Vietnamese electric vehicle (EV) maker VinFast Auto Ltd. (ticker: VFS) had one of the strongest market debuts for an automaker in history in August. The stock exploded on the scene, rising more than 800% at its peak, driven by speculative fervor following a long dry stint for electric vehicle initial public offerings, or IPOs.
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Yet, the stock’s momentum has cooled down, settling around $16 after peaking at $93. Even with this decline, VinFast’s market cap still hovers around $40 billion. This positions the firm above seasoned EV players like Nio Inc. (NIO) and nearly on par with General Motors Co. (GM).
VinFast is the brainchild of Vietnam’s wealthiest individual, Pham Nhat Vuong. But the company wasn’t always all-in on EVs. As a matter of fact, VinFast sold the best-selling car in Vietnam in 2021 through its partnership with General Motors, which was a rebadged version of the Chevrolet Spark.
| Pros | Cons |
| Visionary leadership | Steep valuation |
| Low float | Abysmal reviews |
| Parent company funding | Highly competitive landscape |
Pro: Visionary Leadership
Already Vietnam’s richest person, VinFast’s market debut added significantly to Pham Nhat Vuong’s net worth. Since the company’s inception in 2017, he’s poured over $9 billion into it and currently controls a staggering 99% of the company’s shares.
An aggressive and well-funded founder can be a significant advantage in an industry like EVs, which requires boldness and innovation. It’s hard to imagine Tesla Inc. (TSLA) being the behemoth it is today without Elon Musk at the helm.
Perhaps drawing inspiration from Musk’s growth strategies, VinFast is going from a domestic automaker to a global EV producer in less than two years, trying to make a footprint in the West through the production of a factory in North Carolina.
Pro: Low Float
One of the most compelling reasons to buy VinFast is its limited float — only about 1% of its 2.3 billion shares outstanding are tradeable on the open market. This scarcity implies that a minor change in demand can create a significant surge in the share price. With so few shares floating on stock exchanges, borrow rates to short-sell the stock are also sky-high. Data obtained from Interactive Brokers via IBorrowDesk reports a borrow rate of 980% as of the Sept. 11 close, dampening downward price pressure from short-sellers.
If hype around EV stocks reignites, driven by, say, a positive Tesla or Nio earnings report, VinFast shares have a strong potential to soar.
While this structural nuance is interesting, it only offers a short-term trading opportunity at best, not a sustained investment thesis.
Pro: Parent Company Funding
VinFast is backed by Vuong’s Vingroup (VIC.VN), Vietnam’s largest conglomerate. The firm’s commitment to VinFast appears unwavering, a sentiment echoed by VinFast CEO Le Thi Thu Thuy in her remarks to the Financial Times that Vingroup “will always support VinFast,” and that “whatever VinFast needs, Vingroup always supports.”
Vingroup’s capital is much needed. The auto industry is one of the most capital-intensive industries, and that’s without attempting to scale a young company to produce electric vehicles through the production of new factories.
Without Vingroup, VinFast would be forced to aggressively tap the capital markets even more than it currently does, by selling debt and equity, a proposition investors are sure to be unhappy with.
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Con: Steep Valuation
Despite retreating from its meteoric highs of $93 down to $16, VinFast’s current market valuation is still far higher than the rest of the industry. Sitting at a market cap of around $40 billion, it’s almost on par with General Motors, which sold 2.2 million vehicles last year. VinFast sold just 24,000, with plans to sell 50,000 in 2023.
With meager sales and unprofitable operations, VinFast’s valuation is a head scratcher. At around -192% gross margin, the company doesn’t seem close to reaching profitability, especially with several capital expenditures in the pipeline.
A closer look at the company’s $556 million 12-month revenue reveals a staggering price-to-sales ratio of 70, dwarfing peers like Rivian Automotive Inc. (RIVN) at 7.6 and Nio at 2.7.
And that goes without mentioning the massive cash burn at VinFast. The company burned $816 million in cash through operations in its most recent quarter, with cash reserves of only $160 million — a worrying sign given its expansive visions.
Con: Abysmal Reviews
The VinFast VF8, its flagship EV, was lambasted by auto critics who test drove it earlier this year. Feedback was largely negative from outlets like Car and Driver, MotorTrend and InsideEVs. Reviewers cited major flaws including a bumpy suspension, flimsy interior parts and a clunky infotainment system. While highlighting some bright spots, the consensus is that the flaws overshadow any positives.
Road and Track went as far as saying that “the VinFast VF8 has the worst body control of any modern car I’ve ever driven.”
Considering the VF8’s starting price at nearly $50,000, matching competitors like Ford Motor Co.’s (F) Mustang Mach-E or Hyundai Motor Co.’s (OTC: HYMTF) Ioniq 5 seems ambitious at best. The lack of parity with major automakers highlights the difficulty of designing and producing a vehicle for a young company.
Con: Highly Competitive Landscape
The EV industry is littered with companies looking to capture their piece of the growing EV market. Startups like Rivian and Lucid Group Inc. (LCID), while having a significant head start on VinFast, continue to struggle financially.
And legacy automakers like Ford and GM also have yet to get it right, creating significant losses in their respective EV divisions. Recent reports show that it’s not getting any easier, as losses balloon to higher-than-expected levels at Ford and GM.
Tesla is the only company to excel in the EV segment so far, and that comes after several years of unprofitable operations and several close calls. The bankruptcy of EV startup Lordstown Motors Corp. earlier this year underscores the industry’s steep competition.
VinFast’s strained financial position, lukewarm product reception and lack of long-term industry experience casts doubt on its capacity to thrive in this cutthroat industry.
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Should You Buy VinFast Stock? 3 Pros, 3 Cons originally appeared on usnews.com
