
Victor Golmer
By Andrew Prochnow
Following a tumultuous journey, VinFast Auto (NASDAQ:VFS) shares have remained in a stagnant state for the previous a number of months, posing disappointment for traders and merchants who acquired the inventory at greater ranges.
The debut of VinFast shares on the Nasdaq in August, facilitated by a particular function acquisition firm [SPAC] merger, valued the corporate at round $23 billion, with shares buying and selling at roughly $10 every.
Since then, nonetheless, VinFast’s inventory has fluctuated between $5 and $93 per share, reaching a peak valuation of $210 billion and a nadir of $11 billion.
As of as we speak, VinFast shares are buying and selling at roughly $6.50 per share, with a valuation of round $15 billion. This displays a 93% decline from the inventory’s 52-week excessive and a 30% improve above the 52-week low.
Whereas the sharp decline within the inventory’s value may recommend a bleak outlook, a more in-depth examination means that speculative curiosity might have influenced the current correction, with the departure of “quick cash” enjoying a major function moderately than a basic deterioration within the firm’s future prospects.
However, the longer term potential of VinFast stays considerably unsure, and the inventory carries a notable stage of threat, notably contemplating its present valuation.
VinFast, established in 2017, is an electrical car (EV) producer and a part of the Vietnamese conglomerate Vingroup, based in 1993. Initially headquartered in Vietnam, VinFast relocated its headquarters to Singapore in 2022, possible motivated by a need to reinforce its worldwide presence.
The corporate accomplished a profitable merger with Black Spade Capital via a SPAC in August 2023, valuing it at $23 billion. Following the merger, VinFast shares started buying and selling on the Nasdaq, initially experiencing a constructive market response with shares reaching $93 every shortly after.
Nevertheless, the inventory has since skilled a downturn, at the moment buying and selling at roughly $6.50 per share, indicating a valuation of round $15 billion. This can be a 35% lower from the corporate’s valuation on the time of the merger with Black Spade Capital.
One vital problem for the inventory seems to be the necessity for capital elevating, a course of that always entails the issuance of latest shares, resulting in dilution and a discount within the worth of present shares.
This monetary hurdle provides complexity to VinFast’s path, as the corporate goals to provide and promote adequate automobiles to generate constant annual earnings, contingent on assembly demand and guaranteeing satisfactory manufacturing ranges.
Economies of scale
Producers like VinFast want to realize economies of scale which assist push down the common price to construct a single car. As manufacturing volumes improve, the mounted prices related to manufacturing, resembling facility upkeep, gear, and tooling, will be unfold over a bigger variety of models. This ends in decrease per-unit mounted prices, which contributes to a decreased common price of manufacturing.
As soon as attained, greater ranges of manufacturing sometimes set off further efficiencies and advantages. For instance, course of efficiencies, negotiating energy and the flexibility to competitively value one’s merchandise. In Q3 of 2022, VinFast delivered round 3,000 battery-electric automobiles (BEVs) to prospects.
Nevertheless, by Q3 of 2023, that determine had jumped to 10,000. By 2026, VinFast hopes to be producing a whole lot of hundreds of automobiles yearly.
Reaching that stage of success will rely closely on VinFast’s capacity to finance and function its manufacturing amenities. The corporate is at the moment constructing a producing plant in america, situated in Chatham County, North Carolina. The estimated price of that facility is about $4 billion. The plant is anticipated to open in early 2026 with the capability to provide 150,000 BEVs yearly.
Along with the longer term U.S. facility, VinFast additionally owns and operates a big EV manufacturing facility in Vietnam. VinFast claims its Vietnamese plant will ultimately have the capability to provide about 1 million BEVs yearly. Nevertheless, it hasn’t revealed how a lot capital that may require, or when that may realistically happen.
The large questions, subsequently, relate to the potential demand for VinFast’s choices, and the corporate’s capacity to fund its bold growth plans. One additionally wonders the place VinFast will get the capital essential to fund its deliberate growth, and the way these capital-raising actions may influence the worth of the corporate’s underlying shares.
Valuation Evaluation
Valuing a brand new entrant within the rising EV sector will be difficult, and that’s very true with VinFast.
In April of final yr, the Chairman of Vingroup – Pham Nhat Vuong – donated roughly $1.5 billion to VinFast. That’s an exquisite growth for the corporate and definitely will increase its possibilities of changing into a profitable going concern.
Vuong already owns greater than 95% of VinFast, so whereas the $1.5 billion donation didn’t instantly improve his stake within the firm, it clearly boosts his possibilities of ultimately making an enormous return on his unique funding. If VinFast is in the future valued at $100 billion or extra, Vuong will guide a windfall from that donation within the type of his present stake.
Then again, the donation additionally raises further questions. Was the donation required as a result of VinFast couldn’t elevate the mandatory capital from conventional sources? Or did Vuong make the donation so he wouldn’t have to cut back his proportion of possession within the firm? Alongside these traces, one wonders if Vuong could be prepared to make future donations of an analogous magnitude?
These aren’t straightforward inquiries to reply, and in that regard, the donation muddles the funds and future prospects of VinFast, making it tougher to establish a correct valuation for the corporate.
Restricted Visibility Into the Firm’s Future Earnings
Trying on the firm’s high-level financials, VinFast generated revenues of about $700 million in 2021 and $633 million in 2022.
Throughout the first three quarters of 2023, VinFast collected roughly $755 million in revenues, which means that complete fiscal yr 2023 income will clock in someplace north of $1 billion.
In 2024, consensus estimates recommend that VinFast will pull in roughly $1.4 billion in income.
Primarily based on these figures, VinFast produced a robust income progress fee of 57% in 2023. That follows the corporate’s fast-rising EV gross sales numbers, that are anticipated to be within the vary of 40,000-50,000 automobiles in 2023. That represents a 70-100% improve from the variety of EVs offered in 2022.
Sadly, the corporate hasn’t supplied a transparent projection for EV gross sales in 2024 or 2025. And that makes it extraordinarily tough to forecast the corporate’s revenues in these years.
Contemplating that the brand new American manufacturing plant is anticipated to come back on-line on the finish of 2025, some analysts have projected that VinFast’s revenues may climb as excessive as $5.5-7 billion by 2026.
Whereas these estimates might show appropriate, it’s fully attainable that VinFast’s revenues fall effectively wanting these expectations, as a result of it’s tough to anticipate if the brand new manufacturing capability will come on-line as anticipated, and it’s much more tough to forecast whether or not or not shoppers will gravitate towards the corporate’s choices.
The EV sector has turn out to be more and more aggressive on account of a slew of latest entrants within the sector. Final yr, a report compiled by CarGurus indicated that EVs have been sitting on vendor heaps for an estimated 82 days, as in comparison with 64 days for conventional gas-powered automobiles.
Total, world gross sales of EVs proceed to develop at a fast tempo. Nevertheless, rising inventories of EVs have pressured many producers to low cost their costs. And with most EV producers persevering with to ramp up manufacturing, it’s laborious to foretell whether or not VinFast’s added capability will face a saturated market when it lastly arrives in 2026.
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Verify a correct valuation
Alongside these traces, it’s additionally tough to foretell whether or not VinFast’s EV choices shall be in demand. Not solely as a result of it’s laborious to foretell VinFast’s distinctive curb enchantment, but in addition as a result of it’s laborious to foretell the state of the worldwide economic system in 2026. Primarily based on this lengthy record of unknowns, it’s extraordinarily tough to undertaking – no less than with a excessive diploma of confidence – VinFast’s potential revenues within the coming years.
Furthermore, VinFast’s mountain of annual bills doesn’t look like going wherever. The corporate misplaced round $2 billion in 2022 and is anticipated to lose one other $2 billion in 2023. In 2024 and 2025, complete losses must be on par with these ranges, if not greater.
By 2026, VinFast ought to see dramatic enhancements to its backside line, as bills linked to the present growth plan decline, and elevated manufacturing capability contributes to greater revenues-assuming the corporate can efficiently promote these automobiles.
Comparative Firm Evaluation, VinFast vs. Rivian
As a result of murkiness of VinFast’s near-term financials, it’s nearly unattainable to establish a correct valuation for the corporate utilizing a standard discounted money stream [DCF] evaluation. As such, it’s worthwhile analyzing the corporate from the attitude of a comparative firm evaluation [CCA].
A CCA evaluation proves notably priceless within the case of VinFast, given the multitude of corporations vying for recognition within the burgeoning electrical car [EV] trade. Moreover, many of those EV corporations are publicly traded, permitting for the examination of their perceived market valuations primarily based on their respective market capitalizations within the inventory market.
Within the realm of EV producers, a vital metric is the annual manufacturing of EVs by every firm. Within the EV sector, this metric is usually expressed as “deliveries,” signifying the variety of new EVs efficiently delivered to prospects or dealerships.
The desk under highlights the whole 2023 battery-electric car [BEV] deliveries for a number of the best-known producers within the BEV sector, and their related market capitalizations (sorted by complete deliveries).
Producer |
2023 BEV Deliveries |
Market Capitalization |
Tesla (TSLA) |
1,800,000 |
$695 billion |
BYD (OTCPK:BYDDF) |
1,600,000 |
$80 billion |
Li Auto (LI) |
376,000 |
$34 billion |
NIO (NIO) |
160,000 |
$12 billion |
XPeng (XPEV) |
141,000 |
$11 billion |
Leapmotor |
144,000 |
$5 billion |
Rivian (RIVN) |
50,000 |
$17 billion |
VinFast (VFS) |
45,000 |
$15 billion |
Lucid (LCID) |
6,000 |
$7 billion |
Fisker (FSR) |
4,700 |
0.4 billion |
The info highlighted above is actually illuminating. And at first look, one can see that the BEV producers headquartered in China – BYD, Li Auto, Nio, XPeng, and Leapmotor – all seem to have discounted valuations as in comparison with their counterparts within the West. This facet of the comparative evaluation shall be coated within the subsequent part.
After a rollercoaster journey, the shares of VinFast have skilled a interval of stagnation in current months. Notably, VinFast and Rivian appear to be comparably valued out there, with each corporations delivering an analogous variety of automobiles in 2023. Nevertheless, the EV sector presents vital challenges, notably as each corporations are working at substantial losses.
Rivian reported a Q3 2023 lack of roughly $1.3 billion, with a projected full-year lack of round $4 billion. As compared, VinFast anticipates a lack of about $2 billion in 2023. Regardless of these monetary challenges, Rivian hints at a possible constructive working revenue as early as fiscal yr 2024 or 2025, whereas VinFast’s prospects for an working revenue might prolong to 2026 or past.
A considerable distinction between the 2 corporations lies of their money reserves. On the finish of Q3 2023, Rivian held roughly $9 billion in money, whereas VinFast had lower than $200 million. Though VinFast just lately entered right into a cope with Yorkville Advisors to promote as much as $1 billion price of fairness inside the subsequent 36 months, Rivian’s vital money benefit stays a notable issue influencing its greater valuation.
Analyzing their monetary positions, Rivian boasts about $16 billion in complete property in comparison with $6 billion in complete liabilities, leading to a constructive guide worth. Conversely, VinFast has roughly $5 billion in complete property towards $7 billion in liabilities, yielding a adverse guide worth.
Rivian is projected to ship round 80,000 battery electrical automobiles (BEVs) within the upcoming yr, whereas VinFast’s supply estimate for 2024 stays undisclosed. Apparently, each corporations delivered roughly 2.5% of the whole BEVs that Tesla delivered in 2023, and their market capitalizations mirror this proportion.
Regardless of these comparisons, the explanations for Rivian’s superior valuation turn out to be obvious when contemplating its stronger financials, constructive guide worth, and better money reserves. If Rivian achieves an working revenue in 2024, it may probably commerce at a fair larger premium to VinFast.
Moreover, the influence of the U.S.-China commerce conflict turns into evident within the valuation disparities between main Chinese language EV producers and their Western counterparts. Chinese language EVs face greater tariffs in america, making them much less aggressive, and potential tariff will increase in Europe might additional hinder Chinese language producers. VinFast, originating from Vietnam, enjoys a aggressive benefit with decrease import tariffs into the U.S., notably as soon as its North Carolina manufacturing facility turns into operational.
This advantageous place contributes to VinFast’s greater valuation, surpassing the degrees recommended by its present financials.
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Funding Takeaways and Ultimate Issues
On the finish of the day, the success and sky-high valuation of Tesla – probably the most acknowledged and profitable EV corporations on this planet (together with BYD) – supplies the benchmark from which different world EV producers are evaluated.
So, even if each Rivian and VinFast function with steep annual losses, the market has assigned valuations of $15-17 billion for these corporations on account of their future potential. These valuations are roughly 2.0-2.5% of Tesla’s complete valuation, which is about the identical proportion of automobiles that Rivian and VinFast delivered in 2023, as in comparison with Tesla.
It’s not straightforward to find out whether or not these are “truthful” valuations, as a result of it’s not straightforward to undertaking the longer term revenues, bills and earnings for these corporations, particularly VinFast.
On the plus aspect, the corporate is anticipated to have the capability to provide a whole lot of hundreds of EVs by round 2026. Furthermore, VinFast doesn’t undergo from the identical adverse stigma related to the Chinese language EV producers. And these elements have undoubtedly helped inflate the corporate’s valuation.
Then again, there’s no assure that buyers will gravitate towards VinFast’s automobiles when they’re lastly accessible on the market within the North American market. Moreover, VinFast goes to wish to lift a boatload of latest capital to be able to pay for its ongoing growth. And people capital elevating actions will proceed to dilute the holdings of present shareholders.
Altogether, the aforementioned info signifies that potential traders in VinFast might wish to wait till there’s extra readability round VinFast’s future manufacturing and capital elevating plans, earlier than getting into a brand new place. Particularly contemplating the corporate’s present scarcity of money.
Down the road, it’s fully attainable that the corporate’s valuation might align higher with its precise fundamentals and anticipated future earnings. However as issues stand now, it’s very tough to assign a exact valuation to the company-at least not with a excessive diploma of confidence. There’s additionally no option to know whether or not there’s really a marketplace for VinFast’s choices (i.e. demand).
It must be famous that 96.6% of VinFast shares are held by insiders, and solely 1-2% of the shares are publicly traded. That restricted liquidity makes VinFast’s shares particularly susceptible to hole strikes, as noticed when the inventory first began buying and selling publicly final August.
At the beginning of 2024, VinFast introduced a plan to make 10-20% of the corporate’s shares accessible for public buying and selling by the top of this yr. If that plan involves fruition that ought to make VinFast’s shares simpler to commerce, from each the lengthy and quick aspect of the market. In the intervening time, nonetheless, traders and merchants must be extraordinarily cautious when buying and selling the VinFast fairness market, as a result of it might be prone to excessive magnitude, sudden strikes.
It must be famous that VinFast shares have obtained a number of upgrades of late, together with a $12/share value goal assigned by Wedbush, and an $11/share value goal assigned by Chardan Analysis. BTIG additionally charges shares of VinFast a “purchase” with a $10/share value goal.
All of these value targets point out the next valuation than the $15 billion market cap implied by VinFast’s present inventory value.
Importantly, nonetheless, none of these upgrades has served to maneuver the inventory greater. Over the past 30 days, VinFast shares have slumped by 16%. As such, it seems that different traders and merchants are additionally ready for extra particulars on VinFast’s plans to lift capital, earlier than shopping for into this probably intriguing story.
Traders might wish to maintain off on getting into a brand new place in VinFast till the corporate clearly articulates its future plans to lift further capital.