By Francesco Guarascio, Phuong Nguyen and Miyoung Kim

HANOI (Reuters) – As Vietnam’s greatest conglomerate Vingroup doubles down on its electrical automobile enterprise with formidable international enlargement plans, it faces rising monetary dangers stemming from loss-making unit VinFast Auto (NASDAQ:).

VinFast’s fast development has hinged on gross sales to affiliated corporations which might be set to proceed this 12 months, in accordance with Reuters’ evaluation of a current securities submitting and data offered by the agency, because it struggles to draw retail patrons and faces weakening international EV demand.

The findings additionally underscore the dangers for guardian Vingroup, as VinFast misplaced a mixed $5.7 billion over the previous three years. Vingroup’s share value has plunged 38% since VinFast’s U.S. itemizing final August, and its borrowing prices have elevated.

VinFast acquired $11.4 billion of capital injections from Vingroup, its associates and the group’s billionaire founder Pham Nhat Vuong between its inception in 2017 and Dec. 31, 2023, in accordance with a U.S. Securities and Change Fee submitting in late March.

Vingroup final month introduced a $1.6 billion stake and asset sale in its retail unit Vincom Retail, one in every of its key revenue engines alongside actual property subsidiary Vinhomes, which stays worthwhile however faces a difficult property market. Vingroup instructed Reuters a portion of the proceeds would go to VinFast, which it mentioned has increased development potential.

However struggling to penetrate even its residence market, VinFast final 12 months generated 82% of its $1.1 billion of car gross sales from corporations which might be a part of Vingroup or owned by Vuong, who can also be VinFast’s CEO and successfully controls almost 98% of the Nasdaq-listed EV maker.

Practically all of VinFast’s retail gross sales in Vietnam have been additionally aided by hefty reductions supplied by way of a joint advertising marketing campaign with Vinhomes, Reuters has discovered.

The extent of VinFast’s reliance on Vingroup corporations for gross sales and financing haven’t been beforehand reported.

The corporate had up to now mentioned about 70% of its automobile deliveries final 12 months went to Inexperienced SM (GSM), a taxi operator and leasing supplier 95% owned by Vuong.

Other than $839 million gross sales of EVs and e-scooters to GSM, VinFast additionally had a $57 million EV gross sales take care of Vinhomes, a $1 million EV gross sales contract with Vingroup and $7 million of electrical bus gross sales to VinBus final 12 months.

VinFast additionally supplied vouchers price as much as 350 million dong ($14,000) every to new residence patrons of Vinhomes final 12 months. EV gross sales from the low cost programme generated round 14% of its EV revenues, the submitting confirmed, which might quantity to almost all of its retail gross sales in Vietnam.

The heavy discounting highlights the extent of gross sales stress VinFast is going through as its lineups from sport utility automobile VF8 to the VF5 crossover have but to draw important curiosity from retail patrons, retaining manufacturing charges at unprofitable ranges.

Its 35,000 EVs offered final 12 months, under its 50,000 goal, represented only a tiny fraction of its 300,000 automobile manufacturing capability at its manufacturing facility in Haiphong. This 12 months it goals for 100,000 gross sales because it expands globally.

“NOT SUSTAINABLE”

GSM, which has supercharged VinFast’s gross sales development because it was arrange final 12 months, signed a beforehand unreported $419 million take care of VinFast on the finish of final 12 months to take deliveries of 14,600 further EVs, the submitting confirmed.

Vingroup, which handles communications for VinFast and GSM, instructed Reuters the taxi agency goals to greater than double the variety of its drivers to as many as 50,000 this 12 months.

In contrast to Southeast Asian rivals Seize and GoTo’s Gojek, GSM owns its taxis and drivers are additionally immediately added to its payroll, a method that helped it develop rapidly but additionally elevated its prices. GSM had 18% of Vietnam’s ride-hailing market within the fourth quarter, trade information confirmed, trailing behind Seize.

Kengo Kurokawa, head of analysis agency Asia Plus, mentioned he didn’t suppose GSM’s ride-hailing enterprise mannequin was sustainable given its excessive value construction and the market’s low profitability. It largely is sensible solely as an promoting instrument for VinFast, he mentioned.

Vingroup mentioned profitability for GSM wouldn’t be rapid however would occur “properly earlier than 2030” and drivers might also turn into companions as an alternative of workers in the event that they personal a VinFast automobile. It declined to offer a forecast for VinFast’s anticipated automobile gross sales to GSM this 12 months however mentioned the taxi operator was in talks with VinFast “to additional enhance its fleet measurement”.

INVESTOR CONCERNS

VinFast’s purpose to almost triple automobile gross sales this 12 months now appears to be like more difficult as a result of sharply weakening international EV demand that will drive it to hunt additional monetary help from the group because it struggles to safe strategic traders it had mentioned it had already lined up when it went public final 12 months.

The EV maker’s shares have tumbled 97% since its peak shortly after its debut when its market capitalisation topped that of legacy U.S. automaker Ford (NYSE:). VinFast is now price $9.2 billion.

As VinFast racked up losses, Vingroup’s internet revenue margin almost halved final 12 months to 1.2%.

“We hope that traders’ considerations will steadily subside,” Vingroup mentioned, including it “will fulfil its remaining commitments to VinFast,” which in flip will transfer to “higher monetary independence”.

VinFast plans as much as $1.5 billion of capital spending this 12 months, in accordance with the submitting, and its founder has pledged $400 million to construct charging stations in Vietnam.

Vingroup has mentioned Vuong is dedicated to investing extra in VinFast if mandatory, a method that he final 12 months admitted made little financial sense.

“If it have been only for enterprise and earning money, the Vingroup management wouldn’t be silly sufficient to dive right into a tough subject like automobile manufacturing,” Vuong mentioned at a shareholder assembly in Might.

“Vingroup determined to create VinFast out of social duty and patriotism.”

($1 = 24,950.0000 dong)