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Sunday, May 26, 2024

VinFast’s promise to transform North Carolina’s economy won’t be easy

It’s not always easy being on the front lines of the green revolution, nor is it cheap.
Three recent electric-vehicle entrants, Lucian, Rivian and Fisker Automotive, have struggled to crank out vehicles and make money, losing a combined $10 billion in 2022.

Even Tesla, the dominant force in the EV world, was left for dead more than once during its early years, having posted negative cash flow for 13 quarters in a row. Would-be EV truckmaker Nikola is in a category of its own, with founder Trevor Milton awaiting sentencing after being convicted of securities and wire fraud for pumping up an electric truck that didn’t exist.

“Building cars at scale for profit is one of the hardest things in the world to do,” says Paul Waatti, an analyst with AutoPacific, an automotive research firm in Detroit.

Now there’s VinFast, the Vietnamese automaker setting up shop on 1,800 acres in Chatham County near Moncure. Founded in 2017, the company has invested more than $9 billion to crack the global EV business. There’s a lot riding on the success of this new project, for the company, county and the state. The latter groups have pledged about $1.2 billion over 30  years or so, representing the biggest economic incentive package in North Carolina history. In return, VinFast  promises to spend about $2 billion in the project’s first phase, then another $2 billion down the road. The company expects to eventually employ 7,500 people and to produce as many as 150,000 electric vehicles annually. Annual salaries are slated to average about  $51,000.

At a late July groundbreaking, Gov. Roy Cooper addressed a crowd of around 250 people, including VinFast global CEO Le Thi Thu Thuy, U.S. manufacturing CEO Van Anh Nguyen, and Vietnam’s U.S. Ambassador, Nguyen Quoc Dzung. As bulldozers prowled in the background and a drone hovered overhead, Cooper noted that North Carolina has pursued automakers for decades.  VinFast will be transformative, he said, “leading an army of clean energy companies coming to our state.” 

While VinFast is in the vanguard, it’s not alone; Toyota is investing $3.8 billion in a battery plant 40 miles east in Randolph County. There’s hope that the two will jointly attract a legion of suppliers. If realized, the add-on benefits of that emergent ecosystem could
be substantial.

CHATHAM’S CENTRAL ROLE

For Chatham County, VinFast is one of two massive new projects that jointly place North Carolina at the epicenter of the hoped-for U.S. manufacturing revival. Durham-based Wolfspeed is building a  $5 billion plant nearby to manufacture silicon carbide wafers, which will be turned into semiconductors at other company sites. Customers include Tesla, GM and Lucid. That facility may have a payroll of about 1,800, paying an average of nearly $78,000 per year, according to the company.

Sanford-based Central Carolina Community College is a big beneficiary, receiving as much as $38 million to help provide customized training for future VinFast employees.

“We are the first line of connection with VinFast as they think about building a workforce that will help them be successful,” says Margaret Robertson, the college’s vice president for workforce development. “If you’re coming out of high school and know VinFast is hiring, this (program) is going to give you those baseline skills” to get employed.

While the state is new to automobile manufacturing, it has a workforce with core skills that are transferable, Robertson says. These include experience with industrial systems, electrical engineering, and electronics. A presumed commuting radius of about 50 minutes puts the plant within reach of Durham, Raleigh, and a host of other towns across 18 counties. The region also hopes to attract individuals leaving the military who want to stay in the state.

“People from Chatham County and beyond can have the opportunity to receive free training and start their careers at VinFast, making EVs that will improve our environment and accelerate the revolution of the global automotive industry,” says Van Ahn, who is overseeing construction of the plant from her office in Raleigh. Central Carolina will “help prepare the future workforce, when our VinFast factory starts production.”

Kirk Bradley, whose Sanford-based Lee-Moore Capital developed the site where VinFast is building, says, “At the end of the day, there’s nothing like an [original equipment manufacturer] to create jobs and opportunity. I’m very hopeful that VinFast will produce a great car and get the market share they need to be successful.”

GETTING PAST ‘YIKES’

The EV market is supported by massive subsidies and public policy mojo directed toward creating an electrified future. On paper, it looks promising. But the spate of mostly good news has been tempered by generally abysmal reviews for VinFast’s first batch of vehicles to reach the U.S. Industry publication InsideEV used a word rarely seen in the car reviewing circles: “Yikes.” Many of the company’s first iteration were recalled in May due to a problem with the car’s display screen.

“For any of the foreign makers who are now household names (in the U.S.), the build up to that success was extremely long and very expensive” says AutoPacific’s Waatti. “Volkswagen, Toyota, Hyundai, Kia, it took decades to build brand equity and consumer trust. VinFast is off to a rocky start, but that doesn’t mean we should give up on them.”

That VinFast has a car in the U.S. at all is impressive, notes Reese Counts, vehicle test editor at Edmunds. But current models have problems that can’t be fixed on the assembly line, he says. These include suspension tuning that makes the vehicles difficult to handle, and less than impressive battery range. “The biggest issue they need to work on is overall drivability,” he says. “It’s not a good car to drive compared to every other EV out there.”

VinFast’s challenges are not unusual. “There are a lot of precedents for what needs to be done,” says Srini Rajagopalan, managing director and practice leader in automotive advisory and analytics at J.D. Power. “It took (Korean manufacturer) Kia some 20- years to achieve top quality ratings. If they (VinFast) can take that play book and run with it, maybe accelerate it a little,” they have a good chance to succeed.

VinFast has moved quickly to address the issues flagged by reviewers, says Van Anh. “Our product engineering teams immediately started reviewing and working on improving the reported issues. The recently updated versions of the software have addressed the majority of defined issues. We want to emphasize that deployment speed and solid resources to quickly match customer expectations are VinFast’s core strengths.” 

Tesla is a poster child for a struggling EV company made good. But its launch came with more of an open field than today’s market. Elon Musk’s Austin, Texas-based company now has a 60% share of U.S. EV sales, and has helped create an established, growing market that should benefit VinVast.

“EV sales made up nearly 8% of all retail sales this year and have been at 8.5% the last couple of months, up from 6% last year,” says Rajagopalan. “The biggest two segments are in the premium space where Tesla is. The third-biggest segment is compact SUVs, with 12% of all EV sales. That’s where VinFast competes.

PAPER VALUE

VinFast is an automotive upstart, having been founded 80 years after Kiichiro Toyoda founded Toyota. A unit of Vietnam’s Vingroup, it sold about 7,400 EVs in 2022, mostly in Vietnam. Even with its U.S. plant years from opening, growth is accelerating. In the third quarter, the company said it delivered about 10,000 EVs, compared to just 153 vehicles for the same period last year. The net loss for the period was $622.9 million, up 33.7% from the third quarter in 2022.

Earlier this spring, VinFast filed for an initial public offering, hoping to raise about $2 billion. That deal was pulled as market demand for new issues dried up. It then agreed to be acquired by a New York Stock Exchange-listed special purpose acquisition company (SPAC) called Black Spade.

Trading began on Aug. 15 with shares jumping 68% to about $37, leaving VinFast with a market capitalization of about $86 billion, nearly as much as Ford and GM combined. Its volatility soared in following days, with the stock topping $87 in late August, putting its market cap behind only Tesla among global carmakers.

By early October, shares fell below $10, leaving the company with a market value of about $18 billion. The volatility reflected both investor enthusiasm in the EV sector and VinFast’s modest float; founder Vuong and allied interests control about 99% of the shares, with only about 17 million of the roughly 2 billion shares outstanding available to trade. Vuong is often called Vietnam’s richest person because of his stakes in hotels, real estate and other ventures, most notably VinFast.

The SPAC deal itself brought scant additional funding. About 80% of investors cashed out in July, ahead of the merger, leaving the financing vehicle with just $28.5 million in working capital, down from about $170 million previously. (Some of those who sold surely had sellers’ remorse, at least temporarily.) But the listing gives VinFast access to U.S. capital markets, which will doubtless come in handy.

Even at the severely diminished market cap, VinFast could still issue shares to raise capital. That cash could be used to support operations, expand into new markets and create incentives for buyers. Parent Vingroup is standing behind the company, too. In its latest earnings release VinFast said that it “expects to receive up to $1.2 billion or more in grants from Vingroup, the chairman, and two key shareholders over the next six months.”

QUALITY AND RANGE

Building a manufacturing plant is one thing, selling the cars is another. Vuong said in May that the company hopes to sell as many as 50,000 vehicles this year. Those are being made in Vietnam, while the first U.S.-made SUVs are scheduled to roll off the Chatham County assembly line in 2025. The VF7, VF8 and VF9 models will be made here, with the latter two designed by Italy’s famed Pininfarina, whose portfolio includes Ferraris and Maseratis. Where the content is sourced, particularly the batteries, will determine if the cars qualify for the full $7,500 federal credit offered to buyers of U.S.-built EVs. VinFast is obligated to sell its cars in North Carolina through franchise auto dealers, but no contracts have been signed.

“Setting up in the U.S is a good first step for selling in the U.S.,” says J.D. Power’s Rajagopalan. “If they are eligible for the Inflation Reduction Act (credits), that brings the pricing down automatically. They just need to keep focusing on the quality and on the range.”

J.D. Power studies show “the top 10 reasons people don’t want to consider EVs all have to do with the range, the pricing and the reliability,” he adds. “They have to get those three things right. There are enough success stories in the market. It can be done. You just have to make sure you have a better option than your competitors. You have to make sure the value proposition for the customer is a no-brainer.”

VinFast’s pricing is broadly in line with its competitors, with the VF8 starting at $46,000 and the VF9 at $83,000. (The VF7 price has not been released.) But the range lags industry leader Tesla. Analysts are impressed by the VinFast warranty, which ranges from seven years and 100,000 miles to 10 years and 125,000 miles and includes vehicle batteries, according to its website.

The company’s challenge is to make its cars stand out in a crowded field with that  Rajagopalan calls “showroom delight.” Two or three generations of vehicles may be necessary to achieve that marker, he says.

VinFast has shown that it can move fast, and that is clearly an advantage in the auto industry. “It’s a long transition, and VinFast is hitting the market at the bottom of the hockey stick,” says AutoPacific’s Waatti. “They can pivot quicker than a legacy OEM.”

Meanwhile, the state’s contribution to VinFast is big, but the bill doesn’t come due all at once. The infrastructure improvements are first, valued at $450 million. Chatham County is pitching in another $400 million over the 30-year period. The $38 million for training will be drawn down as individuals complete their programs and enter the workforce. If things go as planned, the Vietnamese company will contribute about $71 billion to the N.C. economy over the next three decades, according to state estimates.

Capturing the project’s excitement, Vietnam’s ambassador told the crowd at groundbreaking, “I believe that you all share with me the hope that in the near future, VinFast EVs produced in North Carolina, will be rolling out on roads across the United States and playing their part in keeping the U.S. clean and livable.”

Whether or not VinFast succeeds, the site will remain. “So far as the state’s investment, they (VinFast) won’t collect $800 million unless they perform and the $400 million in infrastructure will be there for another company,” says Tony Copeland, senior economic development and corporate strategist at Brooks Pierce in Raleigh, and a former North Carolina Secretary of Commerce.

The task facing VinFast is a formidable one, but it would be a mistake to underestimate them, adds Bradley. “They have a track record of success going back to the founder’s (Vuong) first company. Like everybody they’re about figuring out how to do it. They don’t seem like quitters to me.” 

While VinFast talks about selling electric vehicles in 2025, Charlotte auto dealer Steve Magowan is racking up sales of a startup brand at his unusual Queen City dealership.

Magowan, 78, has owned Charlotte’s University Volvo dealership since 1978, with partners Michael Spinks and Greg Cole. They opened a showroom this summer for Polestar, an EV brand designed in Sweden and built in China. The dealership has sold more than 300 cars over the last year, Magowan says. Polestar expects to deliver as many as 70,000 vehicles globally, compared with 51,500 last year.

The 2,400-square foot showroom across from Charlotte’s SouthPark Mall is the only Polestar branch between Atlanta and Washington, D.C.

Polestar is 48% owned by Volvo, which is part of China’s Geely Auto group. It has sold hybrids and all-electric vehicles since 2019. Sales should accelerate next year because of the company’s plans to assembling vehicles at’s Volvo plant near  Charleston, South Carolina.

Buyers of Polestars prefer a different EV than the market leader Tesla, says Spinks, who joined University Volvo in 1986. The Polestar 2  lists for $50,000 to $57,000 and competes against electric rivals such as the Tesla Model 3, BMWi4 and Hyundai Ioniq. The Polestar 4 is expected to go on sale early next year with a starting price of $85,000, the company said in October.

Polestar wanted a Charlotte location because of increasing demand for EVs, the region’s growth and North Carolina’s commitment to spend $109 million on charging stations, says Greg Hembrough, president of Polestar North America. He praises Magowan’s longstanding success in Charlotte.

Early in his career, rhe former science teacher chose a  dealership service technician job that paid twice as much as a potential university research post. He eventually became an owner, preferring a single-store focus rather than building a chain, His passions include working on sports cars at his Rowan County garage. His son, Andy, owns Durham’s Geer Street Garden restaurant.

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