VinFast Auto Ltd. Q3 FY2024 earnings call

• Q3 2024 was underpinned by a robust September with highest monthly delivery ever in home market, becoming Vietnam's market leader. - International strategy calibrations started to pay off with North America's best month in history. - Q3 deliveries: 21,912 EVs delivered, e-scooter and B2C car sales growth. - Drivers of markets: Vietnam's retail sales growth due to VF 3 and VF 5, traditional taxi operators adopting EVs; international markets with growing dealer network, new models launched in North America and Indonesia, battery leasing and ecosystem as key pillars in Indonesia. - Global showroom and charging network: 173 showrooms as of October 31, 2024, customers have access to over 1 million charge points globally. - Received US$3.5 billion capital injection from Vingroup and VinFast Founder to support growth and profitability.

In Q3 2024, VinFast delivered 21,912 EVs, a 66% quarter-over-quarter and 115% year-over-year increase. E-scooter delivery in Q3 were 18,894, a 44% sequential increase and a 33% year-on-year decrease (excluding GSM delivery, it was a 118% increase). B2C electric car sales grew 163% quarter-over-quarter and 497% year-over-year. In Vietnam, retail sales grew 159% quarter-over-quarter and 504% year-over-year in Q3 2024 due to VF 3 and VF 5. International markets saw approximately 9% of deliveries in Q3 2024 versus 3% a year ago. North America had its best September ever, Canada had three consecutive months of growth, Indonesia started delivering VF e34 and others, and the Philippines launched VF 3. The accessible segment including VF 3 and VF 5 accounted for 35% of revenue in Q3.

• Reiterates 80,000 vehicle delivery target for 2024. - 2025 to have growth trajectory similar to 2024, focusing on further expansion in international markets, diversifying product offering in North America, launching new strategies in Indonesia and Philippines, and new CKD facilities coming online. - Plans first ever Investor Day in first half of 2025.

Actual events or results may differ due to a number of risks and uncertainties, refer to cautionary language and risk factors in most recent filings with the U.S. Securities and Exchange Commission.

Q: Can you share any color on your confidence in hitting the full year 2024 target?

A: We're very confident about hitting the 80,000 targets, especially having seen October and November numbers as well. We had a very robust Q3 number where we hit a number of milestones. We became the number one OEM in Vietnam and have exceeded our internal forecast for deliveries in the U.S. In Canada as well, we saw three consecutive best-selling months. So we continue the traction to solidify our market-leading position in October in Vietnam and for the first 10 months in 2024 in the domestic market. We expect that this momentum will continue through Q4 and like I said, having seen the number in October and November, we're very confident to hit the 80,000 delivery target.

Q: You have talked about BOM optimization for the last two quarters. Can you share more specifics on what areas, are you focused on with regards to BOM optimization, and how does this impact your EV architecture?

A: We have a number of planned initiatives for BOM optimization that's undergoing, and the testing and validation phase optimizing and upgrading and electric vehicle, electric - electronics architecture is a complex [indiscernible] that given that the safety is the overarching priority. We also have the look for the discussion with the many long-term relationships with the suppliers that we support, with the better terms - and terms in payment. Besides, we also have the - we are also optimizing some features like ADAS features for various models and better sourcing for the other components that we have the very good result for the negotiation, or favorable material price changes.

Q: Just wondering if you wouldn't mind just walking us through the liquidity one more time. Just given the recent US$3.5 billion capital injection. Can you maybe just remind us when you're expecting, I guess just when you're expecting to receive this and what is the expected cash runway as a result of this recent capital raise?

A: As we have previously shared the injection of US$3.5 billion we take over a two-year period to 2026, we will disclose the timing and amount from grants and loans as it happens. Our liquidity provision as I just mentioned in the remarks that at the end of Q3, 2024 suited US$1 billion, which includes US$79 million in cash and US$968 million in e-log facilities. We expect conservatively that our cash burn to be roughly in line with the historical spend even as the revenue growth is expected. The use of this for the capital injection will go into our CapEx and debt repayment. The major CapEx items to consider including our factories, ongoing battery leasing expenses and CapEx R&D. For our capital deployment strategy balances near term growth investment, with the long-term sustainability. And our committed capital support, gives us the confidence in executing our growth plans, while maintaining financial discipline.

Q: Just wondering if you're still on track to achieve positive gross margins next year and kind of what that path between here and there might look like?

A: For now, we still maintain our forecast for 2025, and 2026. We are in the middle of the budget season right now, and making changes to the five-year plan. So, we expect that we're going to be able to provide more guidance at the end of this quarter.

Q: I guess I'm just curious to get a little bit more color, on kind of the rationale for that facility. It seems like it's just going to be to manufacture the VF 3 and VF 5, which makes sense given the demand you're seeing. I guess I'm just curious, kind of why pursue this route, and kind of just the strategic rationale here for this new facility?

A: We still have a backlog for VF 3. We've been trying very hard in the last months to deliver on the backlog orders of VF 3, but we don't think we'll be able to finish it this year. And the demand for VF 3 and VF 5 continue growing. These are the best-selling models for Vietnamese market. Having seen the other markets like Indonesia, like the Philippines, we see the same trend as well. And we see the excitement for the VF 3, pretty much everywhere globally. So this CKD factory dedicated to VF 3 and VF 5, is to meet the growing need, for those affordable models.

Q: How does this maybe change, how you think about the production capabilities of those two facilities? And then also on those two, at this point, what's still left to be completed on those two to get them up and running next year?

A: So the India and Indonesia facility, are still necessary for the tax reason in those countries. So these are the countries that are quite yes like a very protective of the domestic manufacturing. So having the facilities in those markets are necessary, to be competitive. The new CKD facility in Vietnam, are meant to meet the need for mostly domestic markets, and maybe some other markets as well. So they are complementary with each other.

Q: Can you elaborate more on the finance lease for the new factory?

A: So the new facility, is on the long-term lease structure similar to the sales lease by, cutter structure where we don't have to invest initial capital, and we pay the lease on annual basis. And we have the option to buy back - to have the option to buy the facility from the lessor in the future. This structure allows VinFast to carry out prudent management of capital, and enabling the company to allocate resources efficiently, while balancing growth and profitability.

Q: Can you comment about your ASP? Is VinFast overly focused on lower price models and targeting lower income countries?

A: In Q3, ASP was US$21,000 per unit, compared to US$24,000 per unit in Q2, a decline of over 10% in ASP, driven primarily by we introduced VF3 into the mix. We expect to see ASP remaining range during the early adoption stage, where customers tend to prefer small cars, low price tasks to explore and experience. We expect ASP to pick up once the early adoption wave is done, and customers are more comfortable with EVs. First becoming more willing to pay for higher price bigger cars. However, ASP one, is only one part of the equation. The other part is unit growth. Our objective introduction of the more affordable models, is to capture a particular underserved cohort of consumers that prioritized value in both dollar terms and environmental impact. So ultimately strong unit growth should offset with the ASP decline, and lead to the sustainable revenue growth.

Q: Can you share the deliveries to GSM in the third quarter '24 as well the guidance for future deliveries to GSM?

A: For GSM in Q3, 2024 account for 22% of the - our total volume less than the Q1, because you - as you may remember that in Q1, GSM accounted for 46% of the total volume. So in the total nine months of the 2024 total volume from related party is much less significant than it was in last year 2023, like 38% versus 72%. So we see that the GSMS B2B customer has been shortly - had pushed for the EV adoption. Bringing VinFast EV closer to the consumers through real-life experiences, building a brand awareness, not just in Vietnam, but also in the markets that GSM expanding into - as we have been able to grow our customer base, we also expect our GSM contribution to the VinFast revenue, will be less significant in 2024, compared to 2023.

Q: Can you talk about what the - as we think about 2025, what the ramp is going to look like when you think about in Indonesia in the U.S. Like is that going to be something where it's more of like a second half ramp? Or first, can you just maybe talk about as much as you could explain as we go into 2025?

A: 2025, we still think that Vietnam in will contribute a significant path to the deliveries in the year. And it's actually a good thing that we have Vietnam as the whole market, the deflation market that allow us to get closer to profitability. We also expect - we just barely started in Indonesia in the Philippines. Next year, we're opening in India. We continue having traction in North America, the Middle East as well. So we believe that next year, we're going to expand further in international markets. We need to balance between growth and profitability. So that balancing act will continue into next year as well.

Q: Does it feel like going - I guess we go - as you to going into 2025 versus 2024, does it feel like you have like a better line of sight in terms of like deliveries, growth variability as we go into '25 versus '24 can you just compare?

A: We started gathering a lot of momentum in Vietnam. In September, we celebrated the first time in Vietnam and in probably in the history of many countries that are local OEM other international brands in Vietnam. We were ahead of Toyota, we are ahead of Honda. October, we affirm that number as well. I think in Vietnam, we hit about 115,000 deliveries in in October alone - in Vietnam alone. And Toyota, it was like 9,000, something like that. So year-to-date, we are ahead of everybody else in the market. EV and internal combustion engine combined. So that momentum, and we started feeling the momentum people started - just started talking about EVs and started moving to EVs. So you can feel very clearly, the sentiment and the momentum on the market. And we don't even - we didn't have all the models for the whole year in Vietnam, right? So we think that next year, it's going to be a good year for us in Vietnam, with all the models out a lot of issues fixed, and all the momentum that we have altogether in 2024. So this year, we anticipate that by the end of the year. We're going to have about a little bit shy of the quarter of the market share in Vietnam for the whole year. Next year, maybe we get 50% of market share, who knows, but that's the target and in addition to that, we would continue growing international markets as well.

Q: Could you let us know how you intend to be competitive overseas when it comes to charging and related services?

A: At VinFast, we can see the services a very important factor for the EV experience. So we keep repeating good quality products. Affordable pricing and excellent after-sales service, so that we are leaving, we staying true to that. And we build our brand loyalty through our battery leasing to warranty packages and add-on connected services as well as charging solution. VinFast vehicles have through V-Green to our sister company, which was part of VinFast before, have a connection to more than 1 million charging points all over the world. We have access to VinFast customers have access to more than 90% of the smart public third-party testing stations in the U.S. We have access to about 900,000 charging point in Europe in Vietnam, V-Green charging network is growing very quickly and is expanding to other markets as well. The good thing about VinFast charging is the VinFast charging is the VinFast app aggregates and simplifies the public charging user experience, update live data to every minute, and allowing the user to plan the charging routes, and easily pay as you go for charging within the app. So instead of having to use multiple apps and different digital wallets for different third-party providers. So we continue experiencing the - we continue improving on the changing experience for our customers.

Q: What are the main international markets contributing to sales in nine months 2024 and, which models are driving those sales?

A: For the international markets contributing the main to the sales in nine months 2024. We account for the North America. So the model is to VF 8 at a sold model. But we have just introduced VF 9 to this market. And we see that the North American market now has started to pay-off that, for the calibration that we made. In September, September was also the best month in the high history has been for North American market, thanks to our full growing dealer network and continuous improvement in our EV. Taking Canada is an example. We observed three consecutive months of growth in July, August and September.

Q: What are the key milestones we should be on the lookout for the remaining months of the year or heading into 2025?

A: In 2025, continue focusing on domestic market, diversify product offering in North America with VF 9 and upcoming VF 6 and VF 7, two key levers for Indonesia strategy (battery leasing and GSM launch), new CKD facilities in Indonesia and India coming online, and first ever Investor Day in first half of 2025.