2023-12-01 14:23:36 ET
Summary
- VinFast Auto bucked the trend of the electric vehicle stocks fading and falling.
- VFS stock broke out of its trading range and gained 12% on Nov. 30, 2023, fueled by short interest and a new vehicle model.
- VinFast's financial risks and competitive landscape suggest that the stock may eventually fall to zero in my view.
In November, speculative optimism for electric vehicle stocks faded for most. Investors flocked to Tesla ( TSLA ), which rose by 14% in the month. Fisker ( FSR ) adjusted its third-quarter earnings report . It updated its plan to find strategic partners . However, chances are rising that short-sellers with a short interest of 44.12% against Fisker will prevail.
More recently, VinFast ( VFS ) broke out of its $4.50 - $6.00 trading range on Nov. 30, 2023. VFS stock gained 12% on the day. I excluded VinFast from one of the four EV stocks that would fall to zero. Should it join the list? Currently, short interest is 23.79%, suggesting that a short squeeze is fueling the rally. In addition, the company showcased a new vehicle model, attracting investors.
Is VFS stock setting up for a sustained breakout?
VinFast VF9 Model Showcased
VinFast shares rallied when the Vietnamese EV maker said that it would present its latest model at the annual United Nations summit on climate change. At the panel discussion "Strengthening Sustainable Supply Chain Resilience," Vingroup's Vice Chairwoman and Global CEO of VinFast will participate.
The executive's involvement strengthens the company's exposure to Vietnam's Prime Minister. Skeptical investors cannot find a correlation between this event and the stock's valuation of $18.69 billion in market capitalization. In addition, the model's showcase offers no new information to the stock market. A Google search would reveal that VinFast claimed a 330-mile EPA range for the VF 9 in August 2023.
Before that, the company said it would deliver VF9s in March. At the time of writing this article, VFS stock lost 7.10%. Chances are high that yesterday's news only lifted the stock temporarily.
VFS Stock Quant Score
VinFast has a strong sell rating, according to Seeking Alpha Quant, at 1.28/5.00.
It scores well only on the growth grade with an A-.
Still, the growth grade is largely dependent on two figures. As shown below, VinFast's revenue grew by over seven times faster than the sector median.
Its CAPEX growth year-over-year ( not shown ) is 72.15%, a 808.44% difference to the 7.94% sector median.
This suggests that readers should not rely on only two figures to believe that VinFast is truly a growth investment.
Competitive Landscape
VinFast described its EV SUV as having an EPA range of 330 miles and having up to 402 horsepower. It has a roomy interior that has a 7-seater or 6-seater configuration. Those attractive specifications, while impressive, will not set the vehicle apart from the already competitive EV landscape.
Fisker and Lucid Motors ( LCID ) must compete with Tesla's Model Y. While Consumer Reports rated Tesla's reliability at 14 th out of 30 brands , it rated the Model Y with the Model 3 in the CR Recommended status . The CR rating is a win for Tesla. As consumers cut spending on expensive items due to inflation, those who buy an EV are more likely to consider a Tesla first.
Will VFS Stock Fall To Zero?
I believe VinFast stock could eventually fall to zero when considering the following financial data. To assess VinFast's financial risks, look at the income statement . The firm posted revenue of $339.9 million and gross profit (loss) of $101.6 million. Selling General and Admin Expenses and research and development expenses account for most of its -$367.4 million operating income.
On the balance sheet , VinFast ended the quarter with $130.1 million in cash. However, it has $1.881 billion in long-term debt and $2.885 billion in net debt. The company increased its cash levels through financing activities that raised $1.248 billion . Just as the other EV firms burn cash flow for every vehicle sold, VinFast is no exception. Expect it to sell more debt or shares to fund operations in the coming quarters.
Insider Ownership
Readers will find from its SEC filing that insiders owned 96.6% of the ordinary shares outstanding as of September 20, 2023. The risk cited understated the stock's volatility. In August, shares traded as high as $93.00 before crashing to as low as $4.59. The filing stated that "excluding the 46,293,461 Released Shares, the Company Initial Shareholders hold an aggregate of 96.6% of our ordinary shares outstanding as of September 20, 2023. As a result, the liquidity of our securities may be significantly limited."
VinFast disclosed the organizational structure and ownership interest as follows:
The structure aligns with the company's initial target markets, which are the U.S. and Canada in North America. Its initial European market targets are France, Germany, and the Netherlands. The company is taking a significant risk by expanding its reach beyond Vietnam. Instead of capturing the Vietnam market share first, it faces increasing competition from other EV firms with the same business strategy.
Your Takeaway
I believe VinFast will eventually lose its nearly $20 billion market capitalization, and insiders will sell shares as soon as they can to book the profit. This would send VFS stock lower. Similarly, Lucid Group continues to trade at a market cap of over $10 billion. Lucid's loss of $430,000 for every car sold is not a sustainable business model in my view.
The shakeup in the EV market is ongoing. Investors should only treat VinFast's intraday rise as a short-term trade. Holding the stock as a long-term investment will likely hurt an investor's portfolio.
For further details see:
What To Do After VinFast Stock Soared By 12%