Traffic travels along a road at night in Hanoi, Vietnam. (Photographer: Luong Thai Linh/Bloomberg)

Vietnam Wants to Make Own Cars; Vingroup to Invest $3.5 Billion

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(Bloomberg) -- Vietnam wants to design and make cars for its 90 million motorbike and scooter riders.

The country’s largest real-estate company Vingroup JSC said it plans to invest up to $3.5 billion to set up a manufacturing and research and development complex, aiming to roll out the first car in 24 months. The Hanoi-based developer will break ground on the $1 billion to $1.5 billion first phase of the plant Saturday, with a plan to make sedans, sport utility vehicles and electric cars in the future, Vingroup Vice Chairwoman Le Thi Thu Thuy said.

“We want to create an affordable and high-quality car for Vietnamese,” Thuy said during an interview at the company’s Hanoi headquarters.

Vingroup has signed a memorandum of understanding with a major investment bank regarding a potential loan for as much as $800 million, though it plans to fund most of the project itself, she said.

Vietnam’s ambitions are similar to efforts by companies in China and Malaysia, which have also tried to create cheaper, local brands to woo consumers in a region where foreign brands including Toyota Motor Corp. and Volkswagen AG have had years of dominance. Vingroup will face the same challenges as Chinese automakers, which have struggled to win over buyers in the world’s biggest vehicle market, said Steve Man, a Hong Kong-based automobile industry analyst for Bloomberg Intelligence.

Italian Design

Vingroup plans to fund most of the new company, called VINFAST, by itself, Thuy said. The company will appoint an executive from a global automaker to be the car company’s chief executive officer. It wants to use Italian design houses and will rely on U.S. and European companies to help produce main components such as engines, she said.

Vingroup, which began as a real estate company, is now a conglomerate with seven core units, including the new automobile business. Vincom Retail, a Vingroup subsidiary backed by Warburg Pincus, is planning a domestic initial public offering that could become the country’s biggest-ever share sale from the private sector. The mall operator is preparing to raise funds as economic growth in Vietnam raises living standards and increases shoppers’ disposable incomes.

The car project is going to be a “very difficult” challenge, said Michel Tosto, head of institutional sales and brokerage at Viet Capital Securities JSC. The company should rather seek a venture with a foreign automaker, he said.

“It doesn’t have the expertise nor the capital for that,” Tosto said. “It’s a highly competitive space dominated by foreign brands.”

Chinese companies such as Geely, BYD, Beijing Auto and Chery have been trying for years to create a domestic car brand. Sales of cars bearing Chinese nameplates accounted for 43.5 percent of the total sales during January to July, according to the China Association of Automobile Manufacturers.

Toyota is Vietnam’s biggest car seller with a 23 percent market share in July, according to the Vietnam Automobile Manufacturers’ Association. Ford Motor Co. had 12 percent.

VINFAST’s automobile complex, to be located in the northern port city of Haiphong, will initially produce sedans and SUVs. Vingroup plans to eventually expand to mini and electric cars and targets production of up to 500,000 vehicles per year by 2025, Thuy said. The facility will include an e-scooter plant, which is expected to produce its first model in 12 months.

“The project is very complicated,” she said. “I’m not saying it will be easy.”

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