Investors valued VinFast, a Vietnam-based electric vehicle maker with relatively little revenue, at $69 billion following its Tuesday market debut — higher than GM’s and Ford’s combined market capitalization.
Here are four reasons VinFast shares could be 98% too high:
- Poor reviews on a me-too product
- Weak capabilities for success in the U.S. EV market
- Excessive valuation
- Insiders control most of the stock
A VinFast spokesperson said, “We are excited to be listed on the Nasdaq and believe we are well positioned to deliver on our ambition to create a greener future by developing a large offering of premium EVs at an inclusive price.”
VinFast’s Market Debut
On August 15, VinFast — an EV manufacturer controlled by Vingroup, a Vietnamese conglomerate — listed on Nasdaq.
VinFast currently manufactures EV SUVs in Vietnam and ships them to the U.S. The automaker opened its first U.S. showrooms in 2022 in California and plans to spend $2 billion to build an EV factory in North Carolina where it expects to begin production in 2025, according to the Wall Street Journal.
VinFast was founded in 2017 and in March 2023 began delivering the VF8, an all-electric SUV priced at $46,000 — slightly below Ford’s Mustang Mach-E, the Journal noted. Since starting production in 2021 and the end of June 2023, VinFast has delivered 18,700 vehicles — 740 to U.S. customers and most of the balance to Vietnamese buyers, the Journal noted.
VinFast stock started off at a high valuation. After merging with Black Spade, a special-purpose acquisition company, VinFast shares opened at a roughly $86 billion valuation — a market capitalization exceeding GM’s and Ford’s combined.
VinFast shares closed at $37 on their first day of trading — an improvement over Black Spade’s last closing price of $10.45. VinFast dropped almost 19% to $30.11 a share and fell 10% to about $27 a share in August 17 pre-market, according to the Journal.
A drop in the number of shares trading before the SPAC merger contributed to the stock’s volatility. A VinFast spokesperson told the Journal around 84% of Black Spade investors withdrew their money ahead of VinFast’s debut — resulting in fewer shares available for trading.
VinFast’s financial performance is not great — losses are growing and revenue is down. It lost $2.1 billion in 2022 and is on track to burn even more in the current financial year, according to the Guardian. At the end of the first quarter, VinFast had lost $598 million, up from a $411 million loss the year before. Revenue from vehicle sales fell “by around half to $65 million in the first quarter,” the Journal reported.
VinFast is thrilled with its U.S. listing. According to a statement, Madame Thuy Le, VinFast Global CEO, said: “Becoming a U.S-listed company marks a significant milestone in VinFast’s global expansion. More than just transaction on the stock market, going public reflects a powerful vote of confidence in our vision and potential, as well as fulfills our pledge to make smart, safe and environmentally friendly electric vehicles accessible to everyone.”
Poor Reviews On Me-Too Product
Vinfast’s VF8 has received “terrible reviews.” According to The Drive, “complaints about the 2023 Vinfast VF8 run the gamut of hopeless suspension to spotty build quality, which has already resulted in a recall for screen failures. Vinfast’s planned EV battery subscription model has also been scuttled because nobody wants to pay for that.”
VinFast’s U.S. sales have been minuscule. As of July, Automotive News reported VinFast had sold 128 cars in the U.S. after five months on sale. According to VinFast, 45 of those were on the first day.
Vinfast does not respond politely to bad press. The Drive notes the company “allegedly tried to sic the police on one negative reviewer.”
Weak Capabilities For Competing In U.S. EV Market
VinFast faces competition from Tesla
TSLA
According to Apple’s Electric Vehicle, a business school case I co-authored with Sam Hariharan, the capabilities needed to win the EV industry pose significant barriers to entry. Here’s why I think VinFast needs to improve its performance on the required capabilities:
- Battery Design, Manufacturing, and Distribution: Fair. Consumers did not want to pay for VinFast’s initial strategy — to offer a battery subscription model. So the company is selling EVs with batteries included. Michael Dunne, CEO of EV consulting firm, ZoZoGo, said, “They set out to have battery leasing as a market differentiator, but the feedback from customers was that it was too confusing,” the Journal noted.
- EV Design, Manufacturing and Distribution: Needs improvement. Customers complained about about suspension, manufacturing quality, and screens, noted The Drive. Moreover, VinFast does not plan to manufacture vehicles in the U.S. for years — putting the company at a disadvantage to rivals with local manufacturing.
- Supercharger Network Design, Construction and Operation: Unclear. In February 2023, TechCrunch reported VinFast “may have been pursuing an EV charging network in the States.”
- Software Development and Distribution: Needs development. VinFast had to do a recall to “fix display screens that could go blank while driving, preventing owners from seeing warning lights or control icons,” noted the Journal. The problem — which led to recalls in May 2023 — were due to software, according to AutoWeek.
- EV Branding: Needs development. VinFast CEO Thuy told Reuters, VinFast had originally planned to mimic Tesla with its own showrooms; however, it concluded partnering is faster — having opened 122 showrooms as of July 2023 — concentrated on the U.S. West Coast. As the Journal reported, reviews of VinFast’s EV “haven’t been great” and the starting price is too high compared to rivals — resulting in slow U.S. sales.
- EV Customer Service: Needs development. VinFast is offering to pay customers in the U.S., Canada, and Vietnam if their vehicle breaks down or suffers a serious quality issue. The payment would amount to $300 or more, depending on the terms of the service contract, according to Carscoops. This may be of little comfort to owners who would simply like their EV to get them where they want to go.
Given the number of well-funded competitors vying over the EV market, VinFast has a significant opportunity to improve its strategy and capabilities.
Excessive Valuation
VinFast stock appears way overvalued. Its price/sales ratio is excessive and its 2023 revenue forecast appears wildly optimistic. A more reasonable valuation would be $1.2 billion.
How so? As the Journal reported, prior to its SPAC merger, VinFast and Black Spade agreed on a valuation of $23 billion by multiplying a 2023 revenue target of $1.875 billion — more than three times its 2022 revenue — by a discount to Lucid’s trading multiple.
VinFast ended August 16 with a price-to-sales ratio of 37 — that is over four times higher than Tesla’s 8.4. The Journal wrote VinFast is more like Chinese companies such as NIO and Li Auto — which trade at around two times 2023 revenue forecasts.
How do I arrive at $1.2 billion? Since VinFast revenue fell about 50% in the first quarter of 2023, I think it is generous to assume the company will meet its 2022 revenues in 2023 — which were $634 million.
VinFast is confident about the $1.875 billion revenue forecast. “The ballpark numbers that our chairman indicated for this year are still on track,” CFO Dave Mansfield told Reuters.
If we apply a price-to-sales ratio of two, VinFast’s market capitalization would be $1.26 billion — about 98% below its August 16 market capitalization of $69 billion.
VinFast is comfortable with its valuation. As CEO, Lê Thị Thu Thủy told CNBC August 16, “You saw how the market reacted when we opened today, right? I think it’s just a way for us to get listed in the U.S. We didn’t think of the reputation of SPACs.”
Insiders Control Stock
Investors in the publicly-traded VinFast shares are at a significant information disadvantage. That’s because one person controls most of VinFast shares.
Pham Nhat Vuong, chairman of VinFast’s parent company in Vietnam, controlled at a minimum 99.1% of the carmker’s shares before it merged with Black Spade. The company declined to “say what exact percentage of shares outstanding are currently publicly traded,” the Journal reported.
What’s Next For VinFast Stock
VinFast stock seems likely to go down. David Whiston, an auto- industry analyst at Morningstar, said, “I thought the EV SPAC bubble was over, but I guess not. It makes no sense to me that it’d be worth something approaching BMW and more than GM and Ford.”
The best hope for VinFast investors is to exceed investor expectations for growth and profitability.
Given its ambitious objectives, weak financial performance, and significant competitive disadvantages, I see no rush to buy VinFast shares.
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