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.
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."
First Published: Oct 06, 2023, 16:55
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