VinFast Makes Headlines at CES 2024, but Supplier Beware

VinFast has been receiving attention at CES 2024 with the unveiling of its new VF Wild pickup truck concept, the global launch of the VF3 subcompact crossover, and an innovation award for Artificial Intelligence (AI)-driven automatic mirrors. This news comes shortly after some other big announcements from the Vietnamese Electric Vehicle (EV) Original Equipment Manufacturer (OEM), including a US$2 billion EV factory in India and a new dealer network in the United States.

The Vingroup conglomerate’s automotive division first gained widespread recognition in August 2023 when it debuted on Nasdaq; following its Initial Public Offering (IPO), VinFast’s stock had a meteoric rise that briefly saw it become the world’s third most valuable OEM. In the few years since launching its first car, VinFast has been in the news an inordinate amount, but with little to back it up.

VinFast has grandiose plans. As well as its factory in India, it is working on another US$2 billion facility in North Carolina for the U.S. market, both with a planned capacity of 150,000 units, and an assembly plant in Indonesia to supply right-hand EVs for the region. These factories are intended to supplement the automaker’s largest plant in Hai Phong in its native Vietnam and contribute toward its target of reaching annual vehicle sales of 750,000 in 2026. Based on ABI Research’s most recent forecasts, this would represent a 4% share of the global BEV market; excluding the Chinese market, which VinFast has no plans to enter, this would be a market share of nearly 9% in the rest of the world.

This would require VinFast’s sales to grow 19X in just 3 years from its 2023 target of at least 40,000 units, a Compound Annual Growth Rate (CAGR) of 165%. The OEM fell short of its annual targets with 34,855 global sales, but even this figure paints a more optimistic picture than the reality. VinFast’s 2023 figures are heavily inflated by sales to Green Smart Mobility (GSM), a ride-hailing company owned by VinFast’s founder, Chief Executive Officer (CEO), and biggest investor: Phạm Nhật Vượng. GSM exclusively buys VinFast vehicles for its fleet, and its orders accounted for around 60% of the OEM’s deliveries up to 3Q 2023, approximately 13,000 units. GSM has committed to further orders of 30,000 EVs and 200,000 e-scooters by early 2025.

Almost all of VinFast sales, so far, have been made in Vietnam, where it dominates the nascent EV market. In its home country, it can benefit from cross-promotional activities within its parent organization and exemption from high taxes on foreign vehicles, but in the international market where its ambitions lie, its cars will need to compete on their own merits.

The VF8 is the only model that is currently available in North America and Europe; it has received broadly negative reviews from leading automotive publications, particularly with regard to build quality, ride quality, and software reliability. The VF8 also failed to meet the highest standards for safety that it was designed for: it scored four out of five stars in European New Car Assessment Programme (Euro NCAP) crash tests and received the lowest score for adult occupant safety out of the 17 vehicles rated under the 2023 scheme. Its U.S. list price of US$46,000 makes the Sport Utility Vehicle (SUV) more expensive than most of the alternatives from more established competitors, including the Hyundai IONIQ 5, Volkswagen ID.4, and Tesla Model Y. Without brand recognition, competitive prices, or high-quality products, it is unsurprising that just 237 VinFast cars were sold in the United States in the first three quarters.

VinFast is clearly not a company that will be coming anywhere close to its stated aspirations, and this is concerning for suppliers it has inked deals with. VinFast is engaged with a wide range of leading suppliers in fields such as Advanced Driver-Assistance Systems (ADAS), manufacturing automation, powertrain, battery, and infotainment. Vendors should avoid relying on VinFast’s custom of licensing components and hardware or software on a per vehicle basis, as its publicly announced plans are unlikely to materialize.

This is particularly relevant for companies that may form part of the physical supply chain for VinFast’s overseas facilities, such as the plant in North Carolina that is slated for completion in 2025. With a typical capacity utilization rate, this factory would produce around 120,000 vehicles per year, giving VinFast an expected 6% share of the U.S. Battery Electric Vehicle (BEV) market in 2026 that seems unlikely without dramatic changes to its product lineup. Vendors must evaluate carefully before investing in production lines to supply VinFast’s international manufacturing base.

This is not to say that suppliers should avoid VinFast altogether; in its expansion phase, it is still a valuable partner as a client for Non-Recurring Engineering (NRE). Across its upcoming facilities in North Carolina, India, and Indonesia, its Capital Expenditure (CAPEX) is expected to reach up to US$1.8 billion, and it will be looking for partners to assist it in setting up these production lines. Its factory in Hai Phong has state-of-the-art levels of digitization and automation achieved with the help of providers such as ABB, KUKA, and Siemens and is not at fault; the problem is that this factory had a capacity utilization rate of around 13% in the third quarter.