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VinFast Auto (NASDAQ: VFS) briefly became one of the hottest electric vehicle stocks on the market when it went public last August by merging with a special purpose acquisition company (SPAC). Shares of the Vietnamese electric vehicle (EV) manufacturer started trading at $22 and shot up to an all-time high of $82.35 just two weeks later.
But today, VinFast’s stock trades for less than $5. Like many other SPAC-backed EV makers, the company ran out of energy as it failed to meet pre-merger targets and incurred large losses. So should contrarian investors still buy this defeated country? EV stock?
What does VinFast Auto do?
VinFast was founded in 2017 by Vingroup, one of Vietnam’s largest private conglomerates. The company initially licensed and distributed vehicles for General enginesChevrolet in Vietnam before launching its own sedans, SUVs and crossovers in 2019.
VinFast originally manufactured gas-powered vehicles, but entered the EV market with its VF series EVs, electric scooters, and an electric bus in 2021. By the end of 2022, it was fully focused on EV and electric scooter production.
VinFast sold only 7,400 vehicles in 2022, all of which were delivered in Vietnam. However, its EV ambitions caught the attention of Black Spade Acquisition, a SPAC that believed it could successfully expand into the North American market.
Why did VinFast’s price crash?
In its pre-merger presentation, VinFast claimed it could sell 50,000 electric vehicles by 2023. But the company missed that target by delivering only 34,855 electric vehicles and 72,468 electric scooters this year. More importantly, a whopping 70% of those EV deliveries went to the company’s subsidiary Green SM, a taxi company and leasing company controlled by VinFast’s own CEO Pham Nhat Vuong. The company delivered fewer than 1,000 electric vehicles in North America during the year.
In VinFast’s first quarterly report in April, it claimed it could deliver 100,000 electric vehicles by 2024. However, that goal was contingent on its ability to open its North Carolina factory this year. VinFast broke ground last year on the $4 billion factory, which aims to reach an annual production capacity of 150,000 vehicles. It was scheduled to open this month, but the company recently postponed the opening to 2028 and cut its 2024 target to 80,000 deliveries.
That would still represent 130% growth from 2023, but that total will mainly consist of deliveries in Vietnam – where the company is under scrutiny for selling most of its vehicles to its own subsidiary – rather than of its shipments to North America.
So does the future of VinFast in the US looks dark. The company is under investigation by the National Highway Traffic Safety Administration (NHTSA) for a fatal crash in California, it is being sued for unpaid rent for its Palo Alto car showroom, and it is facing class action lawsuits alleging that its misled investors with its rosy pre-merger presentation.
Even if VinFast can finally open its North Carolina factory in 2028, there’s no guarantee it can differentiate itself in the saturated U.S. market. The first two electric vehicles for the US, the mid-size crossover VF 8 and the crossover SUV VF9, start at $50,000 and $70,000 respectively. That makes it comparable Tesla‘s popular Model
Is VinFast a contrarian investment?
Despite all these challenges, analysts still expect VinFast’s revenue to rise 108% this year to $2.49 billion. But based on that forecast, the stock is still not a bargain at four times this year’s sales. Rivian automotive sectorwhich arguably has a much brighter future than VinFast, is trading at around 3.5 times sales this year.
VinFast also remains unprofitable, ending the last quarter with just $123 million in cash and $6.65 billion in short-term debt. That’s probably why it’s missing its rent payments and why it didn’t open its North Carolina factory this month.
With VinFast struggling against these headwinds, I don’t think its stock is a contrarian buy below $5. There are simply too many warning signs regarding Vietnam’s customer concentration issues and U.S. expansion plans. So investors should consider other, more promising EV stocks before betting on VinFast’s speculative growth plans.
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Leo sun has no position in any of the stocks mentioned. The Motley Fool holds and recommends positions in Tesla. The Motley Fool recommends General Motors and recommends the following options: In January 2025, $25 would appeal to General Motors. The Motley Fool has one disclosure policy.
Should You Buy VinFast Auto Stock While It’s Under $5? was originally published by The Motley Fool