VinFast Auto(NASDAQ: VFS) broke onto the scene as an electric vehicle (EV) company with unique potential. The Vietnamese EV maker had massive backing from its parent company and billionaire owner, a stranglehold on its home market, cheap labor costs, state-of-the-art manufacturing plants, and massive addressable markets to which it could export vehicles.
That said, things haven't gone exactly to plan. But does VinFast's 67% gain over the past three months make it a buy now? Not so fast.
Pump the brakes
First, let's take a look at some recent positive news from VinFast and also acknowledge why it should be taken with a grain of salt. During the second quarter, VinFast delivered over 12,000 vehicles, which was a healthy 24% compared to the prior quarter and 26% higher than the year-ago period. For the first half of 2024 VinFast delivered 21,747 vehicles, which was good for a whopping 92% increase compared to the prior year.
Here's the potential problem. In the past, some of VinFast's EV sales were to an affiliate company. Consider 2023, for example. The company delivered 34,855 EVs, but in its SEC filing you'll find that 70% of its EV deliveries went to its affiliate, Green SM (GSM), a taxi operator backed by VinFast's CEO Pham Nhat Vuong.
We likely won't know how much of its recent sales went to GSM until VinFast's second-quarter SEC filing, but it's certainly worth keeping in mind when reading the headlines of 92% delivery gains over the prior year.
Further, despite its recent sales gains, the company sees that it set its goals too high and has since backed off its original 100,000 delivery estimate and trimmed it down to 80,000 EVs for 2024 -- still roughly 2.3x year-over-year growth.
Another speed bump for investors is its delayed North Carolina plant, which pushes back VinFast's strategy in what it hoped to be a lucrative U.S. market. Originally, it planned to open the North Carolina plant in 2024. That was pushed back to early 2025, and just recently the EV maker admitted production at the plant won't start until 2028.
Rough financials
It's hard out there for a pure-play EV maker, and many face the exact same problem: cash burn. VinFast is no different, and despite its first-quarter revenue of $303 million -- a 270% increase compared to the prior year -- its gross loss expanded to $150.8 million with negative gross margins of nearly 50%. The company ended the first quarter with $123 million of cash and cash equivalents.
Despite these heavy losses, the company continues to push the gas pedal on expensive expansion. In Indonesia, VinFast signed five dealership partners and opened its first VinFast store in April. In Thailand, the company announced a letter of intent with 15 initial dealers, and in the Middle East VinFast signed a dealer sales agreement to distribute electric vehicles in the Oman market.
VinFast's plans for the U.S. are even larger, with the first phase of its strategy calling for 125 sales points. Currently, it has 18 dealerships in the U.S. across seven states with plans to add more in time.
What it all means
We've covered why VinFast's deliveries might appear better because they rely on an affiliate company rather than consumer demand, and that its financials are rough at the moment. But we also don't know how the company's brand will be received in the highly valuable Europe and U.S. markets.
The company has impressive production capabilities and wealthy backing, but there's no doubt there are plenty of red flags, reasons for investors to be cautious, and a long uphill battle for this to be a worthy investment. Investors might be wise to watch this company from the sidelines for the time being.
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Daniel Miller has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
