Conglomerate faces risks as it extends consumer businesses into automaking.
On an island off northern Vietnam, the conglomerate Vingroup is moving earth, raising girders, and working round the clock to build the most ambitious industrial project in the communist-ruled country’s history: a factory complex that, within two years, will make the first Vietnamese “national car”.
Vinfast, as Vingroup’s new car brand is called, will begin producing electric motorbikes at a factory on the site, near the port city of Haiphong, later this year, then next year a saloon and a sport utility vehicle. Design sketches for the two cars, which will be unveiled at the Paris car show in October, show sleek and sporty models, each with a “V” emblazoned on their grilles.
At the manufacturing site on Cat Hai island, a circular, glassy headquarters and research and development building is already in place, and the scooter plant is rising behind it. The project, on which Vingroup is spending $1.5bn in its initial phase, is so large that it has called in all the companies that supply pilings from northern Vietnam, and some from the south too.
However, the shift into carmaking will be a trip into the unknown both for the conglomerate and for Vietnam’s manufacturing-driven economy, analogous to the moment in the 1970s when the South Korean chaebol Hyundai, today a top producer, developed its first cars.
For Vingroup, it could prove a risky move: carmaking is an intensely competitive, low-margin global industry in which other producers who sought to hoist the national flag with a locally made vehicle — including Proton in nearby Malaysia — have struggled.
The Vietnamese group is leaning heavily on foreign expertise and suppliers to smooth its launch into cars, but some of China’s myriad fledgling producers have done the same and failed to build sustainable businesses.
Vietnamese consumers, who rely largely on two-wheeled transport, bought fewer than 250,000 cars last year, about a quarter of the number sold in bigger, richer Indonesia, where officials and businesspeople have also mooted — but until now resisted developing — a “national car”.
It will be new territory too for Vingroup. The conglomerate is Vietnam’s biggest real estate company, produces food, runs retail stores, operates schools and universities, and is building Indochina’s tallest building in Ho Chi Minh City.
However, for Vingroup executives, the move into cars is the next logical step for a company set on serving every need of Vietnam’s growing middle and affluent class.
“The concept is from the cradle to the grave,” Le Thi Thu Thuy, the senior group executive overseeing the Vinfast project, told the Financial Times. “The group wants to cater to every part of the consumer’s life in Vietnam, and giving the consumer a better life.”
The car project is clearly a point of pride for a country where patriotic feeling runs high, and which is striving to shift its foreign-dominated manufacturing sector into higher value-added areas.
“When you talk to people here, a lot were pulled in by the rallying cry of doing a car for the people,” says Jim DeLuca, the veteran General Motors executive Vinfast has recruited as chief executive. “It’s bigger than Vingroup, it’s bigger than us — this is for the people.”
Vingroup broke ground on its factory complex on September 2, Vietnam’s national holiday marking the date when the country declared independence from France in 1945.
“There’s a saying that every proper country needs five things: a flag, a national anthem, an army, an airline, and a car company,” says Robin Zhu, senior analyst for Asian autos at Bernstein.
Other countries in the region will be watching. Thailand, home to Southeast Asia’s biggest car industry, produces nearly 2m vehicles and has capacity to make 1m more. However, the producers — led by Toyota, Isuzu, and Honda — are foreign, and about half of what the industry makes goes to export.
Vietnam has one major car, truck and bus manufacturer, Truong Hai Automobile Co (Thaco), but it produces for foreign brands.
Vingroup’s Ms Thuy says the Vinfast project’s initial phase will cost $1.5bn, out of a total planned investment of $3bn-$3.5bn. Initially, Vinfast plans to install capacity to produce up to 300,000 electric scooters and 250,000 cars per year, but executives have spoken of increasing this to as many as 1m scooters and 500,000 cars annually by 2025 — an ambitious figure for a market of Vietnam’s size.
“I think they will have to produce for another brand to maintain their capacity,” said Titikorn Lertsirirungsun, regional manager for Asean countries at LMC Automotive in Bangkok.
Vingroup counters scepticism over its prospects of building a viable car brand from scratch by saying it has brought in expertise and executives from some of the industry’s top names.
In addition to Mr DeLuca, who headed global manufacturing at GM, Vinfast has also recruited as its head of purchasing an executive from Bosch, the German supply giant, and a head of manufacturing from Holden, the recently discontinued GM brand in Australia.
BMW, the German carmaker, is licensing a production platform and engine for the two forthcoming models, and contract manufacturer Magna Steyr is acting as a consultant to Vingroup on vehicle technology.
Vingroup commissioned design sketches for its two vehicles from four top design houses, and selected Italy’s Pininfarina to develop styling for the forthcoming models. The company says it will launch the two cars in the third quarter of 2019.
The company is not discussing prices, but Ms Thuy says the vehicles will be “affordable for the Vietnamese”. She says: “We are making cars for the mass market, so the pricing will be competitive.”
By : John Reed
Source: Financial Times