By Francesco Guarascio, Phuong Nguyen and Miyoung Kim
HANOI (Reuters) – As Vietnam’s biggest conglomerate Vingroup doubles down on its electric vehicle business with ambitious global expansion plans, it faces growing financial risks stemming from loss-making unit VinFast Auto (NASDAQ:).
VinFast’s rapid growth has hinged on sales to affiliated companies that are set to continue this year, according to Reuters’ analysis of a recent securities filing and information provided by the firm, as it struggles to attract retail buyers and faces weakening global EV demand.
The findings also underscore the risks for parent Vingroup, as VinFast lost a combined $5.7 billion over the past three years. Vingroup’s share price has plunged 38% since VinFast’s U.S. listing last August, and its borrowing costs have increased.
VinFast received $11.4 billion of capital injections from Vingroup, its affiliates and the group’s billionaire founder Pham Nhat Vuong between its inception in 2017 and Dec. 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 retail unit Vincom Retail, one of its key profit engines alongside real estate subsidiary Vinhomes, which remains profitable but faces a challenging property market. Vingroup told Reuters a portion of the proceeds would go to VinFast, which it said has higher growth potential.
But struggling to penetrate even its home market, VinFast last year generated 82% of its $1.1 billion of vehicle sales from companies that are part of Vingroup or owned by Vuong, who is also VinFast’s CEO and effectively controls nearly 98% of the Nasdaq-listed EV maker.
Nearly all of VinFast’s retail sales in Vietnam were also aided by hefty discounts offered through a joint marketing campaign with Vinhomes, Reuters has found.
The extent of VinFast’s reliance on Vingroup companies for sales and financing have not been previously reported.
The company had so far said about 70% of its vehicle deliveries last year went to Green SM (GSM), a taxi operator and leasing provider 95% owned by Vuong.
Apart from $839 million sales of EVs and e-scooters to GSM, VinFast also had a $57 million EV sales deal with Vinhomes, a $1 million EV sales contract with Vingroup and $7 million of electric bus sales to VinBus last year.
VinFast also offered vouchers worth up to 350 million dong ($14,000) each to new home buyers of Vinhomes last year. EV sales from the discount programme generated around 14% of its EV revenues, the filing showed, which could amount to nearly all of its retail sales in Vietnam.
The heavy discounting highlights the extent of sales pressure VinFast is facing as its lineups from sport utility vehicle VF8 to the VF5 crossover have yet to attract significant interest from retail buyers, keeping production rates at unprofitable levels.
Its 35,000 EVs sold last year, below its 50,000 target, represented just a tiny fraction of its 300,000 vehicle production capacity at its factory in Haiphong. This year it aims for 100,000 sales as it expands globally.
“NOT SUSTAINABLE”
GSM, which has supercharged VinFast’s sales growth since it was set up last year, signed a previously unreported $419 million deal with VinFast at the end of last year to take deliveries of 14,600 additional EVs, the filing showed.
Vingroup, which handles communications for VinFast and GSM, told Reuters the taxi firm aims to more than double the number of its drivers to as many as 50,000 this year.
Unlike Southeast Asian rivals Grab and GoTo’s Gojek, GSM owns its taxis and drivers are also directly added to its payroll, a strategy that helped it grow quickly but also increased its costs. GSM had 18% of Vietnam’s ride-hailing market in the fourth quarter, industry data showed, trailing behind Grab.
Kengo Kurokawa, head of research firm Asia Plus, said he did not think GSM’s ride-hailing business model was sustainable given its high cost structure and the market’s low profitability. It largely makes sense only as an advertising tool for VinFast, he said.
Vingroup said profitability for GSM would not be immediate but would happen “well before 2030” and drivers may also become partners instead of employees if they own a VinFast car. It declined to provide a forecast for VinFast’s expected vehicle sales to GSM this year but said the taxi operator was in talks with VinFast “to further increase its fleet size”.
INVESTOR CONCERNS
VinFast’s goal to nearly triple vehicle sales this year now looks more challenging due to sharply weakening global EV demand that may force it to seek further financial support from the group as it struggles to secure strategic investors it had said it had already lined up when it went public last year.
The EV maker’s shares have tumbled 97% since its peak shortly after its debut when its market capitalisation topped that of legacy U.S. automaker Ford (NYSE:). VinFast is now worth $9.2 billion.
As VinFast racked up losses, Vingroup’s net profit margin nearly halved last year to 1.2%.
“We hope that investors’ concerns will gradually subside,” Vingroup said, adding it “will fulfil its remaining commitments to VinFast,” which in turn will move to “greater financial independence”.
VinFast plans up to $1.5 billion of capital spending this year, according to the filing, and its founder has pledged $400 million to build charging stations in Vietnam.
Vingroup has said Vuong is committed to investing more in VinFast if necessary, a strategy that he last year admitted made little economic sense.
“If it were just for business and making money, the Vingroup leadership would not be foolish enough to dive into a difficult field 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)
