By Andrew Prochnow

Investors who bought into VinFast Auto (NASDAQ:VFS) at its inception have found themselves on a rollercoaster ride, as the company’s shares have swung dramatically in value since its debut on the Nasdaq. What initially seemed like a promising start has turned into a bumpy journey for those with a stake in the electric vehicle (EV) manufacturer.

Following a special purpose acquisition company [SPAC] merger in August, VinFast was valued at around $23 billion, with shares opening at approximately $10 each. However, the stock’s trajectory has been anything but smooth, with prices reaching a peak valuation of $210 billion and sinking to a nadir of $11 billion.

Today, VinFast shares are trading at approximately $6.50 per share, reflecting a 93% decline from the stock’s 52-week high and a 30% increase above the 52-week low. The volatility seems to stem more from speculative interest than intrinsic company performance, leaving shareholders in a state of uncertainty.

VinFast, a part of the Vietnamese conglomerate Vingroup, made its mark as an EV manufacturer but now finds itself at a crossroads, navigating through financial challenges and operational aspirations.

Economies of Scale: The Road to Efficiency

Like many manufacturers, VinFast aims to achieve economies of scale to reduce its production costs. As production volumes increase, fixed costs associated with manufacturing can be spread over a larger number of units, driving down the average cost of production. VinFast delivered around 3,000 battery-electric vehicles (BEVs) in Q3 of 2022, which surged to 10,000 in Q3 of 2023, with ambitions to produce hundreds of thousands annually by 2026.

Crucial to its expansion, VinFast is constructing a $4 billion manufacturing facility in the United States, with plans to produce 150,000 BEVs annually, alongside a large EV manufacturing facility in Vietnam. However, the pivotal questions revolve around the demand for VinFast’s vehicles and the funding needed for its ambitious plans, which could dilute the value of existing shares.

Valuation Analysis: The Donation Dilemma

In a surprising move, Vingroup’s Chairman, Pham Nhat Vuong, injected approximately $1.5 billion into VinFast last year. Although this injection bolsters the company’s financial position, it raises questions about its ability to raise capital from traditional sources. While this donation could signify a vote of confidence, it also clouds the company’s financial outlook and complicates its valuation.

Limited Visibility Into the Company’s Future Earnings

Looking at VinFast’s financials, the company generated revenues of about $700 million in 2021 and $633 million in 2022. However, the lack of visibility into the company’s future earnings further contributes to its uncertain outlook.

Rivian’s staggering Q3 2023 loss of approximately $1.3 billion, as well as an anticipated full-year loss of about $4 billion, has set the financial world abuzz. In stark contrast, VinFast expects a loss of roughly $2 billion in 2023. Nevertheless, there’s a glimmer of hope amidst the chaos: Rivian flexes its muscles, hinting 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 fundamental distinction between these behemoths lies in their cash reserves. Rivian rounds off the end of Q3 2023 with a staggering $9 billion in cash, overshadowing VinFast, which struggles with less than $200 million. It’s a tale of David and Goliath where the mighty Rivian stands in a position of undeniable strength, flaunting a significant cash advantage that dramatically influences its higher valuation.

Examining their financial positions unearths a David-and-Goliath narrative where Rivian boasts about $16 billion in total assets contrasted with a mere $6 billion in total liabilities, resulting in a resounding positive book value. Conversely, VinFast finds itself on less stable ground with approximately $5 billion in total assets against a staggering $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, showcasing dominance in the imminent market. On the other hand, VinFast’s delivery estimate for 2024 remains shrouded in ambiguity, casting a shadow of uncertainty. Astonishingly, both companies delivered roughly 2.5% of the total BEVs that Tesla unleashed in 2023, reflecting their modest market penetration, which mirrors their respective market capitalizations.

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

The soaring success and valuation of Tesla, a formidable EV giant, serves as the touchstone against which other global EV manufacturers are measured. While both Rivian and VinFast grapple with substantial annual losses, the market has bestowed valuations of $15-17 billion for these companies, signaling potential. These valuations roughly amount to 2.0-2.5% of Tesla’s total valuation, aligning with the percentage of vehicles that Rivian and VinFast delivered in 2023, in comparison to Tesla.

Determining whether these valuations are “fair” remains a daunting task, as projecting future revenues, expenses, and earnings for these nascent companies, especially VinFast, proves to be a Herculean feat.

On the bright side, VinFast is poised to scale its production capacity to hundreds of thousands of EVs by around 2026. Moreover, VinFast eludes the negative stigma associated with Chinese EV manufacturers, elevating its valuation. However, uncertainty prevails as consumers’ embrace of VinFast’s vehicles and the need for substantial capital infusion loom large on the horizon, potentially diluting existing shareholders’ stakes.

Amidst this quagmire, potential investors in VinFast may be well advised to await clarity around its future production and capital raising plans before leaping into a new position, especially considering the company’s paucity of cash.

In a world where 96.6% of VinFast shares rest in the hands of insiders and only 1-2% are publicly traded, the limited liquidity exposes VinFast’s shares to unpredictable movements, as witnessed when the stock debuted publicly last August. Although VinFast has proposed making 10-20% of its shares publicly tradable by the year’s end, cautiousness behooves investors and traders in maneuvering the VinFast equity market. Recent upgrades in VinFast’s shares, including price targets set by Wedbush, Chardan Research, and BTIG, have failed to buoy the stock. An evident slump over the previous 30 days, a 16% dip, underscores the market’s apprehension pending clarity over VinFast’s capital raising strategy.

For now, patience seems to be the sage counsel for potential investors eyeing VinFast as the company steers through a labyrinth of uncertainties and potential hurdles.