Leading Vietnamese conglomerate Vingroup is chasing an ambitious goal of building half a million vehicles a year, after opening a new automobile factory Friday against all expectations.

But the true challenge lies ahead as homegrown cars hit the Vietnamese market for the first time, taking on more-established rivals from Japan and elsewhere.

"Nobody believed that a Vietnamese company could make cars, but we have done it," Vietnamese Prime Minister Nguyen Xuan Phuc said at the opening ceremony in Haiphong.

"I'm convinced that Vingroup will succeed," the prime minister said.

Vingroup has expanded from its real estate roots to a wide range of businesses, such as hotels, stores and hospitals. It is the most valuable company on the Ho Chi Minh City Stock Exchange.

It is now aggressively moving into new frontiers, like electronics and automobiles. It launched the Vsmart smartphone brand in December. Vingroup announced this month production facilities with capacity of 125 million units a year in early 2020, shocking industry insiders.

With the new factory, the conglomerate has entered the auto industry less than two years after planning began, despite heavy skepticism among more-established automakers. It will begin deliveries Monday of the Fadil hatchback, with plans to debut a sedan and a sport utility vehicle in July.

"We have already received orders for over 10,000 vehicles in total," Vingroup Vice Chairman Nguyen Viet Quang said. The group also plans to start selling electric vehicles by the end of the year.

Vingroup's lightning-fast entry into the auto industry was propelled in part by European support. It adopted BMW technology for the chassis. It also worked with dozens of companies, mostly German players like Robert Bosch, to develop needed parts.

The group will need to pay for components and licenses to its European partners. "The cars are Vietnamese only in name," a critic said.

Unconcerned by such technicalities, the government is throwing its full weight behind Vingroup's vehicles. It introduced complex quality controls for imported cars in January 2018, using nontariff barriers to squeeze foreign competition.

Vingroup hopes to reshape the Vietnamese auto market as a whole. It recognizes that it currently cannot compete with more-established names in gasoline-powered vehicles. But with a broader lineup, and as the market shifts to environmentally friendlier cars, "the competitive balance could change," a Vingroup source said.

The company announced in May a roughly $1 billion investment from South Korea's SK Group. The deal reflects Vingroup's interest in the market for electrics, given that SK makes batteries for them.

Vietnam's per capita gross domestic product reached about $2,600 in 2018. In big cities like Hanoi and Ho Chi Minh City, it has already topped the $3,000 mark where consumption of durable goods, like cars, starts to truly take off. Auto sales here are expected to hit a record of over 300,000 units this year.

But despite the surge, Vietnam's auto market is still only a quarter the size of Indonesia's -- the largest market in the Association of Southeast Asian Nations. And Japan's Toyota Motor is the biggest single brand here by far, with a roughly 24% share.

Vingroup is not the first Vietnamese company to try cracking the auto market. Xuan Kien Automobile attempted to build homegrown cars as well but had essentially given up by 2015 without ever releasing the vehicles.

There is too little support for Vietnamese-made cars, Xuan Kien founder Bui Ngoc Huyen had said at the time. The company's downfall stemmed partly from a failure to work together with the government.

Exports are to account for much of the annual 500,000 or so vehicles Vingroup plans to eventually produce. But before it can turn its eyes outward, the company will need to cement its position at home.

By Tomoya Onishi - Nekkei Asian Review - June 15, 2019