VinFast Auto Setting Up To Be A Home Run, But… (NASDAQ:VFS)

By Andrew Prochnow

Following a tumultuous journey, VinFast Auto (NASDAQ:VFS) shares have remained in a stagnant state for the past several months, posing disappointment for investors and traders who acquired the stock at higher levels.

The debut of VinFast shares on the Nasdaq in August, facilitated by a special purpose acquisition company [SPAC] merger, valued the company at around $23 billion, with shares trading at approximately $10 each.

Since then, however, VinFast’s stock has fluctuated between $5 and $93 per share, reaching a peak valuation of $210 billion and a nadir of $11 billion.

As of today, VinFast shares are trading at approximately $6.50 per share, with a valuation of around $15 billion. This reflects a 93% decline from the stock’s 52-week high and a 30% increase above the 52-week low.

While the sharp decline in the stock’s price might suggest a bleak outlook, a closer examination suggests that speculative interest may have influenced the recent correction, with the departure of “fast money” playing a significant role rather than a fundamental deterioration in the company’s future prospects.

Nevertheless, the future potential of VinFast remains somewhat uncertain, and the stock carries a notable level of risk, particularly considering its current valuation.

VinFast, established in 2017, is an electric vehicle (EV) manufacturer and part of the Vietnamese conglomerate Vingroup, founded in 1993. Originally headquartered in Vietnam, VinFast relocated its headquarters to Singapore in 2022, likely motivated by a desire to enhance its international presence.

The company completed a successful merger with Black Spade Capital through a SPAC in August 2023, valuing it at $23 billion. Following the merger, VinFast shares began trading on the Nasdaq, initially experiencing a positive market response with shares reaching $93 each shortly after.

However, the stock has since experienced a downturn, currently trading at approximately $6.50 per share, indicating a valuation of around $15 billion. This is a 35% decrease from the company’s valuation at the time of the merger with Black Spade Capital.

One significant challenge for the stock appears to be the need for capital raising, a process that often involves the issuance of new shares, leading to dilution and a reduction in the value of existing shares.

This financial hurdle adds complexity to VinFast’s path, as the company aims to produce and sell sufficient vehicles to generate consistent annual profits, contingent on meeting demand and ensuring adequate production levels.

Economies of scale

Manufacturers like VinFast need to attain economies of scale which help push down the average cost to build a single vehicle. As production volumes increase, the fixed costs associated with manufacturing, such as facility maintenance, equipment, and tooling, can be spread over a larger number of units. This results in lower per-unit fixed costs, which contributes to a reduced average cost of production.

Once attained, higher levels of production typically trigger additional efficiencies and benefits. For example, process efficiencies, negotiating power and the ability to competitively price one’s products. In Q3 of 2022, VinFast delivered around 3,000 battery-electric vehicles (BEVs) to customers.

However, by Q3 of 2023, that figure had jumped to 10,000. By 2026, VinFast hopes to be producing hundreds of thousands of vehicles annually.

Achieving that level of success will depend heavily on VinFast’s ability to finance and operate its manufacturing facilities. The company is currently building a manufacturing plant in the United States, located in Chatham County, North Carolina. The estimated cost of that facility is about $4 billion. The plant is expected to open in early 2026 with the capacity to produce 150,000 BEVs annually.

In addition to the future U.S. facility, VinFast also owns and operates a large EV manufacturing facility in Vietnam. VinFast claims its Vietnamese plant will eventually have the capacity to produce about 1 million BEVs annually. However, it hasn’t revealed how much capital that might require, or when that might realistically occur.

The big questions, therefore, relate to the potential demand for VinFast’s offerings, and the company’s ability to fund its ambitious expansion plans. One also wonders where VinFast will get the capital necessary to fund its planned expansion, and how those capital-raising activities might impact the value of the company’s underlying shares.

Valuation Analysis

Valuing a new entrant in the emerging EV sector can be tricky, and that’s especially true with VinFast.

In April of last year, the Chairman of Vingroup – Pham Nhat Vuong – donated approximately $1.5 billion to VinFast. That’s a wonderful development for the company and certainly increases its chances of becoming a successful going concern.

Vuong already owns more than 95% of VinFast, so while the $1.5 billion donation didn’t directly increase his stake in the company, it obviously boosts his chances of eventually making a huge return on his original investment. If VinFast is one day valued at $100 billion or more, Vuong will book a windfall from that donation in the form of his existing stake.

On the other hand, the donation also raises additional questions. Was the donation required because VinFast couldn’t raise the necessary capital from traditional sources? Or did Vuong make the donation so he wouldn’t have to reduce his percentage of ownership in the company? Along those lines, one wonders if Vuong would be willing to make future donations of a similar magnitude?

These aren’t easy questions to answer, and in that regard, the donation muddles the finances and future prospects of VinFast, making it harder to ascertain a proper valuation for the company.

Limited Visibility Into the Company’s Future Earnings

Looking at the company’s high-level financials, VinFast generated revenues of about $700 million in 2021 and $633 million in 2022.

During the first three quarters of 2023, VinFast collected roughly $755 million in revenues, which implies that total fiscal year 2023 revenue will clock in somewhere north of $1 billion.

In 2024, consensus estimates suggest that VinFast will pull in roughly $1.4 billion in revenue.

Based on those figures, VinFast produced a strong revenue growth rate of 57% in 2023. That follows the company’s fast-rising EV sales numbers, which are expected to be in the range of 40,000-50,000 vehicles in 2023. That represents a 70-100% increase from the number of EVs sold in 2022.

Unfortunately, the company hasn’t provided a clear projection for EV sales in 2024 or 2025. And that makes it extremely difficult to forecast the company’s revenues in those years.

Considering that the new American manufacturing plant is expected to come online at the end of 2025, some analysts have projected that VinFast’s revenues could climb as high as $5.5-7 billion by 2026.

While those estimates may prove correct, it’s entirely possible that VinFast’s revenues fall well short of those expectations, because it’s difficult to anticipate if the new manufacturing capacity will come online as expected, and it’s even more difficult to forecast whether or not consumers will gravitate toward the company’s offerings.

The EV sector has become increasingly competitive due to a slew of new entrants in the sector. Last year, a report compiled by CarGurus indicated that EVs were sitting on dealer lots for an estimated 82 days, as compared to 64 days for traditional gas-powered vehicles.

Overall, global sales of EVs continue to grow at a rapid pace. However, rising inventories of EVs have forced many manufacturers to discount their prices. And with most EV manufacturers continuing to ramp up production, it’s hard to predict whether VinFast’s added capacity will face a saturated market when it finally arrives in 2026.

Ascertain a proper valuation

Along those lines, it’s also difficult to predict whether VinFast’s EV offerings will be in demand. Not only because it’s hard to predict VinFast’s unique curb appeal, but also because it’s hard to predict the state of the global economy in 2026. Based on this long list of unknowns, it’s extremely difficult to project – at least with a high degree of confidence – VinFast’s potential revenues in the coming years.

Moreover, VinFast’s mountain of annual expenses doesn’t appear to be going anywhere. The company lost around $2 billion in 2022 and is expected to lose another $2 billion in 2023. In 2024 and 2025, total losses should be on par with those levels, if not higher.

By 2026, VinFast should see dramatic improvements to its bottom line, as expenses linked to the current expansion plan decline, and increased production capacity contributes to higher revenues-assuming the company can successfully sell those vehicles.

Comparative Company Analysis, VinFast vs. Rivian

Due to the murkiness of VinFast’s near-term financials, it’s almost impossible to ascertain a proper valuation for the company using a traditional discounted cash flow [DCF] analysis. As such, it’s worthwhile examining the company from the perspective of a comparative company analysis [CCA].

A CCA analysis proves particularly valuable in the case of VinFast, given the multitude of companies vying for recognition in the burgeoning electric vehicle [EV] industry. Additionally, many of these EV companies are publicly traded, allowing for the examination of their perceived market valuations based on their respective market capitalizations in the stock market.

In the realm of EV manufacturers, a crucial metric is the annual production of EVs by each company. In the EV sector, this metric is often expressed as “deliveries,” signifying the number of new EVs successfully delivered to customers or dealerships.

The table below highlights the total 2023 battery-electric vehicle [BEV] deliveries for some of the best-known manufacturers in the BEV sector, and their associated market capitalizations (sorted by total deliveries).

Click to enlarge

The data highlighted above is certainly illuminating. And at first glance, one can see that the BEV manufacturers headquartered in China – BYD, Li Auto, Nio, XPeng, and Leapmotor – all appear to have discounted valuations as compared to their counterparts in the West. This aspect of the comparative analysis will be covered in the next section.

After a rollercoaster journey, the shares of VinFast have experienced a period of stagnation in recent months. Notably, VinFast and Rivian seem to be comparably valued in the market, with both companies delivering a similar number of vehicles in 2023. However, the EV sector presents significant challenges, particularly as both companies are operating at substantial losses.

Rivian reported a Q3 2023 loss of approximately $1.3 billion, with a projected full-year loss of around $4 billion. In comparison, VinFast anticipates a loss of about $2 billion in 2023. Despite these financial challenges, Rivian hints at a potential positive operating profit as early as fiscal year 2024 or 2025, whereas VinFast’s prospects for an operating profit may extend to 2026 or beyond.

A substantial distinction between the two companies lies in their cash reserves. At the end of Q3 2023, Rivian held approximately $9 billion in cash, while VinFast had less than $200 million. Although VinFast recently entered into a deal with Yorkville Advisors to sell up to $1 billion worth of equity within the next 36 months, Rivian’s significant cash advantage remains a notable factor influencing its higher valuation.

Examining their financial positions, Rivian boasts about $16 billion in total assets compared to $6 billion in total liabilities, resulting in a positive book value. Conversely, VinFast has approximately $5 billion in total assets against $7 billion in liabilities, yielding a negative book value.

Rivian is projected to deliver around 80,000 battery electric vehicles (BEVs) in the upcoming year, while VinFast’s delivery estimate for 2024 remains undisclosed. Interestingly, both companies delivered approximately 2.5% of the total BEVs that Tesla delivered in 2023, and their market capitalizations mirror this percentage.

Despite these comparisons, the reasons for Rivian’s superior valuation become apparent when considering its stronger financials, positive book value, and higher cash reserves. If Rivian achieves an operating profit in 2024, it could potentially trade at an even greater premium to VinFast.

Furthermore, the impact of the U.S.-China trade war becomes evident in the valuation disparities between major Chinese EV manufacturers and their Western counterparts. Chinese EVs face higher tariffs in the United States, making them less competitive, and potential tariff increases in Europe may further hinder Chinese manufacturers. VinFast, originating from Vietnam, enjoys a competitive advantage with lower import tariffs into the U.S., particularly once its North Carolina production facility becomes operational.

This advantageous position contributes to VinFast’s higher valuation, surpassing the levels suggested by its current financials.

Investment Takeaways and Final Considerations

At the end of the day, the success and sky-high valuation of Tesla – one of the most recognized and successful EV companies in the world (along with BYD) – provides the benchmark from which other global EV manufacturers are evaluated.

So, despite the fact that both Rivian and VinFast operate with steep annual losses, the market has assigned valuations of $15-17 billion for these companies as a result of their future potential. Those valuations are roughly 2.0-2.5% of Tesla’s total valuation, which is about the same percentage of vehicles that Rivian and VinFast delivered in 2023, as compared to Tesla.

It’s not easy to determine whether those are “fair” valuations, because it’s not easy to project the future revenues, expenses and earnings for these companies, especially VinFast.

On the plus side, the company is expected to have the capacity to produce hundreds of thousands of EVs by around 2026. Moreover, VinFast doesn’t suffer from the same negative stigma associated with the Chinese EV manufacturers. And these factors have undoubtedly helped inflate the company’s valuation.

On the other hand, there’s no guarantee that consumers will gravitate toward VinFast’s vehicles when they are finally available for sale in the North American market. Additionally, VinFast is going to need to raise a boatload of new capital in order to pay for its ongoing expansion. And those capital raising activities will continue to dilute the holdings of existing shareholders.

Altogether, the aforementioned information indicates that potential investors in VinFast may want to wait until there’s more clarity around VinFast’s future production and capital raising plans, before entering a new position. Especially considering the company’s current shortage of cash.

Down the line, it’s entirely possible that the company’s valuation may align better with its actual fundamentals and expected future earnings. But as things stand now, it’s very difficult to assign a precise valuation to the company-at least not with a high degree of confidence. There’s also no way to know whether there’s actually a market for VinFast’s offerings (i.e. demand).

It should be noted that 96.6% of VinFast shares are held by insiders, and only 1-2% of the shares are publicly traded. That limited liquidity makes VinFast’s shares especially vulnerable to gap moves, as observed when the stock first started trading publicly last August.

At the start of 2024, VinFast announced a plan to make 10-20% of the company’s shares available for public trading by the end of this year. If that plan comes to fruition that should make VinFast’s shares easier to trade, from both the long and short side of the market. For the time being, however, investors and traders should be extremely careful when trading the VinFast equity market, because it may be susceptible to high magnitude, unexpected moves.

It should be noted that VinFast shares have received several upgrades of late, including a $12/share price target assigned by Wedbush, and an $11/share price target assigned by Chardan Research. BTIG also rates shares of VinFast a “buy” with a $10/share price target.

All of those price targets indicate a higher valuation than the $15 billion market cap implied by VinFast’s current stock price.

Importantly, however, none of those upgrades has served to move the stock higher. Over the last 30 days, VinFast shares have slumped by 16%. As such, it appears that other investors and traders are also waiting for additional details on VinFast’s plans to raise capital, before buying into this potentially intriguing story.

Investors may want to hold off on entering a new position in VinFast until the company clearly articulates its future plans to raise additional capital.