VinFast Auto(NASDAQ: VFS) briefly became one of the market's hottest electric vehicle stocks when it went public by merging with a special purpose acquisition company (SPAC) last August. The Vietnamese electric vehicle (EV) maker's stock started trading at $22 and skyrocketed to a record high of $82.35 just two weeks later.
But today, VinFast's stock trades at less than $5. Like many other SPAC-backed EV makers, it ran of of juice as it missed its pre-merger targets and racked up steep losses. So should contrarian investors still buy this beaten-down EV stock?
Image source: VinFast Auto.
What does VinFast Auto do?
VinFast was founded by Vingroup, one of Vietnam's largest private conglomerates, in 2017. It initially licensed and distributed vehicles for General Motors' Chevrolet in Vietnam before launching its own sedans, SUVs, and crossovers in 2019.
VinFast originally manufactured gas-powered vehicles, but it entered the EV market with its VF-series EVs, electric scooters, and an electric bus in 2021. By the end of 2022, it had pivoted entirely toward producing EVs and electric scooters.
VinFast only sold 7,400 vehicles, all of which were delivered in Vietnam, in 2022. However, its EV ambitions attracted the attention of Black Spade Acquisition, a SPAC that believed it could successfully expand into the North American market.
Why did VinFast's stock crash?
In its pre-merger presentation, VinFast claimed it could sell 50,000 EVs in 2023. But it missed that target by only delivering 34,855 EVs and 72,468 electric scooters for the year. More importantly, a whopping 70% of those EV deliveries went to the company's affiliate Green SM, a taxi operator and leasing provider controlled by VinFast's own CEO Pham Nhat Vuong. It delivered fewer than 1,000 EVs in North America during the year.
In VinFast's first-quarter report in April, it claimed it could deliver 100,000 EVs in 2024. However, that target hinged on its ability to open its North Carolina plant this year. VinFast broke ground on that $4 billion plant, which aims to reach an annual production capacity of 150,000 vehicles, last year. It was scheduled to open this month, but the company recently postponed its opening to 2028 and reduced its 2024 target to 80,000 deliveries.
That would still represent 130% growth from 2023, but that total will mainly consist of its deliveries in Vietnam -- where it's facing scrutiny for selling most of its vehicles to its own affiliate -- instead of its shipments to North America.
VinFast's future in the U.S. also looks murky. It's being probed by the National Highway Traffic Safety Administration (NHTSA) over a fatal crash in California, it's being sued for unpaid rent for its vehicle showroom in Palo Alto, and it's dealing with class action lawsuits that claim it misled its investors with its rosy pre-merger presentation.
Even if VinFast can finally open its North Carolina plant in 2028, there's no guarantee it can stand out in the saturated U.S. market. Its first two EVs for the U.S., the VF 8 mid-size crossover and VF9 crossover SUV, start at $50,000 and $70,000, respectively. That makes it comparable to Tesla's popular Model X.
Is VinFast a contrarian investment?
Despite all of those challenges, analysts still expect VinFast's revenue to rise 108% to $2.49 billion this year. But based on that forecast, its stock still isn't a bargain at 4 times this year's sales. Rivian Automotive, which arguably has a much brighter future than VinFast, trades at about 3.5 times this year's sales.
VinFast is also still unprofitable, and it ended its latest quarter with just $123 million in cash and $6.65 billion in current liabilities. That's probably why it's missing its rent payments and why it didn't open its North Carolina plant this month.
As VinFast grapples with these headwinds, I don't think its stock is a contrarian buy at under $5. There are simply too many red flags regarding its customer concentration issues in Vietnam and its 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 has positions in and recommends Tesla. The Motley Fool recommends General Motors and recommends the following options: long January 2025 $25 calls on General Motors. The Motley Fool has a disclosure policy.
