Why is Vietnamese company VinFast building an electric car factory in the US? – Diplomat

Pacific money | Economy | Southeast Asia

The fledgling automaker is hoping that moving production to the US will help it meet growing demand for electric vehicles in America.

Earlier this year, Vietnamese automaker VinFast, a subsidiary of large conglomerate Vingroup, announced that plans to build a $2 billion electric vehicle (EV) plant in North Carolina. The total cost of investment, including battery production and other ancillary facilities, could be as high as $6.5 billion. The plant, scheduled to be operational by 2024, will create thousands of jobs and produce up to 150,000 electric vehicles a year. For its part, North Carolina rolled out the red carpet, offering $1.2 billion in incentives on WinFast.

It’s an interesting role reversal in the world of global supply chains we’re used to, where historically American, Japanese, and Korean companies are shifting production to places like Vietnam to take advantage of lower manufacturing costs. A Vietnamese conglomerate investing billions in a tech and capital-intensive manufacturing facility in North Carolina and President Joe Biden touting the American jobs he will create is a clever way to flip the script. So what is the logic behind VinFast’s actions?

The first thing to look at is the structure of the auto industry in Vietnam’s backyard in Southeast Asia. Thailand has historically been and remains a regional leader in the production of cars, mainly for export. In recent years, Indonesia I’m catching updue to growing demand in the domestic market.

Thailand and Indonesia are also looking to gain a foothold in global EV supply chains, and these efforts are supported by powerful state-owned companies. By comparison, VinFast is a relative newcomer to the automotive industry and will face stiff competition from these more established regional companies.

Secondly, the demand profile and infrastructure for electric vehicles both in the world and in Southeast Asia. Europe, the US and China are now the strongest drivers of global demand for electric vehicles. According to ForbesU.S. electric vehicle sales are forecast to hit 670,000 in 2022, up 37 percent from the previous year. And this number is expected to grow.

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The same demand for electric vehicles does not yet exist in much of Southeast Asia, and even if it did, the charging infrastructure does not allow domestic markets to absorb electric vehicles on the same scale. This means that, for now, if electric vehicles become an important component of Southeast Asian vehicle production, demand will come mainly from export markets.

VinFast has a large manufacturing base in Haiphong, which is expected to eventually be able to produce 950,000 units per year. The products of this enterprise can be used in the export markets of China, South Korea, Japan and the whole region. But when it comes to entering the U.S. electric vehicle market, VinFast has made the strategic calculation that moving production to North Carolina is the right decision, rather than locating production in Vietnam and shipping units across the Pacific.

This is a bold move, and of course we don’t know how it will turn out. The US market is crowded and competitive. And obviously it will be harder for VinFast to control manufacturing costs in the United States, which is one of the big comparative advantages of locating manufacturing in Vietnam.

But due to a lack of comparable local demand for electric vehicles, and with Vietnam competing against a regional car export giant like Thailand, Vietnam has decided to do better by moving production directly to the US, where it can directly tap into the hot and growing market. . In doing so, it also sends a signal of Vietnam’s growing influence in the global economy and its ability to disrupt traditional production patterns by shifting capital and high-tech manufacturing to a high-income country.