go LLC, which specialises in the Asian market. "It will be some time before the company is ready to compete in the US - still the world's toughest market," he said. "You need a solid brand name."
Many consumers prefer a second-hand Honda Motor Co or Toyota vehicle over a new car with an unfamiliar brand name, Mr Dunne said. The Vietnamese carmaker 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, Mr Dunne 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 is offered at US$60,400. The company targets production of as many as 500,000 vehicles a year by 2025. The carmarker 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 dong (S$1.06 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 while 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. Mr Vuong also plans to list VinFast on a Vietnamese exchange and possibly overseas, he said, without elaborating.
"We have the desire to build a Vietnamese brand that has a world-class reputation," he said. "Our biggest challenge is that Vietnamese products do not have an international brand. To many international friends, Vietnam is still a poor, backward country. We will have to find a way to market and prove our products represent a dynamic and developing Vietnam that has reached the highest standards of the world."