What’s behind Vingroup’s $1.5bn bet in automaking?

Realty conglomerate Vingroup will invest $1.5 billion in phase one of its first automobile factory

The construction site of the Vinfast factory in Hai Phong, northern Vietnam.

A top Vingroup executive has recently addressed media and public speculation on the real intent behind its plan to make a foray into car-manufacturing with a US$1.5 million investment.

On Saturday, Vingroup broke ground on its Vinfast automobile facility in the northern city of Hai Phong, officially marking its expansion into the automotive industry.

The realty conglomerate also attracted media attention with the hefty claim that it would be capable of producing electric motorbikes in just 12 months and cars within 24 months.

Vingroup deputy president Nguyen Viet Quang said he acknowledged the shock, surprise, and concern from the public and local experts, but “[they] believe it is possible to make Vietnamese-branded cars with guaranteed quality and design.”

“Vietnamese people are patriotic and it will not be difficult to change their consumption habits if we can provide them with quality products,” he told Tuoi Tre (Youth) newspaper on Tuesday, implying that Vingroup will be able to persuade local people to buy cars with Vietnamese nameplates.

Asked why Vingroup was willing to earmark billions of dollars for carmaking despite having zero experience in the industry, Quang responded that the company “wants to build a world-class Vietnamese brand.”

The deputy president said Vingroup will leverage its own advantages in capital, technology, personnel, reputation, existing distribution networks, and showrooms at Vincom outlets countrywide.

“Carmaking is just like other fields which Vingroup has expanded into despite having zero experience,” he said.

“Reality proves that all of those Vingroup brands are known and trusted by local consumers,” he added, an apparent reference to the retail, healthcare, and education sectors where Vingroup operates under such brands as Vinmart, Vinmec and Vinschool.

Vingroup decided to dive into the auto market at a time when existing industry leaders are reducing domestic production in favor of selling more profitable, fully assembled vehicles from imports.

Carmakers in Vietnam are likely to begin switching to selling completely built-up vehicles next year once duties for complete car imports are reduced to zero, a potential problem for companies like Vingroup looking to enter the domestic car manufacturing market.

But Quang does not foresee the potential competition as a deterrent for a Vietnamese company to enter the market.

He says Vingroup looks at more factors than just import duties, including the country’s low vehicle per capita ratio, developing infrastructure, and improved personal income.

“Vietnam currently has only 23 vehicles per 1,000 people, compared to Thailand’s 204 per 1,000 ratio,” he elaborated.

“We have a big demand for cars, our traffic infrastructure is being improved, and our per capita income is expected to reach $3,000 by 2020.

“All of these factors will result in booming growth for the Vietnamese car market and we believe this is the right time to invest in this field.”

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