VinFast was forced to act as Tesla sparked a global electric car price reduction war

VinFast reluctantly had to reduce its selling price to stay competitive with its models in the US market.

Tesla has just kicked off the price war in the global electric vehicle sector with a reduction of up to 20% to stimulate consumer demand. The electric vehicle market will be significantly disturbed, the effects of which may not be fully appreciated. But in the short term, Tesla’s move makes rivals in the electric car field unable to sit still, especially in the US, the world’s largest auto market.

Following this, Ford announced a discount on one of its best-selling electric models, the Mustang Mach-E. At the same time, VinFast also had to reluctantly participate in the price race, in the context that the Vietnamese electric car manufacturer had just set foot in the United States.

“The fact that companies reduce selling prices forces us to offer promotions to ensure the competitiveness of VinFast cars,” said a media representative of Vingroup. The new electric car company is “considering many incentive programs”. Specifically, VinFast announced a 6,500 USD discount for VF8, a mid-size electric SUV.

Competition with the world’s leading competitors is something that VinFast has foreseen and is classified as one of the key risks. The Vietnamese company will have to contend with established EV (electric vehicle) manufacturers, well-known ICE (gasoline engine) car manufacturers that want to enter the market, or even new players similar to VinFast.

Tesla has established a position in the global market, a well-known brand, and relationships with customers and suppliers. Tesla sold more than 522 thousand vehicles in the US in 2022, up 48% from 2021, according to data from Motor Intelligence. But when demand began to decline in the second half of the year, especially in China, Tesla cut prices, acting multi-target.

Competition in the electric vehicle market may be more intense in the future, with increased demand leading to stronger participation of new players. Differences in brand, product design, price, cost of use, after-sales service, production scale bring many variables. High competition can lead to lower sales of VinFast, putting downward pressure on prices, adversely affecting business operations, financial situation and operating cash flow.

VinFast is a new player in the electric vehicle market, having to market and sell cars in the international market. The company has achieved the first step when bringing 999 electric vehicles to the West Coast of the United States to hand over to customers. Despite the ability to execute quickly: deliver the ICE vehicle after 2 years, launch the first EV model after 4 years, sell the car in the US market after 5 years; but the electric vehicle industry is still too new for a corporation with a core of real estate like Vingroup.

“Unforeseen risks associated with the move from an ICE manufacturer to an EV could adversely affect our operations,” VinFast stated in a prospectus filed with the US Securities and Exchange Commission (SEC) in December. 2022.

In Vietnam, VinFast’s future success depends on its ability to continue to design, manufacture and sell safe, high-quality vehicles as the company transitions to an all-electric vehicle manufacturer. Besides, with the growth strategy of selling cars in the international market, VinFast also faces more risks.

VinFast listed at least 16 risks when operating in foreign markets with unlimited notes: competition with more powerful potential competitors, development and distribution costs in many countries, legal, risks to the global economy, supply chains, infrastructure, marketing networks, currency fluctuations, etc.

But let’s talk about complicated macroeconomic factors, being forced to participate in a price war will significantly reduce VinFast’s already negative profit margin. VinFast’s ability to achieve profitability is only possible when the company hits its sales target and increases the use of its production capacity.

Until September 2022, parent company Vingroup plays a key role in providing financial support to VinFast. Vingroup and its affiliates and lenders have financed $7.5 billion in operating expenses and capital expenditures since 2017, according to the prospectus. But the Vietnamese manufacturer will need more capital to support the growth of its electric vehicle business globally.

With significant capital needs in the medium term, the company is expecting a lot from the initial public offering (IPO) and listing on the US stock exchange in the second quarter of 2023. The deal could help VinFast raise $1 billion, according to Bloomberg.