VinFast Auto Ltd.

Good day and welcome to the VenFast Auto Limited 3Q 2023 earnings call. At this time, all participants are in listening mode. Later, we will conduct a question and answer session and instructions will be given at that time. As a reminder, this call is being recorded. I would like to turn the call over to Carol Nguyen, head of investor relations. You may begin.

Good morning. Good morning. turned over to Tweet, let me remind you that some of the statements on this call include forward-looking statements under federal securities law. These include, without limitation, statements regarding the future financial performance of the company, delivery volumes, financial and operating outlook and guidance, macroeconomic and industry trends, company initiatives, and other future events. These statements are based on the predictions and expectations as of today, and actual events or results may differ due to a number of risks and uncertainties. We refer you to their cautionary language and the risk factors in our most recent violence with the SEC. In addition, management will make reference to non-GAAP financial measures during this call. A discussion of why we use non-GAAP financial measures and information regarding reconciliation of our GAAP versus non-GAAP results is available in our earnings press release issued earlier this morning, as well as in the investor deck. With that, I'd like to turn it over to Madam Dwee.

Thank you, Karen. Welcome, everyone, to WinFast's third quarter of 2023 earnings call. Thank you for joining us. Firstly, I would like to talk about the strategic priorities. We are excited to update you on our accomplishments over the last quarter. But first, I want to reiterate our unwavering focus on our strategic priorities to strengthen and grow the business, which are largely in line with those shared recently for Q2. Priority number one is global growth. We continue to be pleased with the response and interest our vehicles have received across our global markets, especially amongst consumers in North America. We remain focused on shipping the VF9 to North America by the end of the year, as well as targeting first deliveries of the new VF6 later this year in Vietnam, and the VF7 and VF3 in 2024. Priority number two is the expansion of our global footprint. We are continuing to build out our production capabilities in North Carolina, and the facility will best position us to serve the North American market. We are progressing in our evaluation of up to 50 global and other markets. In the future, we have identified as having high potential for us to engage quality distributors to import and distribute BINFAST cards. I will share more about two markets in particular in a moment. And priority number three is our continued focus on building automotive technology through our in-house and external partnerships, making our vehicles smarter and more reliable for our customers. Next, I would like to discuss the key milestones achieved in Q3. A few highlights for our third quarter is In September, BINFAST officially introduced a B-segment AV model, the VF6 in Vietnam. The affordable VF6 is designed for families by Torino Design, equipped with a wide range of smart features and ADAS Level 2 capabilities. The model is offered in two chains, base and plus. With an expected WITP driving range of 248 miles and 237 miles respectively, at a trust time of less than 25 minutes. FinFast will start taking reservations for the VF6 in Vietnam later this month. We are pleased that the new model has already attracted significant interest with meaningful interactions on Facebook and TikTok. We are also making strides in global expansions. As we unveiled recently for Q2, FinFast is establishing broad distribution channels leveraging local networks and the expertise of third-party dealerships and distribution to increase coverage in our growing list of target markets. We aim for our vehicles to be present in up to 50 markets and countries globally by the end of 2024. And in the US specifically, this approach will provide increased consumer access in substantially more states as compared to a pure direct-to-consumer model. In fact, we have signed 27 letter of interest with well-known dealership groups covering more than 100 open dealership points across the US, including but not limited to Florida, Texas, North Carolina, Virginia, Louisiana, New Jersey, and so on. Leveraging local distributors in many of our key markets makes for a capitalized expansion model that will allow E-Plus to be more efficient about cost and use of capital. We recently announced plans to commence delivery of our EVs in Indonesia by 2024, identifying the country as a key market for the establishment of manufacturing facilities of our EVs and batteries. In addition to Indonesia, we have identified India as another market where we intend to build a facility to begin production in 2026. Each facility has a planned total capacity of up to 50,000 tasks per year in Phase 1 and an estimated total coverage of $150 to $20 million. We expect to participate in the tremendous potential brought by the increased EV adoption in both Indonesia and India. while energy penetration is currently still very low. We look forward to keeping you updated on the international expansion of our manufacturing facilities, which will complement our existing facility in Haiphong and our factory in North Carolina once production commences. Also in Q3, we have received $925 million in loans from Vingroup and $291 million dollars in grants from our channel, as well as 240 million from our e-SPAC merger transaction and the strategic investment from GoShip. We continue our expansion, adding over 10,000 new third-party charging points in North America and gaining access to about 500,000 charging points through Bosch Network, an incorporation for vehicles delivery in the EU later this year. And we are including discussions with other key charging partners as well, globally. And again, we continue to expand our global footprint. By the end of Q3, Binfast had 247 showrooms and workshops for e-scooters and 126 showrooms globally for EVs after opening three in Berlin, Munich and Hamburg this past quarter. Finally, looking forward, we remain focused on executing against our strategic priorities to strengthen and grow the business. We will continue to expand our global footprint with manufacturing probability in key markets, such as Indonesia and India, where we expect high EV demand growth. We will build and develop our business model as we expand our distribution network and enter new markets. to third-party dealership and distribution. In addition, we are making a significant effort to reduce our capex. We estimate our capex spending for global manufacturing to decrease by about $400 million in 2024 and 2025. This optimization of our manufacturing capex will allow us to expand into Indonesia and India while maintaining overall spend lower than our prior estimates. And finally, we continue to maintain and promote our best-in-class after-sales policy in the markets as we expand our global markets. I would like now to hand over to David, who will discuss our financial performance for the quarter.

Thank you very much, Thuy, and hello everyone. So firstly, let me take you through the third quarter results and the numbers. We delivered 10,027 EVs and 28,220 e-screwdrivers per quarter. The VFD34 and the recently launched VF5 were the main drivers in V3. And the significant increase in e-screwdrivers was largely due to B2B sales here in Vietnam. We reported revenue of $343 million, representing an increase of 160% from the third quarter of 2022 and an increase of 4% from the second quarter of 2023. Total revenues are primarily comprised of revenue from EV sales, including encouraging uptick in Canada just this last month. Gross margin improved 4% quarter-over-quarter due to lower sales to bid-first customers who were eligible for incentives and also better economies of scale resulting from an increase in sales of e-scooters. Operating expenses declined quarter-over-quarter by 7%. This was mainly attributed to the decrease in R&D costs paid to external suppliers and other costs related to our R&D activities for EVs as we brought three EV models into commercial production in the last four quarters. While FG&A increased by 43% year-over-year, it remained flat quarter-over-quarter. CapEx immediately declined by 47% in June 3 compared to June 2, and by 40% compared to the year prior. we reduced our spending on tools and equipment for new vehicle programs and front-loaded battery purchases in connection with battery use. Let me give you some guidance now on the upcoming quarter. So moving to our outlook for the final quarter of this year, we are reaffirming our target of 40,000 to 50,000 vehicle deliveries for this year, 2023. We expect about $400 million in savings in global manufacturing campaigns between 2014 and 2025, which will be redirected to manufacturing expansion, as outlined earlier. We also remain on track to ship VF9 to North America and deliver the VF6 in Vietnam by the end of this year. And we are very excited for the delivery of VF7 and VF3 beginning in 2024. We will continue to look for opportunistic opportunities to strengthen our balance sheet on top of the policies already received from the D-SPAC merger, the GoShift strategic investment, and funding support from the chairman and the committee. With that, I'll hand it back to you, Matthew, for closing remarks, and then the speaker to open our Q&A session.

In conclusion, FinCAS has made a considerable advancement this quarter and is committed to establishing and expanding its presence in key markets and maintaining its strong positioning as we advance the company's mission of creating a greener future for everyone. Thank you. Back to the operator.

Thank you. If you'd like to ask a question, please press star 1-1. If your question has been answered and you'd like to remove yourself from the queue, please press star 1-1 again. Our first question comes from Brian Dobson with Chardon Capital Markets. Your line is open.

Hi, thanks so much for taking my question. Good to speak with you this morning. Can you hear me all right?

Yes, we can.

Okay, excellent. So just a quick question on your 2023 delivery target of 40 to 50,000 vehicles. Could you perhaps break up the composition of that target in terms of what types of vehicles you expect to be delivered?

Yeah, so let me, well, first of all, I guess the target will be the increase in Q4 compared to prior orders that we delivered, and we're comfortable that we'll be able to deliver that uptick in volume as seasonally in Vietnam, but it's and Fishery Elk in particular with the launch of the BF6 and the BF5. Now the domestic models that we are expecting to be most popular in Q4 are the BFE34 and the BF5 and BF6. while also we'll be making deliveries on both a retail basis and to B2B customers of the VF8, but in relatively smaller quantities. We don't give a breakdown of model by model, deliveries and projections, so that's as much as I can say.

Yeah, very good, thanks. Your sales growth in North America, you said, was spurred by interest in Canada. Do you think you could elaborate on what's driving that interest and how you expect those trends to evolve over the next few quarters?

Sorry, what's the question? In Canada?

Yes, you called out strong interest in Canada when talking about North America. And I was just curious to see what types of trends you were seeing in that region and how you might expect those trends to evolve over the next, call it, year or so.

We will continue. I mean, we have pretty much, we've sold more than the number of vehicles that we receive in Canada. And the level of interest in Canada is very, very strong. And we expect that we will continue the addition of BF9, there will be growth in demand from Canada. Within Canada, the Quebec region in particular attracted a lot of interest of vehicles.

So yeah, I think it's just overall receptivity towards electric vehicle adoption in Canada. I think there's probably a structural lack of competition and choice for Canadian consumers relative to potentially other markets, in particular the U.S. Obviously, there wouldn't be a national affiliation or affinity for the Tesla brand in Canada compared to the U.S., and I think Canadians perhaps are more receptive to a new emerging Asian brand in EV space, all of this contributing to a receptivity to VinFast that we're very encouraged by, and as I did, I like The uptick in North American sales was driven by the increase in sales in Canada.

Yeah, thanks. That's very helpful. And then, I guess, keeping on the trend of global markets, you said that you want your vehicles to be available in 50 global markets by the end of 24. By vehicles, do you mean scooters and cars, or, well, you know, could you break that down, perhaps, between scooters and cars, or is it both?

I think, I mean, we've always fallen to mostly the big Bs, but obviously there's certain markets like Indonesia and India where Two-wheel penetration is pretty significant. We would like to bring out this feature as well. But when I mentioned up to 50 global markets and countries, by the end of 2014, we were referring to these.

Great, thanks very much. And then just finally talking about global expansion. In the United States, you said that you have LOIs from 27 U.S. dealers. What does the timetable look like between LOI and getting something on the showroom floor?

We target to have some of the dealerships open by the end of the year as well.

Excellent. Thanks very much.

Thank you.

Thank you. Our next question comes from Andrea Shepherd with Cantor Fitzgerald. Your line is open.

Hi. Thank you for taking my question, and congratulations on the quarter. I wanted just to clarify, I think, on the first question. So you've reaffirmed your guidance for the rest of the year. By my calculations, you would need a bit of a steep increase in Q4. So just can you remind us what are the key drivers there and what's really behind your conviction of meeting that delivery guidance? Thank you.

Yeah, so thanks, Andres, and thanks for the question and good to hear from you. As I reiterated before, the seasonal uptick in delivery local market, Vietnamese market, primary demand for vehicles in the fourth order. It is notable. We expect that to drive the bulk of the uptake in volumes. We obviously have also continued outstanding contracts with B2B partner and GSM for the delivery of many e-taxi models that we'll be in a position to deliver. We have a new VF6 model coming onto market and that's available for reservation from October 20th here in Vietnam and that will be delivered in this corner as well. On top of that, we have deliveries into Europe, our first vehicle deliveries into Europe and the deliveries of VF8 and our first VF9 deliveries. into the North American market also. So overall, still reiterating the same guidance, notwithstanding that it is an uptick in volume relative to the prior two quarters.

Got it. Thank you. That's super helpful. Thank you. And maybe a follow-up. What is the expectation around gross margins? Do you expect those to gradually continue to improve quarter over quarter? Is there a time period perhaps by which you are maybe expecting positive growth margins? Thank you.

Yeah, so that's a great question. The improvement is quarter over quarter. It's favorable. We are expecting that trend to continue. I think one thing that should be noted is that when we launch a new vehicle model to SOP this quarter, the F5 in particular was SOP to begin with, it does take us some time to optimize the production process and the efficiency of inventories, suppliers. So we expect that operating contribution margin from that vehicle model to improve in the next quarter. And overall, we expect a trend. We are very focused on optimizing operations and manufacturing, obviously scaling all of the vehicle models to improve efficiency. And we have indicated in the past that we can see ourselves getting to a breaking profitability in the space of two years, so we're still very much that vision in mind and expect to be able to deliver on that even ahead of time.

Got it. Super helpful, David. Thanks again. And maybe just one last thing to squeeze it in. You mentioned the plans for expansion into India and Indonesia, I think you say, in the announcement today that each of these facilities will have the capacity for up to 50,000 vehicles. I know you're not necessarily guiding next year deliveries, but I'm just curious, you know, how should we be thinking about the delivery numbers for next year and onwards? Do you expect a significant ramp up in that delivery given the new expansion or just any guidance there would be helpful? Thank you. Yeah, thanks, Andreas.

Obviously, we're not providing guidance for next year, but we're not creating the capacity for no reason. We do anticipate a steep ramp-up in our volumes next year. Some of the initiatives that Manu Tui already mentioned, the key target markets in Indonesia and India, and the production, the CDT production facilities there, and also the DivaShip network sign-up in both the U.S., and the up to 50 markets on top of that that we're looking to expand into. All of those will drive volume in addition to strong growth domestically here in Vietnam. I think it's probably worth noting as well that we do have up to 300,000 units of capacity that we can manufacture here in Vietnam, and so we'll be looking to utilize all of that capacity over the course of the next few years. The manufacture of CKD vehicles obviously is a combination of manufacturing many parts and the structure of the vehicle here in Vietnam before we ship it to the CKD assembly point. So it is a hybrid manufacturing approach.

Got it. Thank you. That's super helpful. Congratulations again, and I'll pass it on. Thank you. Thanks, Andres.

Your line is open. Our next question comes from Adam Hornby with DLD Asset Management. Your line is open.

Hi there. I'm having a little bit of trouble hearing you, so apologies if this has been addressed already. But could you tell us of the deliveries in the quarter, how many went to Green SM Taxi?

In the quarter, out of over 10,000 in tier 3, about 70% went to GSN, about 6,800 vehicles went to GSN.

And would you be able to tell me if you have a production number or a delivery number that you know you need to hit in order to get to cash flow breakeven?

As indicated last time, I think the rule of thumb for the market is about 250,000 vehicles per year. Because our cost base is lower than other OEMs, we expect around 150,000 people take to allow us to purchase them per year.

Is it better?

There are no further questions on the phone.

Hi, the next question is from the webcast. How many cars were sold to GSM and to the US market in Q3 2023 and the first nine months of 2023? Could you please break down the revenue by VN and US markets?

Speakers, please unmute.

Yeah, the number that we have sold, the GSM, is usually a cumulative number, about 6,000, 12,000. Does that question make sense?

Yeah, the next question is, what is the payment scheme for GSM? How much of the first nine months revenue was from GSM and the percent of cash that was collected?

So the payment terms for GSM contracts are standard B2B terms and we've collected We have 60 to 90-day payment terms on those contracts. So we created about 300. The revenue from GSM nine months to date is approximately $380 million.

Thank you, David. The next question is, how are you going to manage only $131 million cash on hand? Are you going to raise more money and how?

Yeah, so I think we've been pretty clear about this. We have ongoing commitments from a big group and a chairman for the next six months and beyond, up to a number of $2 billion there. And concurrently, we have been proactive in the capital markets, especially now that we are listed and looking at opportunities for the company to raise cash and to monetize the company's share price in addition to other avenues and other instruments that were considered.

Thank you, David.

The next The next question is, can you please update on the development timeline of the U.S. factory?

We expect the rest of the week to be the same in the middle of 2025.

Thank you, Thuy. The next question is, why does VF plan to build additional TKD factory in India? While the VN factory is currently running at a lower utilization rate, NVF has recently announced the plan in Indonesia.

Yeah, I think the main driver is obviously the tax incentive and the incentive from the government for having a city facility in this country. That allows us to be more competitive to the market. And then the access to the customer, faster access to the customers. And we also expect to, because of the low EV adoption in those markets, so expect to be able to participate significantly in those markets. In the past weeks, we've been working, looking at our CapEx plan, and we have managed to save about $400 million. from the existing CapEx plan so that we can invest in distributed plants in Indonesia and India. But like David said before, in the coming two years, we still expect most of our deliveries to come out from our high-farm plants.

Thank you, Thuy.

The next question is regarding to your financials. Why was your 3Q revenue slightly higher after significant increase in 2Q?

Yes, so 2Q revenue did increase for a couple of reasons. It was off the low base in Q1, which is low season for car selling, due to it being during the New Year holiday here in Vietnam. And then in Q3, we delivered increasing numbers of new models such as the VF5 and the VF9 in Q2. So, yeah, I think it was just comparing quarter over quarter the combination of starting off the low base and effectively delivering new models. meant that the quarter-over-quarter Q3 to Q2 increase in revenue was only modest. And as I said, we expect an uptick in revenue from increased vehicle sales in Q4, seasonally higher.

Thank you, David. How should we think about your debt profile?

So we obviously maintain a diversified balance sheet of debt, domestic, international bank loans, syndicated loans, and domestic bonds. We have the exception of our short-term borrowings. Our debt, which means was based over the periods of one to three with no more than five years, and there at the a number of international and a diversity of international banks from whom we are borrowing money.

Thank you. The next question is related to the VF6. What are the key selling points for this new model?

Well, the VF6 is very key. vehicle model much as for us here in Vietnam, but internationally we think it's as a B segment SUV is oriented to families. It's got a five passenger size designed beautifully by Torino design in Italy and equipped with a wide range of smart driving features and ADAS level two. So battery size and battery composition, it's almost 60 kilowatt battery of LFP type and packed by Vinnie S. here in Vietnam and Hattin by our battery partner. It's got a very strong range and excellent charging capabilities. And obviously then most importantly, it's priced very, very reasonably starting at the equivalent of $28,000 for customers here in Vietnam. So not just here in Vietnam, but when we export it internationally, we expect it to compete in that very high volume mass market premium segments that will enable us to deliver substantial volumes.

Thank you, David. The next question is related to Indonesia. Can you please elaborate on your distribution strategy for the Indonesia market? If it's with a local partner, who is the partner? And are there any incentives granted by the government during the construction of the CKD plant?

We're still in discussion with both the government as well as local partners, so let us come back with more information in the future.

Thank you, Thuy. The next question is back on our CapEx guidance. Could you please elaborate more on the changes in CapEx guidance from 2024 to 2025? Is it due to extending the CapEx disbursement timeline or due to changes in plans for the U.S. factory?

No, we didn't make any changes to the plan timeline. We just optimized. If anything, we actually added more items to the manufacturing facility in the US. We optimize globally in our manufacturing topics in order to provide to the savings

And I would just add one further clarification there on the CapEx saving.

That's a multi-year CapEx saving that we're using to reinvest the proceeds into our planned investments in Indonesia and India.

So it's not a one-year reduction of $400 million in CapEx.

Thank you, David.

How would the expansion of the third-party dealership affect your balance sheet and P&L?

Yeah, I think it's going to be very much more efficient and obviously some of our CapEx optimization is driven by broadening our distribution channels through dealerships and partnerships rather than directly investing in owned and operated showrooms. That would be the principal change and difference in balance sheet. And then obviously from a distribution perspective and visibility over sales perspective, we will be able to have greater predictability and visibility over the upcoming quarter and a half year sales to deliver into commitments from Devis. So I think it will provide us with visibility on upcoming orders and reduction in volatility of order sales.

An important factor is the speed to market as well. Having the partnerships with the dealerships and distributors allows us to expand a lot faster than originally anticipated.

I think the next question is, can you please share more information about your production cost structure?

Well, I think we've been clear that we have cost structure advantages. Being here in Vietnam, it's a very efficient place to manufacture from where to export into the markets that we're looking to target. We have significant labor cost advantages. We have great foreign trade agreements that we can export under that are very efficient to ASEAN markets, the U.S., Europe. We have talented technology and R&D staff that are highly educated here in Vietnam. We have a scaled manufacturing facility in Vietnam that is capable of producing a very, very high volume of vehicles and fully integrated supplier part that allows us to operate very efficiently from a supplier perspective. So we have a lot of advantages we obviously don't break those out to the level of detail that permission is pretty sensitively by all oil and manufacturing, but we're very optimistic about our opportunity to profitably and competitively produce vehicles here in Vietnam for export.

Thank you, David. The next question is related to the registration of shares. Why did the company register these shares so soon after the listing? Over what time period will these shares be sold by the two key shareholders?

Let me clarify this point a little bit. So we register, I think, 75.7 billion shares. But not all of them are being sold to the market. Only about over 46 million shares will be added to the free float of the market. The intention is to, obviously, number one is to increase the liquidity, increase the free float in the market. So, you know, you can have the participation of investors in the market and to raise capital for investors. there's no particular period of time where we're going to sell the shares, and the shareholders have not started selling the shares yet. Actually, maybe another point, another very important point is these 46 million shares were gifted by our chairman to VinFast. So VinFast can sell the shares. 100% of the net proceeds from selling these shares will go into VinFast for free to continue growing VinFast.

Thank you, Thuy. The next question is, are you able to share the preliminary guidance for 2024 and 2025 R&D expenses? And how is it versus the first nine months of this year?

So I think, again, as we have been developing a full portfolio of vehicles in parallel, the R&D spend has had a high run rate through 2022 and 2023. We will be finalizing the delivery of those full portfolio vehicle models. We've already identified the start of production of the BS6. We have the VF9 at big delivery to the US. We have VF7 and VF3 in 2024. And we have some work to do around the delivery of right-hand drive vehicles. But all of this is expected to be trending down from an R&D perspective significantly from the middle of next year. So that coupled with the that the free cash flow will come much sooner and much more positive to the firm than previously anticipated.

Thank you, David.

That wraps up all the questions on the phone and through our webcast.

Please do reach out to our... I can have just one minute. I mean, there have been a lot of questions about GSN. So if possible, can I just say a few things about GSN? We think that GSN is a perfectly good business and it has probably about 70% is the taxi business and the other 30% is the vehicle leasing business to the other taxi company to corporate, so many other B2B business. And as a taxi business, GSM has done very well in Vietnam, starting just over, not even five months ago, but as of last week, I think GSM only marked the 6 million ride in Vietnam. And we just started delivering the e-scooter to GSM, but they already have a million e-scooter rides in Vietnam. GSM now is the number two taxi company in Vietnam already, and very soon it's going to be number one taxi company in Vietnam. GSM will expand into other markets as well, beyond Vietnam, together with VinFast, like in Indonesia, India, even in the US. So from VinFast's perspective, we think that GSM is a very good business partner and it's going to complement very well VinFast's growth in the future. So I just want to say a few words about GSM because there has been an overwhelming number of questions about GSM. Thank you.

Thank you, Thuy.

That wraps up all the questions we have for today's call. If anything comes up, please do reach out to our IR email address and we get something set up and answer your questions accordingly.

Thank you for your participation. This does conclude the program and you may now disconnect. Everyone have a great day.