Doubts Loom Over Vietnam's Fast & Furious Ambitions To Become A Major Global EV Player

VinFast Auto Limited VFS made good on its name when it debuted on NYSE via a reserve merger with a blank check company in August, rising in the space of days from $20 to over $80 a share. In that short-lived period, the Vietnamese EV maker became the third largest in the world by market capitalization, beating out the likes of market giants such as GM GM by market size before crashing back down to earth.

Now that the share price is steadying 80% lower around $17 a share, the company will have to prove that it can justify what is still an already-hefty valuation for a loss-making upstart over the coming year. That may prove hard if not impossible to do any time soon, say analysts.

Painting a portrait of VinFast is not an easy task partly because of its “byzantine” ownership structure, writes Sandeep Rao, head of exchange traded product provider Leverage Shares PLC, in a recent note.

VinFast was incorporated in Vietnam in 2017 but moved to Singapore in order to better facilitate a US listing, which it has had its sights on since inception. The US-listed entity into which the Singapore company reversed is half owned by VinGroup with another half owned by Vietnam Investment Group and an investment holding company called Asian Star. Ultimately, all these companies are owned or controlled by one shareholder, Pham Nhat Vuong.

Just 17 million out of 2.3 billion shares in the company were floated in the US listing, comprising a paltry 0.3% of the company.

“It’s a fair assumption that institutional participation is vanishingly small at present,” said Rao.

The tiny float means that even after a huge drop from over $80 a share in August, VinFast has a market capitalization of $40 billion right now. While that number is at a slight discount to its enterprise value, the company is far from being in a solid financial position to confidently justify such huge sums according to analysts.

"Surprisingly" High Valuations  

Revenue was down at the end of FY2022 by 10% to $633 million while net losses expanded some 55%, suggesting the company is burning cash faster than it is able to bring it in. As such, the company has an eye-popping P/S ratio of 74 vs. something that’s in the single-digits for more established competitors such as Tesla Inc TSLA (9.7x), Li Auto Inc LI (3.8x), NIO Inc NIO (2.2x) and Toyota Motor Corporation TM (0.97x). In other words, VinFast’s tiny float appears to be generating what is an artificial valuation bubble for the stock.

By all appearances, the company’s management doesn’t seem perturbed by the unusual trading that befell its stock price in August. In fact, the company’s chief executive touted the listing as a success overall, despite the 80% collapse in price from the peak.

“You probably saw after [the] listing how our share price went, and I think that a lot of people were surprised," Thuy Le, VinFast’s CEO, told the audience attending the ASEAN Business & Investment Summit in Jakarta at the start of this month. “We were not surprised because we believe in the potential of [our] company.”

Quality & Quantity Issues

VinFast’s biggest problem right now from an operating standpoint appears to be that it only produces a very small quantity of EVs. Further, a substantial block of these are made for another VinGroup subsidiary called GSM. In 2022, the company sold just under 7,500 EVs. While VinFast has sold over 10,000 EVs so far in 2023, a big block of those represent what are essentially inside sales. To make matters worse, not all sales to actual third party customers overseas have gone off without a hitch.

Around 1,000 units of VinFast’s flagship model, the VS8, were shipped to the US this year but all of them have been recalled for quality reasons. Car reviewers have in the process been quick to slam the EV maker.

“Does this car actually deserve the scathing reviews? Absolutely. The reality is they released this car way too early. Most cars take many years and hundreds of millions of dollars to develop. VinFast rushed this to the finish line,” reviewers at popular YouTube car review podcast Donut concluded in August. “[The VS8] has all of the annoying things about EVs and none of the cool stuff.”

The company’s quality problems and low output seem at odds with its grand ambitions to scale worldwide. VinFast announced in July that it is building a production plant in Chatham County, North Carolina that will create 100,000 new jobs and spit out 150,000 EVs annually by 2025 for the US market. The build comes at a cost of $2.5 billion.

In Indonesia, the company has similar plans, where it said it would invest another $1.2 billion in factories that will be able to spit out 50,000 plus EVs by 2026.

Dillution To Come

In order to pay for all this expansion, VinFast will have to raise capital by substantially diluting existing equity investors since debt is hard to come by at that sort of quantity. This will put massive downward pressure on the company’s stock price, analysts warn. Further, if income doesn’t follow fast enough, then that will spell additional bad news for stockholders.

There is some evidence part of this strategy of dilution is already getting underway. Last week the company filed to list another 11 million shares in addition to the 17 million share that are currently on offer, nearly doubling the company’s miniscule float. The seller was listed as one sole beneficiary. This trend of diluting the free float is likely to continue as the company seeks to raise more cash to meet its lofty ambitions, write analysts at UFD Capital Research in a recent note.

“The value of the company has a lot to do with the unavoidable dilution that is coming and how much money the company can raise rather than their current fundamentals,” UFD analysts said.

“Dilution of some form is likely on the way as the company is already burdened with a large debt load relative to their asset base and would have difficulty securing additional debt financing,” they added.

Rao maintains that the best case for VinFast to achieve its present market value in the shortest period of time is if VinGroup sells the offshoot to either GM or BMW, both of which it has manufacturing and distribution agreements with.

“It is possible that the senior carmaker might make an offer for shares of the company. Thus, for the long-term investor, there is some buffer of inherent value. This is, of course, speculation,” said Rao.

Rao cautioned that the scenario of a buyout was possible but not likely.

Meanwhile, UFD’s analysts were even less optimistic about VinFast’s prospects.

“VinFast is a stock that investors should stay far away from. The company is unproven and their financials are abysmal. The market they are entering is exceedingly competitive. The company is vastly overvalued.”