Description

Company Description

VinFast is a $16B market cap, U.S. listed, Vietnam headquartered electric vehicle manufacturer founded by Vingroup and its entrepreneurial billionaire founder Pham Nhat Vuong in 2017. The company has plans to expand aggressively across the globe with a local manufacturing presence in the U.S., India, and Indonesia and vehicles on the road in 50 markets by the end of 2024. VinFast’s parent Vingroup and largest shareholder provides the company with support through cash infusions (grants) and guaranteed purchases by Vingroup for its electric taxi company, Green and Smart Mobility. $220M or 70% VinFast’s sales in 3Q were to its parent Vingroup.

Background

Early SPAC Dynamics

Vinfast came public through a SPAC merger, which closed on August 14, 2023. The company raised $239M in the transaction but only 1.3M million shares were in the float. The stock was found by the low float crowd and aggressively squeezed to a high of $82.35 on August 28. Unlike most SPACs, VFS registered its warrants concurrently with the transaction close. This means that instead of waiting for an S1 to go effective, warrant holders needed to simply wait 30 days to exercise – warrants became exercisable on September 11. Shares quickly declined to ~$16.57 on September 11. 

Vinfast Needs to Raise $4 billion plus To Reach Profitability

Vinfast needs to raise $4B+ to fund operating losses and invest in capex by my math. The company ended 3Q23 with only $131M in cash vs $2.8B in debt and $2.7B due to related parties. Vinfast is spending money at an unbelievable rate with $592M of losses in 1Q23, $528M of losses in 2Q23 and $622M of losses in 3Q23 while investing $264M per quarter in capex. 

Per a recent sell-side call, the company expects capex to be $350M per quarter for the foreseeable future while Vinfast is saying publicly that it expects to spend $1.4B on capex over the next 3 years. Its North Carolina plant alone is going to cost $2B (https://vinfastauto.us/newsroom/press-kit/vinfast-north-carolina-manufacturing-plant).      

Capital Raise Commitment Helps Certainty but Will Ultimately Pressure the Stock

The chairman and Vingroup entered into a $2.5B funding agreement with VinFast in April 2023, which has the chairman granting the company $1B and Vingroup loaning the company $1B and granting another $500M.

The chairman currently owns 2.3B shares of the company (no that is not a typo). He was actually the richest person in the world for a few weeks. The chairman plans to sell 46.3 million shares of VFS by April 2024 to help fund the grant. The chairman sold ~2 million shares initially but then stopped likely after he saw how hammered the stock was getting. 

VFS also entered into an equity facility with Yorkville for 108.8M shares. The prospectus associated with that facility was deemed effective on October 31. 

The chairman and Yorkville have been slow to start their sell programs. Wouldn’t you if you knew Dan Ives was going to publish a bullish initiation? With the stock up over 30% in the last month, and retail becoming engaged in the stock, the stock sales between the chairman and Yorkville should pick up meaningfully. Given the size of the float versus the shares to be sold, this is likely an asymmetric trade to the downside. 

Sell-Side Courting

VFS has been courting the sell-side for research reports on the company. Recent initiations include Cantor, Chardan and BTIG. The company just started a road show with the sell-side in the last week and I believe this was setup to correspond to when the company will be active with the chairman selling and Yorkville selling given how desperate the company is for cash. 

The Float Should About to 5-10x in the next 5 months Driving the Stock Lower

VFS has ~ 2.32B shares outstanding with 2.299B owned/controlled by the chairman. 

The 9/18 float is as follows (these numbers can be found in the 10/31/23 prospectus):

+1.3M shares that didn’t redeem from the SPAC

+4.225M founder shares (SPAC sponsor) which were waived from lockup up

+4.777M warrant exercise + another 352k from warrants exercised after 9/18 

+2.5M shares sold by the chairman

= ~12.8M shares

Then, there is whatever the chairman and Yorkville has sold since the filing, which is likely another 3M shares bringing the total float to 16M shares. This aligns with the current 12.8mm of shares on loan. If/when the chairman sells his 44M shares plus upwards of 109M Yorkville shares get sold into a 16M float, the stock is going lower.

Early Reviews in the U.S. Are Poor

I can’t recall ever seeing new product reviews this bad for such an U.S. launch. The U.S. electric vehicle market is more saturated than ever and VFS is going to have to invest significant money to improve its quality control, user experience, and brand. VFS plans to spend $4-5B in pursuit of market share in the U.S. and is up against many strong, deep pocketed competitors. 

When some of the top review company’s write reports like this, you know it’s bad.

Motortrend: 2023 VinFast VF8 First Drive: Return to Sender: https://www.motortrend.com/reviews/2023-vinfast-vf8-electric-suv-first-drive-review/
Car and Driver: Tested: 2023 VinFast VF8 Proves Building Cars Is Hard:
https://www.caranddriver.com/reviews/a43878817/2023-vinfast-vf8-by-the-numbers/
Jalopnik: The VinFast VF8 Is Simply Not Ready For America:
https://jalopnik.com/vinfast-vf8-electric-car-first-drive-not-ready-for-u-s-1849892217
Green Car Reports: Don’t buy the 2023 VinFast Vf8 City Edition:
https://www.greencarreports.com/news/1139636_2023-vinfast-vf-8-city-edition-test-drive-review

I’ve included some of the more popular car reviews on YouTube. These reviews are quite entertaining: 

We Drove the Worst Reviewed Car in America: https://www.youtube.com/watch?v=DF7kaLTsNHQ&t=153s

We Drove a Vinfast So You Don’t Have to: https://www.youtube.com/watch?v=fvJaGKNGKN4&t=845s

Comps
The absurdity of VFS’s valuation is pretty clear especially when you layer in the company’s debt. The company has a market cap of $16B and an EV of $21B making it 2x the size of Rivian and nearly 3x the size of Lucid. On a sales basis, the company trades on at 6.6x 2024E sales, a slight premium to TSLA's 6.3x sales...

Source: Bloomberg

Price Target

While I don't believe EV/2025E sales is a relevant metric, it is helpful to show just much the stock could deflate when there's a more balanced supply/demand of stock in the public market. If the stock were to trade at 1.5x 2025E sales vs peers at 1x sales, the stock would be effectively worthless. 

Risks

Key risks are a function of timing and borrow dynamics. Borrow rates are currently over 100% with near 100% utilization and the company is fully in control of when it sells shares. The company has done a good job of pumping its stock on meaningless PR events and analyst initiations. I'm mindful that retail investors have a penchant for targeting high short interest names.

Catalyst

The chairman and company sell a lot of shares