Vietnamese electric car maker VinFast is facing complex regulations and competition from China as it tries to break into the European car market.Vietnamese electric car maker VinFast is slowing down its European expansion, industry experts say, as a complex regulatory environment and growing competition from China have raised doubts over how much of Europe's highly competitive market it can corner.

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VinFast opened its third showroom in Germany over the summer and has expanded operations in the Netherlands and France.

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However, its decision to pull out of the IAA Mobility show, a major car show taking place in Munich this week, has been seen by industry experts as the company stalling, especially amid its plans to launch its first model in Europe during the last quarter of 2023.

It had planned to start deliveries of the "VF 8" and "VF 9" SUVs in Europe last year but failed to meet approval requirements from authorities quickly enough.

The company's executives blamed European regulations. But experts say that VinFast leapt too early, having not already established itself even in Vietnam, and made some poor choices in how to expand its operations in Europe.

VinFast still does not have a significant market share even in Vietnam, said Nguyen Huy Vu, a Norway-based economist.

"Its cars were reported to have many technical problems. And its brand name is not considered to be a reliable one," he told DW.

Too fast too soon?

VinFast, founded just six years ago by billionaire Pham Nhat Vuong, has spent heavily on overseas expansion.

Last month, it broke ground on its North Carolina factory in the US that is expected to construct 150,000 vehicles a year once operations begin in 2025. The first tranche of that new factory is expected to cost around €2 billion ($2.14 billion).

However, VinFast had fixed on Europe, where production of gas-fueled cars is set to be phased out by 2035, as the ideal location to kickstart its overseas expansion.

Sales of battery-electric cars outpaced diesel ones for the first time in European markets this June, according to data from European Automobile Manufacturers' Association (ACEA), an industry body.

But the market is saturated. European brands, particularly Germany's BMW and Volkswagen, are desperate to cling onto customers as cheaper and increasingly desirable Chinese brands are set to also launch in Europe later this year.

If a foreign brand wants to break into Europe's competitive electric automobile sector, it needs to first have proved itself within its own market and then be able to transfer that reliability and affordability, analysts say.

In May, VinFast was forced to recall all the vehicles it had shipped to the US over a software defect.

According to a company presentation, it has only sold 105,000 vehicles as of the end of the end of June. By comparison, Chinese electric vehicle giant BYD sold 1.1 million vehicles in the first half of this year alone.

Questions have also been raised about how it has engineered its European expansion.

VinFast's decision to build its own sales network in Europe rather than working through established local dealers is "insane," said Matthias Schmidt, director of Schmidt Automotive Research, a Berlin-based automotive industry market analysis firm.

Schmidt contrasts this with the way the Chinese-owned BYD Auto has gone about its European expansion.

Unlike VinFast, BYD "sensibly" decided to use established dealer franchises and service networks in Europe, he told DW.

"For a brand with no brand equity in Europe, and at a time when Europeans are scrambling to hold onto as many customers as possible while the Chinese aim to acquire them, Vinfast can at best hope to sweep up the scraps left behind after that battle."

VinFast says it's still on track

A spokesperson for VinFast in Hanoi told DW that Europe remains one of the car maker's key markets and the company is planning to complete the necessary steps to launch the VF 8, its latest model, in European markets by the last quarter of 2023.

"At the same time, we prioritize comprehending the operation and service system to provide customers with a worry-free experience during their electric vehicle ownership journey," the spokesperson added.

The company pointed out that VinFast recently agreed collaboration deals with the likes of Dutch-based Fixico and German multinational electric utility company E.ON Drive to develop an "aftersales ecosystem," in which these European partners will be responsible for replacement parts and servicing.

The spokesperson admitted that differences in regulatory requirements between EU markets was a reason why VinFast "took longer than expected" to be fully ready to launch its first electric vehicle on the continent, following delays last year.

However, it has now completed compliance checks with the European Whole Vehicle Type-Approval System, meaning that certification in one EU country applies EU-wide, for its VF 8 model, the spokesperson said.

VinFast has also received approval for vehicle registration in France and is now working with the authorities in Germany and the Netherlands for similar approval.

China's EV dominance

But even with all the processes in place, VinFast faces an uphill battle to tap into a highly competitive market, with low-cost Chinese models set to launch later this year.

BYD, which overtook Volkswagen as the best-selling brand in China this year, presented six models for the European market at a car show in Munich this week, and has already sold more than 92,000 vehicles overseas this year, exceeding the total of 2022.

"Europe lacks a robust and coherent approach to the increasingly tough competition from abroad, supported by governments that marry their green and digital transitions with national resilience in a combative and decisive way," Sigrid de Vries, director general of ACEA, wrote last week in a report.

"China has its gaze set on the European market, with the potential to fundamentally change the face of Europe's industries as we know it," she added.

Edited by: Srinivas Mazumdaru

(The above story first appeared on LatestLY on Sep 08, 2023 12:10 AM IST. For more news and updates on politics, world, sports, entertainment and lifestyle, log on to our website latestly.com).