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Powering-up Vietnam’s two-wheeled EV transition

Image courtesy of The Ken.

NOTE: Below is my final draft. The published, edited version can be found at The Ken.

David Beckham was the guest of honour, at a cost of no less than half a million dollars, at the launch of the first Vietnamese made automobile at the Paris Motor Show in 2018. Manufactured by Vinfast, a subsidiary of Vietnam’s biggest conglomerate, Vingroup, it was a point of pride for the rapidly developing Southeast Asian nation. 

“Vietnam is now officially on the world map of the auto industry,” the cheery hostess, Vinfast’s chairwoman, Le Thi Thu Thuy, announced.

This, however, was only Vinfast’s first step toward a much larger goal.

Vinfast aims to become a leading maker of electric passenger cars in the developed world and it’s pulling out all stops to get there. It’s opened offices in North America and Europe already and appointed a former Volkswagen executive as its CEO.

But for all the hype Vinfast is still yet to deliver its first electric vehicle. That said, in the shadow of its global ambitions its domestic electric two wheeler (E2Ws) operation has been thriving.

Established in 2018, Vinfast’s first factory cost US$3.5 billion. Built in the North of Vietnam, it can produce up to 250,000 E2Ws annually. According to its own figures, just three years later, it’s already almost halfway there, booking sales of 10,000 units a month.

It’s not alone riding this E2W boom either.

Son Nguyen, CEO and founder of Dat Bike, a premium electric motor cycle producer in Ho Chi Minh City, says Vinfast’s entry into the market has created a huge boost in sales.

E2Ws, in Vietnam, have historically been cheap, low powered imports from China that don’t require helmets, registration, or a licence to drive and don’t last very long.

This has created a not entirely favourable view of E2Ws more broadly.

“People’s perception is that electric bikes should be cheaper than petrol bikes and should be replaced after two to three years,” Nguyen says. “This is what we’re fighting against.”

That fight however became much easier when Vinfast entered the market. Their extensive marketing budget and education campaign boosted awareness not just of their own vehicles but of E2Ws more generally.

“Now that people understand what a premium electric bike is, we don’t have to do a lot of explaining,” Nguyen says.

And a premium Dat Bike’s motorbikes are in the E2W market retailing at just under VNĐ40 million (US$1700). That said, it sits right about mid-range among gasoline powered two-wheelers from which Dat Bike intends to carve out its market share with buffer, more hearty electric motorbikes.

“Consumers want to switch but they lack options in power and range,” Nguyen says, with most electric bikes under 50ccs and with limited range.

Dat Bike has set out to remedy this with its first bike, the Weaver, going from 0 to 50km/h in just three seconds with a top speed of 80 km per hour. It can also go 200 kilometers on a single three hour charge–more than enough to travel from one side of greater Hanoi to the other and back.

“We are the first electric bike to rival gasoline bikes… in Vietnam,” Nguyen boasts proudly. 

Dat Bike’s early success has not gone unnoticed either. In 2019 Nguyen sold a 2% share in the company on Shark Tank Vietnam for US$60,000 valuing the company at US$3 million before the first bike had even been shipped.

Not long after it began shipping bikes in 2020, venture capital firms came sniffing around too and in April of this year, Jungle Ventures, invested US$2.6 million in the company.

“The US$25 billion two-wheeler industry in Southeast Asia, in particular, is ripe for reaping benefits of new developments in electric vehicles and automation,” Amit Anand, founding partner of the firm, said at the time.

And he’s not wrong.

Southeast Asia is the world’s third biggest motorcycle market behind China and India with just over 220 million two-wheelers in 2019, not far off double what was on the road ten years earlier.

Accounting for 176 million of those bikes are the Philippines, Indonesia, and Vietnam which collectively were expected to sell 260,000 electric motorbikes in 2020 according to a report from Mirae Asset Daewoo Research (MADR). 

That same report, across the same three markets, predicts sales of 14.72 million units and a total electric motorcycle market valued at over US$63 billion a year, by 2035  

But manufacturing of E2Ws in Southeast Asia is still in its infancy with the market dominated by well established, international brands. This, however, Nguyen hopes to change.

“In both China and India you see domestic dominant players.”

“In India there are TVS and Hero Motorcycles and it’s very similar in China. You have Yadea and you have all of these other bike companies, but In Southeast Asia the region is still dominated by Japanese players,” Nguyen says.

“But I feel like this is what happened in China and India and gradually domestic players grew and fought and won against all of these Japanese companies. There is a void in Southeast Asia for a domestic player and we want to be that company. We want to be the motorbike company of Southeast Asia.”

Nguyen says the key to this is the ASEAN free trade zone.

“For people from China and India to come here to fight against us is really hard because the tariffs here are just crazy. To import a bike from China into the region there is a 45% tariff and it’s similar for India as well.”

There are, however, no tariffs within the zone.

Jack O’Sullivan, founder of MODMO, a manufacturer of electric bicycles, says Vietnam’s outward looking integration into global markets is why he chose to set up shop in Ho Chi Minh City too.

“I think they’re up to 18 free trade agreements now and the biggest focus for us was the European market so that was the number one draw to Vietnam,” he says.

O’Sullivan is referring to the European Union-Vietnam Free Trade Agreement (EVFTA) which came into force in August of 2020. When it is fully implemented it will see 99% of tariffs between the two markets eliminated.

But it’s not just the free trade agreement that has driven Modmo to produce electric bicycles more or less exclusively for export. 

O’Sullivan says tax liabilities associated with selling to the domestic market make it uneconomical to pursue local buyers too. Even without tax, however, Modmo’s bikes are well beyond the means of the average Vietnamese. 

Vietnam’s GDP per capita was just US$2700 in 2019 whereas Modmo’s state of the art, Saigon S model goes for about VNĐ43 million (US$1900).

“I think to purchase a three thousand Euro bike, people just don’t see the value there, they would rather spend their money on a motorbike,” O’Sullivan says. 

On a side note, this logic applies to cars, electric or otherwise, as well.

Vietnam’s location also ranked highly for O’Sullivan when deciding where to make his bikes.

“Southeast Asia is where the bulk of manufacturing happens and we’re kind of in a triangle with China and Taiwan which is where we get all of our components from,” he says. “So geographically it made sense as well.”

That triangle has been instrumental in Vietnam’s rise as a manufacturing powerhouse with the length of the country pockmarked with factories churning out textiles and electronics. But what’s below the surface also gives Vietnam distinct advantages.

Deloitte put Vietnam ahead of Malaysia, the Philippines, Singapore, Thailand,

and Indonesia in terms of ‘value chain potential’ earlier this year in a report on e-mobility. It cited Vietnam’s access to raw materials as a chief proponent of its ranking.

“Vietnam is well positioned to become a low-cost nickel sulphate producer

for the region’s EV lithium-ion battery market given its endowment of nickel, cobalt, and other mineral ores,” it said.

These raw materials may even become batteries within Vietnam in the not too distant future. 

Just this year Vinfast formed working agreements with battery producers Gotion High-Tech from China and Israel’s StoreDot that would see these companies share battery technology with the aspiring automaker.

The company has also hinted at building a domestic battery manufacturing plant but this is yet to be confirmed.

Deloitte also found, surprisingly, a total cost of ownership price differential, in the region, between gas bikes and E2Ws of 27% in favour of the latter. 

Notably this defies conventional understandings of EVs in that they are usually more expensive than their gas counterparts. In fact, in the same study, Deloitte found a price differential between four wheelers of 82% with gas being then cheaper of the two.

It’s not just in cost, however, that E2Ws buck conventional understandings of EVs.

A lack of charging stations has long been touted as a key determinant of whether or not EVs will sell in any particular market. This is true of four wheel vehicles in Vietnam too. However, for E2Ws the infrastructure, and sufficient infrastructure at that, is already in place. 

“All of our customers and all of the people who use electric motorbikes in Vietnam charge at home or at coffee shops or in their apartment block and these are all standard outlets,” Nguyen says.

Vietnam’s standard voltage, he goes on, is 220 volts which will charge Dat Bike’s Weaver in just three hours. It’s about the same amount of power as a space heater.

Aside from that, the average Vietnamese commuter travels just 28km a day well below the average 80 kilometer range of an E2W.

What Vietnam is missing however, Nguyen says, is government support.

“We need government incentives for sure to actually win against gasoline motorbikes. I know that in Indonesia the government is very, very supportive of electric right now which is why you see there are a lot of startups like Dat Bike in the EV space that make their bikes in Indonesia,” he says.

Those incentives, he goes on, should focus on reducing the purchase price of electric bikes.

“It has to be along the lines of… either reducing taxes or registration fees or giving cash to buy electric, or better insurance would help a lot,” he says.

Motorbike registration fees in Hanoi are complex and vary depending on the value of the bike. They can be anywhere from VND500,000 ($US22) to VND4 million for bikes valued over 40 million (US$1757).

New bike purchases are also subjected to a value added tax of 10%.

In the upper echelons of the Vietnamese government calls for industry support have been heard but the process is slow and legislation is still being mulled over. That said, it is looking more likely by the day.

“It’s going to happen,” says Nguyen. “It’s just like a matter of when.”

But Nguyen says government incentives should be gradual and not all at once.

“What we don’t want to see is that it happens way too fast,” he says. “I feel like if it happens too fast a lot of people will jump in… and because we are so small right now we will just die.”

Scaling up quickly in Vietnam has its challenges and not just for start-ups like Dat Bike.

E2W design and manufacture requires high-skilled human resources, an area in which Vietnam has long been lacking.

Last year, labour recruitment firm, ManpowerGroup Vietnam (MGV) found that less than 12% of Vietnam’s workforce was considered high-skilled. 

But that hasn’t stopped manufacturers that require highly skilled workers from establishing operations in Vietnam.

“The hiring demand for technical positions, especially engineering roles… in the manufacturing sector have doubled compared to the previous year,” Trang Nguyen, country head of Permanent Recruitment and Executive Search Services, at MGV, told the Vietnam Investment Review back in August.

For its part, Vinfast has looked outside of Vietnam for design talent, the Klara designed by Italian firm Torino Design.

Dat Bike also tried using outsiders but Nguyen found that local talent was better suited to the task.

“If you grow up using a motorbike, and you own a motorbike yourself… and all your friends use motorbikes, you just know what to do better,” he says.

O’Sullivan also uses local design talent, but reckons that their motivation is not for the product itself.

“They’re a very passionate team for sure, but I don’t think their passion is in the product but more what they are working towards like super premium products being made in Vietnam. I think they have a lot of national pride for that,” he says.

And it’s in this sentiment that the development of Vietnam’s electric vehicle market is deeply nested. 

Though it would be a boon for national pride, Vietnam has a long road ahead of it to becoming a key, global electric car maker. The route to dominating the E2W sector, on the other hand, is much shorter and could pay huge dividends for local manufacturers much sooner.

Either way, Vietnam is fully charged with EV potential.

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