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VinFast sold 82% of its cars to affiliated companies last

year

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Automaker's target of tripling sales faces tougher market

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VinFast's main backers grapple with growing financial

risks

By Francesco Guarascio, Phuong Nguyen and Miyoung Kim

HANOI, April 12 (Reuters) - As Vietnam's biggest

conglomerate Vingroup doubles down on its electric

vehicle business with ambitious global expansion plans, it faces

growing financial risks stemming from loss-making unit VinFast

Auto.

VinFast's rapid growth has hinged on sales to affiliated

companies that are set to continue this year, according to

Reuters' analysis of a recent securities filing and information

provided by the firm, as it struggles to attract retail buyers

and faces weakening global EV demand.

The findings also underscore the risks for parent Vingroup,

as VinFast lost a combined $5.7 billion over the past three

years. Vingroup's share price has plunged 38% since VinFast's

U.S. listing last August, and its borrowing costs have

increased.

VinFast received $11.4 billion of capital injections from

Vingroup, its affiliates and the group's billionaire founder

Pham Nhat Vuong between its inception in 2017 and Dec. 31, 2023,

according to a U.S. Securities and Exchange Commission filing in

late March.

Vingroup last month announced a $1.6 billion stake and asset

sale in its retail unit Vincom Retail, one of its key

profit engines alongside real estate subsidiary Vinhomes

, which remains profitable but faces a challenging

property market. Vingroup told Reuters a portion of the proceeds

would go to VinFast, which it said has higher growth potential.

But struggling to penetrate even its home market, VinFast

last year generated 82% of its $1.1 billion of vehicle sales

from companies that are part of Vingroup or owned by Vuong, who

is also VinFast's CEO and effectively controls nearly 98% of the

Nasdaq-listed EV maker.

Nearly all of VinFast's retail sales in Vietnam were also

aided by hefty discounts offered through a joint marketing

campaign with Vinhomes, Reuters has found.

The extent of VinFast's reliance on Vingroup companies for

sales and financing have not been previously reported.

The company had so far said about 70% of its vehicle

deliveries last year went to Green SM (GSM), a taxi operator and

leasing provider 95% owned by Vuong.

Apart from $839 million sales of EVs and e-scooters to GSM,

VinFast also had a $57 million EV sales deal with Vinhomes, a $1

million EV sales contract with Vingroup and $7 million of

electric bus sales to VinBus last year.

VinFast also offered vouchers worth up to 350 million dong

($14,000) each to new home buyers of Vinhomes last year. EV

sales from the discount programme generated around 14% of its EV

revenues, the filing showed, which could amount to nearly all of

its retail sales in Vietnam.

The heavy discounting highlights the extent of sales

pressure VinFast is facing as its lineups from sport utility

vehicle VF8 to the VF5 crossover have yet to attract significant

interest from retail buyers, keeping production rates at

unprofitable levels.

Its 35,000 EVs sold last year, below its 50,000 target,

represented just a tiny fraction of its 300,000 vehicle

production capacity at its factory in Haiphong. This year it

aims for 100,000 sales as it expands globally.

"NOT SUSTAINABLE"

GSM, which has supercharged VinFast's sales growth since it

was set up last year, signed a previously unreported $419

million deal with VinFast at the end of last year to take

deliveries of 14,600 additional EVs, the filing showed.

Vingroup, which handles communications for VinFast and GSM,

told Reuters the taxi firm aims to more than double the number

of its drivers to as many as 50,000 this year.

Unlike Southeast Asian rivals Grab and GoTo's

Gojek, GSM owns its taxis and drivers are also

directly added to its payroll, a strategy that helped it grow

quickly but also increased its costs. GSM had 18% of Vietnam's

ride-hailing market in the fourth quarter, industry data showed,

trailing behind Grab.

Kengo Kurokawa, head of research firm Asia Plus, said he did

not think GSM's ride-hailing business model was sustainable

given its high cost structure and the market's low

profitability. It largely makes sense only as an advertising

tool for VinFast, he said.

Vingroup said profitability for GSM would not be immediate

but would happen "well before 2030" and drivers may also become

partners instead of employees if they own a VinFast car. It

declined to provide a forecast for VinFast's expected vehicle

sales to GSM this year but said the taxi operator was in talks

with VinFast "to further increase its fleet size".

INVESTOR CONCERNS

VinFast's goal to nearly triple vehicle sales this year now

looks more challenging due to sharply weakening global EV demand

that may force it to seek further financial support from the

group as it struggles to secure strategic investors it had said

it had already lined up when it went public last year.

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. VinFast is now worth

$9.2 billion.

As VinFast racked up losses, Vingroup's net profit margin

nearly halved last year to 1.2%.

"We hope that investors' concerns will gradually subside,"

Vingroup said, adding it "will fulfil its remaining commitments

to VinFast," which in turn will move to "greater financial

independence".

VinFast plans up to $1.5 billion of capital spending this

year, according to the filing, and its founder has pledged $400

million to build charging stations in Vietnam.

Vingroup has said Vuong is committed to investing more in

VinFast if necessary, a strategy that he last year admitted made

little economic sense.

"If it were just for business and making money, the Vingroup

leadership would not be foolish enough to dive into a difficult

field like car manufacturing," Vuong said at a shareholder

meeting in May.

"Vingroup decided to create VinFast out of social

responsibility and patriotism."

($1 = 24,950.0000 dong)