As the highly successful Vietnamese EV manufacturer wades into the US market, Frost & Sullivan ponders whether a foreign brand – and a start-up at that – can succeed in a market dominated by Tesla and by increasingly aggressive domestic automakers?
Earlier in August this year, Vietnamese electric vehicle (EV) start-up VinFast created a buzz on its US stock market debut: its valuation zoomed to $85 billion as it raced past established automakers like Volkswagen, Ford, and General Motors. This followed on the Vietnamese-based company’s merger with U.S. listed special purpose acquisition company (SPAC), Black Spade Acquisition Co.
This milestone comes on the heels of its $4 billion investment plan to set up an EV plant in North Carolina. Vehicle production is likely to begin in 2025, almost a year later than originally envisaged. It is expected to be VinFast’s manufacturing hub for the North American market with initial production capacity projected at 150,000 vehicles, annually.
Reinforcing VinFast’s ambitious plans for the North American market has been its collaboration with ultrafast charging network, Electrify America on charging and mobile app integration. This deal was announced at the New York International Auto Show in April 2022. Such strategic moves come against a backdrop where EV companies, bolstered by a host of regulatory, demographic, technological and market forces, are looking to aggressively expand their geographical footprint.
There are two important aspects to consider here. Firstly, whether the US EV market – which has been slow to take off vis a vis China and Europe – truly presents a lucrative target? And, secondly, whether new, foreign companies stand a chance in a market dominated by Tesla and where both traditional automakers and domestic startups have been ploughing time, money, and resources into accelerating their electrification efforts.
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Our Perspective
EV penetration levels have remained low in the US but are on track to increase, driven by strong policy support, the wider availability and variety of models, and growing competitiveness as more traditional automakers and start-ups enter the fray.
Policy initiatives are proving to be a major catalyst in boosting vehicle electrification across the country. Support ranges from purchase incentives and emission standards to electrification targets and infrastructure development. In a bid to transition to a clean energy economy, we have seen a slew of policy measures being introduced in recent years, including the Clean Energy for America Act, the Build Back Better Act, and the US infrastructure plan.
Such policy impetus, allied with improving charging infrastructure and manufacturing facilities, has been spurring EV adoption. Simultaneously, falling battery production costs and technological advances have been strengthening performance parameters, while making EVs more accessible and affordable to a wider consumer base.
Besides, as more new entrants and traditional automakers focus on EV development, the range of BEVs and plug in hybrid electric vehicle (PHEV) models is steadily expanding. As conventional ICE fleets age, therefore, there is more motivation than ever before – both from an economic perspective in terms of lower total cost of ownership (TCO) as well as an environmental one in terms of zero emissions – to replace them with electric equivalents.
Traditional automakers like Ford, GM and Stellantis are now on overdrive, upping investments in EV R&D and manufacturing capacity expansion. The focus is also on start-ups like Lucid, Rivian, Proterra, and Canoo. And while it is debatable whether President Biden’s ambitious target of EVs comprising half of all new vehicle sales in the US by 2030 will be achieved, there is every indication that they will account for at least a third of total new US passenger vehicle sales by that time.
So to answer the first part of our question: yes, the US will, indeed, present a lucrative target market for EV manufacturers. As for the second point on how new EV companies, especially foreign ones, will fare in the US EV market? New EV companies, unlike traditional automakers, are not burdened by legacy systems, platforms or architectures. This allows them to rapidly incorporate smart vehicle features, including connectivity and autonomous driving technology, enhanced in-vehicle experiences, and innovative business models which customers are increasingly demanding. VinFast, for instance, is embracing a hybrid model which combines the automaker’s dedicated direct-to-consumer dealerships alongside regular automotive dealerships.
There is no doubt that VinFast has its work cut out as it begins its push into the US EV market. The VF8 electric SUV, currently available only in California, is pitted against Tesla’s Model Y Long Range and the Jaguar I-pace as well as ICE contenders like the Hyundai Santa Fe and Ford Explorer.
The VF9, expected to debut later this year, will be battling it out against competitors like Tesla’s Model X Long Range and Rivian R1S as well as conventional ICE challengers like the Jeep Grand Cherokee. VinFast’s product portfolio will be bolstered by the VF6 and VF7 SUVs, sales of which are slated to begin in 2024.
A key issue that VinFast will have to contend with is cost competition. Tesla has been aggressively slashing prices in a bid to boost sales. Moreover, it has been benefiting from the $7,500 federal tax credit offered under the Inflation Reduction Act (IRA). VinFast, in contrast, cannot avail of this financial benefit which is reserved for vehicles built in the US since its vehicles are currently manufactured in Vietnam.
So to answer the second question: yes, competition is increasing. Nevertheless, foreign brands can succeed, as demonstrated by the success of Honda. VinFast, for its part, is banking on cost reductions once its North Carolina plant becomes operational and on winning over customers with its feature-rich vehicles.
Ultimately, high quality, high performance products offered at cost-effective prices, novel business models, product differentiation through a focus on smart vehicle technologies, clear product positioning in high growth potential segments, and targeted marketing strategies that place evolving customer needs front and center will be the cornerstones of success in the US EV market.
With inputs from Amrita Shetty, Senior Manager, Communications & Content – Mobility
