VinFast Auto Ltd. Q4 FY2023 earnings call

• Product Launches: Introduced 4 new SUV models in Vietnam (VF 9, VF 5, VF 6, VF 7), VF 3 and VF Wild at CES 2024, and VF 7 at CES. Received Innovation Award for MirrorSense technology.
• Market Update: In North America, pivoted to capital-light hybrid dealer model, signed first US dealer, had 75 dealers under application, 13 showrooms in CA, 6 new dealers in 5 states. In Indonesia, launched at motor show, signed preliminary dealer agreements, announced MOU for taxi fleet. In India, signed MOU with Tamil Nadu for CKD facility.
• Battery Leasing Model: Buyers pay one price for vehicle and lease battery monthly; fee covers repairs, maintenance, etc., and is lower than gasoline cost for equivalent vehicle.

In the fourth quarter of 2023, VinFast delivered a record 13,513 EVs globally, up 35% quarter-on-quarter. Full-year 2023 EV deliveries were 34,855, a 374% increase from 2022. The e-scooter business saw significant growth, rising 21% year-over-year to 72,468 units in 2023. Revenue in Q4 2023 was $437 million, up 26% from Q1 2023 and 133% year-over-year. Full-year 2023 revenue reached approximately $1.2 billion, a 91% increase from 2022. Gross margin improved from negative 82% in 2022 to negative 46% in 2023, driven by lower materials and production costs.

• Delivery: Expect ~400,000 global sales in 2024, ~130 in North America. Ship VF 9 to US, VF 8 to EU, and other models to follow.
• Cost Optimization: Target to reduce COGS by 40% within 2 years from vehicle launch.
• Gross Margin: Aim to be very close to positive gross margin by end of 2024, continue improving in 2025.

Q: Can you please provide some more detail on the gross margin loss of 40%? What are the reasons for this? And what is the path to profitability?

A: Let me take that question. Actually, if there's -- in Q4 versus Q2, if you take out the one-off adjustments for the NRV the net realizable value basically then you see an upward trend in profit margin from 37% in Q3 to a 27% roughly in Q4. So the profit margin is getting better. But because of the one-off adjustment for the inventory at the end of the year we have gross margin of 40%. Maybe let me -- I think I see some of the questions here. So maybe can I -- or Brooke you want to read the questions or you want me to just read the question and answer?

Q: How many cars were sold to GSM in the Vietnam market in Q4 2023 and in full year 2023?

A: We had this number in Form 6-K. Basically, about -- in 2023, the first year of GSM in Vietnam, we sold about 70%, over 70% of the EVs to GSM and some to the customers that bought Green Homes home. So there's a whole section on related party sales. Similarly for e-scooter, we sold about 45% of the e-scooter to GSM for the e-scooter taxi as well as to some the Green Homes customers.

Q: Can you please share the CapEx and R&D investment guidance in 2024 and 2025?

A: Our estimate right now is in 2022, 2024 we're running at around $1 billion to $1.5 billion in CapEx. Some of that is mandatory; some of that can be pushed to later. But roughly that's the number that we have right now. The development -- Q: How much grant the Vingroup Chairman expects to disperse in 2024?

A: Right now we can -- we still have about close to $700 million, I think $680 million in grant from Chairman and Vingroup. So we expect to receive such grant in early half of this year.

Q: Can you please provide some additional detail on the strategy for India and Indonesia?

A: India and Indonesia are the two important new markets for us this year. They are closer to us. The vehicles sold in this market are closer to the vehicles that have been tested and delivered in Vietnam market. So we -- India with 1.5 billion people the most populous country, with the very supportive government policy and the whole drive towards green transportation, we believe that we should be able to take some market share in the market. Indonesia is part of ASEAN. Vietnam is part of ASEAN as well. So, one of our neighboring markets. We started launching in Indonesian market last Thursday and the results so far been very positive. The support that we received from the market, from the government policy to private sector to customers have been very positive. With 280 million people, Indonesia is the third most populous country in the world. And we also believe that we are uniquely positioned to take some market share as the country, as the EV adoption in Indonesia continue increasing. I think just a last thing, as we already announced, we're going to open the factory in both India and Indonesia in order to take advantage of the tax incentive given by the government.

Q: Why are gross margins decreasing as you grow revenue? Are you discounting your vehicles? Or are you experiencing an increase in your production costs?

A: Let me take that question. I think I provided an answer to that question before. The reality is the gross margins actually decreased. There was a one-off adjustment for inventory at the end of the year. The profit margin actually got better between -- from Q4 from Q3. And the improvement in gross margin was due to improved production costs, improved inform [ph], so basically better cost optimization in Q4 versus Q3.

Q: What was the total use of cash during the quarter? And could you provide an update on the funding efforts moving forward?

A: In Q4? So basically if you looked at VinFast every quarter inform operations -- and this is looking into 2024 as well. Each quarter we roughly burn about -- from operations about $250 million, right? And we spend probably somewhere like $100 million $150 million in R&D in the -- previously per quarter, which is reducing our going forward, because we already pretty much completed the R&D for the vehicles. And then a little bit on CapEx for manufacturing. I think the last quarter it was to just, I think $40 million $50 million, something like that. So if you asked about the Q4.

Q: Can we get a sense of your expectation of margin profile trajectory going forward?

A: We expect that margin will continue improving. So if you look at the trend, it's been trending better quarter-by-quarter. Like I said earlier, we expect that by the end of the year 2024. We're going to get very close to 0% gross profit margin. And then we're heading into positive territory next year.

Q: How many more charging points have been added to the VinFast network over the quarter?

A: I think we've added something like 90-something, almost 100,000 charging ports to our network to bring our total charging point globally to about 800,000 charging ports. I think I explained it a little bit in the previous quarters. But in Vietnam -- I mean it's different in different markets and we continue to be that way. In Vietnam, we built out the whole charging network of up 250,000 charging points, because we don't have a public charging network in Vietnam. So we own the charging network in Vietnam in order to go sell. Outside of Vietnam, in developed markets like US and EU, we tap into the existing charging network by integrating our vehicles with the CPOs in the market. So, as we add more CPOs and as our CPOs add more charging, our charging network, continue growing. In some newer markets like India and Indonesia or other markets where charging markets is not developed yet then we might consider building charging network as well together with other partners in those markets. So, it's really market-by-market but our charging market will continue growing.

Q: How many of the 100,000 projected cars are expected to be sold to GSM?

A: We still think that as GSM is growing in different markets, in Vietnam alone GSM already in 19 different cities and continue growing. So I think the demand from Vietnam is also -- will still be significant, but not as much as last year. But as GSM grows internationally starting from Laos and other countries like Indonesia, like Philippines based on what they explained to me there will be demand from GSM as well for those markets. But we believe that the total number will be -- or at least a percentage of our total sales for 2024 would be significantly less than 2023.

Q: Can you share the expected CapEx for fiscal year 2024, and how the company plans to fund that?

A: Yeah. We anticipate that the CapEx between $1 billion and $1.5 billion this year with $1 billion invested in the US factory over the next two years and the remaining allocated to the facilities in India, Indonesia and Vietnam. We are exploring avenues to support CapEx needs from local and international financing. And we have a strong commitment from Vingroup and our Chairman to support CapEx needs in the long-term growth. Thank you.

Q: How would you characterize your BOM and battery costs over the quarters? Were you able to realize the benefits from falling metal and lithium prices?

A: So like other OEMs, our material costs are being adjusted, I think on quarterly basis supplier by supplier but pretty much the same in the whole industry being adjusted when the commodities or the material are going up and down. So we follow the same practice of the industry.

Q: Could you please provide an update on sources of funding moving forward?

A: So I think -- I've heard a lot of questions about liquidity plan, so let me address our liquidity plan, because that way we don't have to answer the same question multiple times. So right now if you -- I think in the presentation, we showed that our current liquidity is about $1.8 billion, so roughly about $2 billion from the cash, cash on the balance sheet at the end of the year plus the remaining grants from our Chairman in Vingroup, the equity line of credit. So roughly that's what we have. And then we -- after the listing of VinFast, it opened up quite a lot of avenues for funding from both public and private. And we are expecting that after the blackout period, we should be able to raise funds based on the pipeline that we have. Also for the -- you asked about CapEx before. So as Lan Anh already explained, we have planned to fund a portion of the CapEx locally in those markets to pay for our CapEx. So, going forward -- and as you also see that -- we pivoted from the CapEx-heavy direct-to-consumer distribution model to the CapEx-light dealership model. So that would also help with the cost of expansion if not used with the direct-to-consumer model. And then we also have in our pipeline multiple transactions that we think that we'd be able to execute on this year. I think I mentioned earlier in one of the interviews that we plan to add to the free float about 10 -- at least 10% to 20% to the free float. So that plan is still ongoing right now. So I hope that would give some idea about our liquidity plan for 2024 and going forward.

Q: Have you shipped more cars to the US yet? How are sales going into the US?

A: Sales in the US, actually this year, we've seen very positive sign in the US this year. Last year after receiving very critical, but important feedback from the market and we improved on the vehicles and started delivering the vehicles. I think in January, we saw a huge uptick in deliveries. We had only one dealer open in -- maybe it's a complete competition between the direct to consumer and the dealerships. But somehow in January, our sales in our own store in California also increased significantly. And this year -- this month, in February we also increased, we received a lot of orders this month already. Like I mentioned, we had one dealer open in January. And as we add more and more dealers, we expect that in the sales in the US in multiple markets would increase, as well as our customers will be able to have access to our vehicles. Keep in mind also that we have about -- we still have around almost 9,000 thousand orders in the US that we already have received the deposits. A lot of them actually are in different space. They're not in California. They're in different states. So, as we open dealers in multiple states, we should be able to materialize some of the order books that we already had in the past years.

Q: How much capital would be saved in efficiency gains by leveraging dealers specifically in the US?

A: I think initially -- based on the calculation initially, it's actually -- it looked better initially to actually sell through the dealers instead of paying for CapEx especially in this high interest rate environment in order to follow the direct-to-consumer model. But I think that's only one of the benefits. I mean cost is one of the -- margin is one of the benefits. The important benefits for opening the third-party dealership network, is to be able to access the whole US market. With a direct-to-consumer model, we could access only about half of the states in the US. But with the dealership network, we can leverage existing dealership to be able to have products available in all of states in the US.

Q: The expected timing for positive EBITDA and FCF.

A: Yeah. So we expect that that we're going to have the positive EBITDA on 2025, and for cash flow positive in 2027. Thank you.

Q: Can you please disclose, how much cash was raised under the Yorkville agreement during the quarter?

A: We raised -- we used that facility gently. So over $30 million is what we draw from the facility in Q4.