Vingroup: VinFast to deliver first car

VEHICLE SALES IN VIETNAM SOURCE: VAMA AND OICA

Today is the first day of the rest of VinFast’s life. It is the day that the first VinFast car comes off the assembly line. It will be the first car produced in Vietnam by a Vietnamese company (some foreign brands are assembled in Vietnam).

I wrote about the automotive market in Vietnam back on February 26 (scroll or search for “vehicle”), and we had seen a plateauing of sales over the past two years. I attributed this to tariffs and changes in policy. But things are picking up: through May sales rose 18% yoy and, and passenger vehicle sales were up 33%.

SOURCE: VINGROUP, CHART BY VIETECON.COM

So while the market is growing, but maye still not fast enough. VinFast’s factories have capacity to produce 250,000 e-scooters (started in 4Q2018) and 250,000 4-wheelers. The company really needs to built its export markets to sell all of these cars and scooters. The domestic market for cars is just over 250,000 a year, so VinFast would have to take over the market, which is unlikely.

But if they are successful selling domestically and for export, I estimate (very broad estimate) that if they were able to sell 500,000 cars and scooters a year, the operating profit could be as high as $450m a year. Of course, this depends on a lot of things, particularly maintaining good operating margins (7% on cars, 10% on scooters). That might actually be quite difficult, because so many of the parts are from other manufacturers (the chasis is from Opel and BMW with components engineered by Magna Steyr).

The current market cap of VinGroup is around $15bn (VND350 trillion). So vehicles are a big part of the future of Vingroup. And this is just one of the big initiatives of the group at the company. They are also going into the mobile handset market with VinSmart.

Vingroup seems expensive to me, but we will have to see what happens with the car and scooter sales. If sales are good, and VinFast can start to export these cars (same with the phone business), then I will get more comfortable with the very high valuation (more than 90x trailing EPS).