Resilience in motion: How GSM drives Vinfast's EV strategy
(images from Cafef)
The purchase of a car is a substantial investment for every family, and consumers often prefer established brands with proven reliability. This concern is particularly pronounced in the EV segment, where many customers may hesitate to invest in vehicles from newer manufacturers without an extensive track record. One of the biggest challenges for any new EV manufacturers (or automotive manufacturers in general) is overcoming consumer skepticism and selling their products.
This is an even bigger challenge for Vingroup when they move from real estate development to this new industry without any successful track record in manufacturing.
As anticipated by market observers, the sales of VF series are not great. The large upfront investment costs together with substantial losses on the company’s financial statements also puts the company into the situation in which its operation as an ongoing concern is heavily dependent on capital contribution/grant/loan from Vingroup and Vingroup’s chairman, Mr Pham Nhat Vuong.
For quite sometimes, it seems like the only way for Vinfast to survive is to be resilient, to be able to educate its customers on its new business, to establish network of extensive dealership, and of course to have a lot of cash to burn. However, everything has changed since the incorporation of GSM (as defined below).
The incorporation of Xanh GSM
Green and Smart Mobility Joint Stock Company (“GSM”) is incorporated on 1 March 2023 with the initial charter capital of VND 3,000 billion. The founding shareholders including Mr. Pham Nhat Vuong (95%) and Vingroup (5%). The initial charter capital was contributed mainly from the transfer of ownership of 50,77 million VIC shares from Mr. Vuong to Xanh GSM (with the market value of VND 2,850 billion) while the initial working capital of VND 297 billion was contributed by Vingroup.
The capital contribution using shares rather than cash from Mr. Vuong is a multi-purposes action whereby:
GSM could mortgage/pledge the shares to obtain financing for its operation/investment.
The market price of VIC is not affected negatively due to massive selling.
There is no taxable event at the settlement date of the transfer of ownership of the shares.
Leveraging the capital contribution, Xanh GSM started as a traditional taxi company with unknown number of cars in Hanoi and a small fleet of only 600 electric cars in Ho Chi Minh and a humble preliminary plan to cover only 5 provinces of Vietnam.
GSM and the integration with Vinfast as a largest client
In 2023 (i) the number of EVs delivered is 34,855. Out of that number, 72% were to related parties of the Company (mainly to GSM) and (ii) the number of E-scooters delivered is 72,468. Out of that number, 46% were to related parties of the Company (mainly to GSM).
In the first two quarters of 2024, the trend is similar whereby the percentage of related party transactions is reduced to around more than 50% of the number of EVs delivered. Although the company has not disclosed whether it is mainly to GSM or not, I guess that it should be the case.
The number of sales with related parties is prompting several conclusions from market participants suggesting that the sales of Vinfast is “unreal” and the “real one” would need to exclude the number from such “related parties”.
With me, Vingroup has created a brilliant and unique business model using GSM as a major component in boosting its EV sales and such sales are all real and new cash from banks as follows:
Vinfast does not need to expend any money on marketing/advertising/sale on the transaction with GSM and these transactions are big in term of volume so it could afford Vinfast to offer GSM with a deep discount.
As GSM has low investment cost per car and utilize the network of charging stations around big cities of Vingroup for relative low cost to zero cost, it could afford to reduce its fee to acquire more customers and expand its platform presence.
As GSM acquires a larger customer base, its growing revenue stream could position the company to leverage its earnings to secure loans or credit from financial institutions. This loans or credits could, in turn, finance the purchase of new EVs from Vinfast and expands the presence of GSM in Vietnam market.
The purchase from GSM, which operates a significant fleet of VinFast electric vehicles (EVs) in Vietnam, essentially provides a guaranteed and steady demand stream for VinFast, bypassing many conventional sales challenges of a new player like Vinfast. This approach allows VinFast to accelerate its EV production, optimize costs, and gather large-scale usage data in a controlled market, enhancing both product quality and user experience for future markets.
The wider presence of GSM also benefits its clients as it creates a more convenient experience.
This is a brilliant model and Vinfast and its affiliates could be beneficial from this vertical integration to capture the value of the whole “food chain” from manufacturing to selling the end products to users (transportations service).
Ride-hailing model
Growing faster as a traditional taxi company requires GSM to put in more and more equity and incur a lot of debt on its concentrated balance sheet which could create risk or at least “perceived risk” for banks and credit institutions. The growing risk, in turn, could lead to more concern from banks and credit institutions as they have regulatory constraints to avoid concentration risk.
To resolve this and ensure the growing in sales of Vinfast, GSM has employed another proven model which is Grab’s model. The superiority of this model is that it allows GSM to outsource the financing risk out of the company’s balance sheet into the balance sheet of “partner drivers”. This approach could be seen as a diversification of risk from bank perspective and allows banks to overcome regulatory constraints to fuel the sales from Vinfast using bank financing.
Preliminary conclusions
This positive feedback loop could go on until GSM acquire all the market share of traditional taxi companies and ride-hailing platforms like Grab in Vietnam market and expand to other international markets.
In my simple mind, the incorporation of GSM together with the implementation of its business plan is a part of using the financing expertise of Vingroup in real estate business to effectively “crowdfunding” the growth of Vinfast using the financial resources of Vietnam. The strategy of creating a "built-in" client, like GSM, also provides VinFast with an immediate distribution network and brand visibility. Unlike traditional car manufacturers that rely heavily on consumer trust and reputation—challenging for any new EV brands—VinFast reduces market-entry risk by deploying its products within a managed service. This mitigates the need for individual consumer buy-in, especially as EV adoption remains tentative among buyers. While some may view this setup as a related-party(a) transaction, it’s a strategic method to scale production and solidify brand credibility domestically before aggressively expanding internationally as with time and the continuous presence of GSM, Vietnam market would be educated and eventually accepted Vinfast as their primary choice when it comes to a purchase of a new EV.
This is not a post about legal mechanic of a transaction but more or less a post about me being so awed to financing guys and gals who could be very creative when it comes to financing a business plan and especially to whoever being able to think and draw out the whole plan for Vinfast and GSM from the very beginning.