Focus: Fast and serious: Vietnam's first domestic car manufacturer bets big

Pininfarina SpA

01/10/2018 23:48

(Repeats story first published late Monday; no change to text)
    * VinFast aims to produce 250,000 cars per year
    * Vingroup has earmarked $3.5 bln for VinFast project
    * VinFast to unveil first cars, export markets in Paris this
week
    * First two models, SUV and small sedan, due on streets next
Aug 

    By James Pearson
    HAIPHONG, Vietnam, Oct 1 (Reuters) - At a time when auto
companies in the developed world are facing a squeeze on their
profits from cash-rich tech firms, Vietnam is betting car-making
can be a ticket t o a more prosperous economy, just as it was
for the likes of Japan and South Korea.
    VinFast, a unit of Vietnam's largest conglomerate Vingroup
JSC  VIC.HM , is set to become the country's first fully-fledged
domestic car manufacturer when its first production models built
under its own badge hit the streets next August.
    "Where else in the world can you do this with this sort of
speed?" said Shaun Calvert, vice president of manufacturing at
VinFast Trading and Production LLC, looking out over an area of
factory floor where nine months earlier there was only sea.
    Calvert was speaking on a recent tour of the company's new
plant, a sprawling island complex in the northern Vietnamese
port town of Haiphong, where the two models will be built. 
    From a standing start, VinFast will have the capacity to
produce 250,000 cars annually in the next five years or so,
equivalent to 92 percent of all the cars sold in Vietnam last
year, according to data collated by the Vietnam Automobile
Manufacturers' Association (VAMA).
    Vingroup says it only embarked on creating VinFast a little
over a year ago and has earmarked about $3.5 billion for the
project.
    "We are driving the rapid expansion of the domestic
automobile market so we are absolutely focused on winning here
first," CEO Jim Deluca said ahead of the Paris Motor Show this
week, where VinFast will reveal its first export markets.
    "We're looking to expand both within ASEAN and outside."
    Most cars sold in Vietnam are foreign brands assembled in
the country from kits. But a series of free trade agreements
have reduced import duties and are opening up the market. A 30
percent import tax on cars from other Association of Southeast
Asian Nations (ASEAN) countries was scrapped this year.

    ELECTRIC SCOOTERS
    Vingroup already dominates the real estate market in Vietnam
with Vinhomes, has entered the healthcare market with Vinmec,
runs a chain of supermarkets called Vinmart, and entertains
tourists at Vinpearl resorts.
    "There's probably 4 million customers today who are
associated with Vingroup in one way or another so it's a huge
brand, it's an aspirational brand, and those customers are ready
for a domestic VinFast product," said Deluca.
    In a country synonymous with the motorbikes that zip around
the clogged streets of Hanoi and Ho Chi Minh City, VinFast will
also produce 250,000 electric scooters a year alongside the
250,000 cars, in an ambitious production target that's set to
eventually increase to 1 million units each a year. 
    VinFast has also started on the development of a battery
electric vehicle with Germany's EDAG Engineering  ED4.DE , to be
introduced in the future, Deluca added.
    "We felt on the car portfolio it was best to start with an
internal combustion engine and then soon after that launch the
battery electric vehicle," said Deluca. "From an infrastructure
perspective, it's a lot easier to charge a scooter than it is an
automobile."
    The speed with which VinFast has moved has partly been
possible due to a reliance on off-the-shelf parts.
    VinFast's first two models, an SUV and a small sedan, are
being built on a frame from BMW  BMWG.DE . The components have
been engineered by Canadian firm Magna International's  MG.TO 
Magna Steyr, while design work has been done by Italian design
house Pininfarina  PNNI.MI .
    "That gives us the ability to move very, very quickly and to
come out with a vehicle that is 100 percent ours and looks like
no other vehicles that are on the road today," Deluca said.
    
    "NATIONAL PRIDE"
    The company has also imported foreign expertise. At least
five of the VinFast leadership team, including Deluca and
Calvert, are veterans of General Motors Co  GM.N .    
    In June, the U.S. automobile giant agreed to transfer full
ownership of its Hanoi factory to VinFast for the Vietnamese
firm to produce small cars under a GM global licence from 2019.
 urn:newsml:reuters.com:*:nL4N1TU2SC
    But, despite the institutional experience VinFast has
acquired, a move into the highly competitive automobile industry
is not without significant risks.
    Local auto assembly companies have tried - and failed - in
Vietnam to sell home-grown models to the masses. Regionally,
companies such as Malaysia's Proton or Australia's Holden have
struggled to gain traction outside their home countries.
    "The key question is why the world needs yet another car
brand in a era when hardware is commoditising," said Bill Russo,
head of Shanghai-based consultancy Automobility Ltd and a former
Chrysler executive.
    "The fact that they have outsourced design and manufacturing
and are relying on foreign R&D tells me they are following a
traditional path that may not be competitive in an era of
digital mobility services."    
    Bui Ngoc Huyen, chairman of Vinaxuki, which tried to
establish a domestic automaker but ceased production in 2012
before its first car was officially launched, said Vingroup's
deep pockets should help, but warned that building a brand would
take time.
    "You have to move from producing small and cheap cars to
luxury ones," he said. "It will take several years for a new
carmaker to fine tune its products and win the confidence of
consumers. It will take between 10 and 20 years."
    Deluca said VinFast's early models would be "very
affordable" to lure local buyers, but declined to give details
of pricing.
    But in Vietnam, where hundreds of thousands of people take
to the streets with flares and flags to celebrate moderate
success after under-23 football games, VinFast is banking on an
additional competitive edge
    "We think national pride is a tremendous advantage for
VinFast," said Deluca. "What we're doing here is something
special for the men and women of Vietnam".

 (Reporting by James Pearson; Additional reporting by Khanh Vu
in Hanoi and Norihiko Shirouzu in Beijing; Editing by Alex
Richardson and Lincoln Feast.)
 ((james.pearson@thomsonreuters.com; +84-24-3825-9623; Reuters
Messaging: james.pearson.thomsonreuters.com@thomsonreuters.net;
Twitter: @pearswick))