The all-electric Vinfast VF7 is on display at the 2022 Los Angeles Auto Show on November 18, 2022 in Los Angeles, California.
Image: Josh Lefkowitz /Getty Images
It’s raining electric carmakers in India.
Four months ago, it was Tesla, the world’s most valuable automaker who said that India is an exciting market to foray into. In fact, after a meeting with Indian Prime Minister Narendra Modi, Elon Musk, the billionaire founder of Tesla, said that his company would start operations in India as soon as humanly possible.
Now, it’s the turn of the $18 billion VinFast, a relatively lesser-known Vietnamese automaker which in August this year, albeit briefly, became the world’s third most valued automaker. “India is the third largest car market in the world,” a spokesperson for VinFast told Forbes India. “While EV penetration is at 1 percent, there is a huge potential in BEV (Battery Electric Vehicle) adoption here that VinFast is looking forward to participating [in].”
The company is currently studying the market and could possibly set up a manufacturing facility in either Gujarat or Tamil Nadu, both automobile hubs of India. “We are planning to build a CKD factory in India,” the spokesperson added. Under CKD, or completely knocked down route, a vehicle is assembled in a country, after parts and components are imported, with the route attracting the lowest import duty at 15 percent.
VinFast will bring three models to India, VF3, VF5, and VFe34 to start with, the spokesperson confirmed. Of this, the VF5 currently retails at Vietnamese Dong (VND) 538 million (approximately $22,900) in Vietnam, while the VF3 is priced around VND 300 million, (less than $15,000) and the VFe34 at VND 830 million ($33,000). Considering that the vehicles will be imported to India, the prices could go up by 15 percent.
VinFast, which was valued at over $191 billion in August this year, after going public that month, has since seen a steep decline in its valuation. The company is promoted by Vietnam’s richest man, Pham Nhat Vuong, who owns Vietnam’s largest conglomerate, Vingroup, with interests in real estate, retail, and healthcare among others. Vuong, who studied in Russia and started a popular instant noodle business in Ukraine in the 1990s before moving back to the South Asian country has a net worth of $4.7 billion. His company, Vingroup, contributed 1.5 percent to Vietnam’s GDP in 2021.
“VinFast's decision to follow a CKD (Completely Knocked Down) route, as opposed to Tesla's plan for local manufacturing, aligns with a different strategic approach,” Harshvardhan Sharma, the head of auto retail practice at Nomura Research Institute says. “While Tesla's commitment to manufacturing in India is commendable, going the CKD route can offer several advantages. It allows for faster market entry, reduced initial investment, and flexibility in adapting to market demands. It also enables VinFast to gauge the market's response before committing to large-scale manufacturing.”
VinFast’s plan to take the CKD route follows that of Chinese electric vehicle giant BYD, which sells its popular Atto 3 and E6 models in the country. BYD currently sells close to 200 units a month, while market leader Tata sells nearly 6,000 electric vehicles a month on the back of its popular models such as Nexon and Tiago. “VinFast should carefully monitor developments in the Indian automotive landscape and be prepared to transition to localised manufacturing when market conditions and demand warrant such a move,” adds Sharma. Also read: Tesla Needs India And India Needs Tesla. Now It's All About Making It Work
From Vietnam to the world
VinFast initially began operations in 2017 in Vietnam, and by 2018, the company purchased a factory owned by General Motors in Hanoi, with licensing rights for the GM-owned Chevrolet Spark. The company also struck up a partnership with BMW to manufacture local versions of the company’s flagship BMW 5 Series and X5 SUV, which helped cement the automaker’s business domestically, with rapid growth in sales. By 2021, the company launched two new e-scooters, the Theon and Feliz, as well as Vietnam’s very first e-bus.
By 2022, VinFast pivoted entirely towards electric vehicles and launched three new EVs, the VF e34, and the larger, all-electric premium SUVs VF 8 and VF 9. Since then, the company has forayed into the American market and is now busy setting up a $4 billion electric vehicle facility in the US. Currently, though, the company’s vehicles are manufactured in Hai Phong, with a production capacity of 300,000 EVs per year.
Last year, in all, VinFast sold 7,400 electric vehicles, all of which were sold in Vietnam. Of this, 4,000 were the VFe34s and another 3,200 were VF8 models, with another 100 electric buses. “As of December 31, 2022, we had reservations for nearly 70,000 VF e34, VF 5, VF 8, and VF 9 EVs globally, the majority of which were reservations for the VF 8 and VF 9 models in Vietnam,” VinFast had said in its prospectus before going public.
This year, the company has sold over 11,000 vehicles through the first half of the year, of which 7,100 were sold to Green and Smart Mobility, a Vietnamese taxi company controlled by parent Vingroup. VinFast’s third-quarter revenues rose $343 million while its net loss during the quarter stood at $623 million.
In all, VinFast is planning to sell between 40,000 and 50,000 vehicles this year and has also moved to a hybrid model in the US where it runs its own dealerships before selling directly to consumers. The company wants to break even by 2024 and is also looking to start deliveries in Europe.
Interestingly, VinFast’s foray into Europe also comes at a time when the European Commission launched an investigation to assess whether it needs to impose punitive tariffs to counter the influx of cheaper Chinese electric vehicles that benefit from state subsidies, paving the way for the likes of VinFast in one of the world’s biggest automobile markets, that’s transitioning rapidly into electric powertrains.
Also read: The Tata Group has built an electric vehicle universe. Can it help its global ambitions?
VinFast’s foray into India comes at a time when the Indian government has been closely scrutinising the entry of Chinese electric carmakers in the country. Apart from BYD, and MG Motors, India currently does not have any Chinese automakers in the electric car segment. Geopolitical tensions between the countries have meant that many Chinese automakers who had made plans to foray into India are now stuck.
Even BYD’s plan to spend $1 billion in capital expansion had to be shelved after opposition from the Indian government, according to reports. “BYD has established itself as a trusted and affordable choice for Indian consumers and wins with key commercial accounts such as Blusmart is a testament that there is ample appetite for a good product market fit in the commercial premium EVs in India,” says Sharma. VinFast, as a newcomer, can certainly leverage BYD's achievements as a testament to the Indian market's potential.”
Over the past few years, India’s electric vehicle segment has seen some serious traction, with both homegrown and foreign automakers making a beeline with their models. Globally, automakers ranging from GM to BMW and Ford are expected to spend over $500 billion in developing all-electric vehicles from gasoline models over the next several years.
In India, automakers from Tata to Mahindra have taken the plunge to develop their models as the government looks to have 30 percent of all vehicles sold in the country to be electric by 2030. Currently, Tata Motors sells over 6,500 units of electric vehicles every month in the country. By 2030, about 40 to 45 percent of all two-wheelers and 15 to 20 percent of all four-wheelers (passenger vehicles) sold in India will be electric, according to a report by Bain & Co, while the government wants EV penetration to hit 40 percent for buses, 30 percent for private cars, 70 percent for commercial vehicles, and 80 percent for two-wheelers.
Still, affordability remains a key constraint when it comes to mass adoption in a market that’s well-known for being price sensitive. Currently, electric vehicles from Kia, Mercedes, BMW, and Hyundai, among others, position themselves at a higher price point, making them less accessible to a broader consumer base.
Of the 48,000 electric vehicles sold in the first half of 2022, Tata Motors sold as many as 34,000 units, contributing to as much as 72 percent of the market according to Singapore headquartered market research firm Canalys. Tata Motors is followed by MG Motors and Mahindra, which sold around 5,000 vehicles and 4,300 units during that period. The Tata Tiago was the country’s highest-selling electric vehicle, followed by Tata Nexon and Tata Tigor.
“India presents a vast and dynamic market with a growing appetite for electric vehicles,” says Sharma of Nomura. “To gain the trust and association of Indian buyers, VinFast must focus on quality, reliability, affordability, and customer-centricity. Additionally, offering competitive pricing and a diverse product portfolio will help VinFast connect with Indian consumers who value choice and affordability.” Also read: Charged up: Inside Ola's audacious electric gambit
That’s also why the entry of Tesla is much awaited. Tesla is expected to build a sub $20,000 electric vehicle, and the Indian market, with its cheaper workforce and a production-linked incentive from the government, could help hasten that. For long, Musk himself has been advocating a sub-$30,000 (Rs 24.5 lakh) electric vehicle, but even the cheapest of Teslas costs as much as $39,000 (Rs 32 lakh) in the US. Over the past few months though, Tesla has been taking the fight to other automakers in the US with a series of price cuts, on the back of its position as a cost leader.
That’s also why, diversifying quickly into markets like India, with enormous potential, makes sense for the likes of VinFast as it ramps up on its electric ambitions, and emerge as Vietnam’s answer to Tesla. It only adds up that India’s electric vehicle (EV) market is expected to have a compound annual growth rate (CAGR) of 90 percent in this decade to touch $150 billion by 2030, providing a great deal of opportunity for the likes of VinFast.
“India’s automotive market is diverse and full of opportunities,” adds Sharma. “VinFast, with the right strategies and adaptability, has the potential to carve a niche for itself and earn the trust of Indian buyers.” For now, the ground work has been laid. It’s all about how quickly VinFast can build on it.