Vietnamese conglomerate Vingroup Joint Stock Company (JSC) - led by Mr. Phạm Nhật Vượng - is having a veritable fortnight in the sun. Originally starting out in Kharkiv, Ukraine as dried foods company Technocom in 1993 (which produced Ukraine's popular "Mivina" brand of instant noodles), the company began operations in Vietnam in 2000. Today, the organization operates in areas as disparate as commercial real estate development, amusement parks, supermarkets, schools, hospitals and healthcare clinics, mobile wallets and even Big Data. The largest Vietnamese organization by market capitalization which isn't state-owned, it's a prominent ticker ("VIC") in the Ho Chi Minh City Stock Exchange (HOSE).
A lot of the recent hype coming its way lately hasn't been from "Mivina" (which was sold to Nestlé in 2010) but rather from one specific subsidiary: VinFast Auto Ltd. ($VinFast Auto(VFS)$), an automobile manufacturer.
Points of Interest
VinFast originally started operations by producing electrified 2-wheelers (or "e-scooters") in Vietnam, with Germany's Bosch supplying the components and South Korea's LG Chem supplying the batteries. Over the years since, the company diversified into Internal Combustion Engine (ICE)-driven vehicles, electric buses and electric cars.
The company's first two ICE-driven models, Pininfarina-designed LUX A2.0 and the LUX SA2.0, were based on previous generation BMW products and powered by BMW's N20 turbocharged petrol engine. The third model was a V8 version of the SA2.0 designed for the luxury segment while the fourth model - the compact Fadil - was manufactured under license with General Motors (GM) as a rebadged variant of the Opel Karl.
In the present year, VinFast is in the midst of a massive pivot (and the first factor behind such massive interest): it will stop manufacturing ICE-driven cars after fulfilling long-outstanding orders and switch to becoming a "pure play EV carmaker."
Nearly all of the models (both available and upcoming) are in the SUV silhouette, with two current models already available to customers based outside Vietnam and two more expected later this year or thereabouts:
This is possibly the second factor behind such massive interest: the company is offering EVs across a gamut of vehicle size classifications in a popular silhouette format. The third factor could be that the rates of the currently-available models (and thus, possibly, of the upcoming ones) are highly competitive with those by the likes of Tesla and Ford's (F) Mustang EVs.
The Vietnam-specific "VF 5" has a rather interesting backstory: with a starting price of around $23,000, its entry came with the backdrop of Chinese EVs such as the $4,500 Hongguang Mini EV and others from the likes of BYD entering the Vietnamese market. 3,000 orders were received for the VF 5 in the diminutive Vietnamese market within 9 hours earlier this year. Reports since then do not seem to suggest any outsized issues.
In order to make its products more accessible among buyers, the company effectively leases out the vehicle's battery for a monthly fee based on miles traveled. The company also commits to provide a lifetime battery warranty covering all maintenance and repair costs, and will replace the battery for free when charging capacity dips below 70%. This is an attractive guarantee for buyers concerned about battery capabilities of a new carmaker. It's also a mark of confidence that such a new carmaker is willing to shoulder the substantial downside costs. This is likely the fourth factor behind the interest.
The fifth factor are a combination of events that signify the company's deep commitment to striking out with unique propositions:
Since 2021, the company has been in a partnership with Israel-based StoreDot, a company dedicated to fast-charging technology that allows batteries to charge to 80% of total capacity in only 4-5 minutes and already known to work effectively on cellphones, drones and e-scooters.
The company entered into a long-term strategic partnership with Taiwan-based solid-state battery manufacturer ProLogium in the middle of last year with "tens of millions of dollars" invested into the latter by the former. ProLogium was founded in 2006 and has filed over 500 patents for its proprietary solid-state battery technologies. Furthermore, the company's solid electrolyte is 100% recyclable and can be reused for creating new battery cells. VinFast vehicles will be provided with solid-state battery cells from 2024.
Vingroup subsidiary VinES Energy Solutions and Chinese battery producer Gotion High-Tech entered into a joint venture that's setting up a lithium iron phosphate (LFP) battery factory in the Vietnamese province of Ha Tinh. LFP batteries tend to be cheaper as they don't contain significant quantities of high-priced nickel and cobalt, with recent technological advances bringing incremental improvements in LFP battery performance. This move helps with the company gaining a degree of vertical integration with the EV battery ecosystem. Upon completion in the second half of 2024, the factory will have an annual production capacity of 5GWh (approximately 30 million battery cells) per year.
Contemporary Amperex Technology Co., Limited (CATL), China's largest battery manufacturer, announced an agreement with the company that will explore the design of an "integrated intelligent skateboard chassis" that integrates battery packs, electric motors and other components into a single layer at the bottom of a vehicle such that EVs' purchasing cost and energy consumption can be reduced while maximizing cabin space.
Parent Vingroup has invested around $8 billion into the company through the end of 2022, despite the fact that only 7,400 electric vehicles were sold that year. Despite only 137 VinFast EVs (mostly VF 8s) being registered in the U.S. from March through June of this year, VinFast broke ground on its first manufacturing facility outside Vietnam in Chatham County, North Carolina in July.
Costing at least $4 billion, the facility aims to open in 2025 with an initial production capacity of 150,000 vehicles annually. The state has offered the company up to $1.25 billion in incentives that can be reached if it meets hiring and investment thresholds. The localization of manufacturing into the targeted market (thereby signifying the meeting of localized standards and expectations) is likely the sixth factor behind the massive interest.
Rationalizing the stock's recent performance is a slightly different beast.
Metrics and Markets
The company has attempted for years to list in U.S. bourses which included a Byzantine move of its legal and financial HQ to Singapore along with a 51.52% stake transfer to a Singapore subsidiary which is, in turn, owned by a Vietnam-based entity.
Earnings releases over the past couple of quarters aren't presently available. However, in preparation of an eventual listing either via an IPO or SPAC merger, full-year (FY) results have been made available via the U.S. Securities and Exchange Commission (SEC). The line trends therein aren't particularly interesting:
Key facets that can be extracted are:
Revenues and cost of sales aren't quite equivalent in trends; the most recent FY shows a larger decline in vehicle revenues in comparison with the rise in cost of sales of vehicles.
Leasing activities, a key item of interest, doesn't seem to be a primary or even secondary driver of revenues.
A massive surge in revenues from spare parts and components in the latest has also seen a larger surge in cost of sales. Spare parts are the secondary driver in revenues.
Despite a nearly 7% drop in revenues in the latest FY, gross and net losses have risen disproportionately by nearly 33% and 55% respectively.
Operating losses do seem to be improving in the latest FY.
At least one reason for the company going through the SPAC route is that this has fewer regulatory hurdles. After all, the parent still continues to own about 99.7% of the company. The SPAC deal ostensibly brought only around 16-17 million shares to outside investors, while the rest of the 2.3 billion shares outstanding are held by insiders, i.e., the parent and the parent's founder.
Institutional portfolio managers/advisors with the steeliest of nerves would likely take pause due to the price ratios of a company with such low sales entering an increasingly competitive market. However, there is a subcategory of institutional investor that might be interested: those looking at a 10-15 year horizon for a deal on the cheap. They would be the closest facsimile to the "diamond hands" depicted in the patois of many an investment forum. This group might take many of the aforementioned factors of interest into consideration and lock in for the long haul at a reasonable price point.
On the 14th, SPAC partner Black Spade Acquisition's ($Black Spade Acquisition Co.(BSAQ.U)$) shares closed at $10.45. On the 15th, VinFast's new shares opened at $22, more than double the $10 per share agreed with the SPAC partner that had valued the company at $23 billion. It closed the day at $37.06 (a 68% intraday gain). The journey since has been no less dramatic.
Overall, the data suggests that the shares available for trading have changed hands about four times. Over the course of this week alone, i.e., the 21st through the 28th, traded volume is in excess of 70 million. On the 22nd alone, the traded volume was in excess of shares made available for trading. The average holding period was at roughly 1.5 days in the past week and steadily decreasing in the present week. Given these facts, it's a fair assumption that institutional participation is vanishingly small at present.
It bears noting that the company and the parent have stood little to gain once the shares were listed, although "paper" valuations have currently elevated the company into 3rd place, just behind Tesla and Toyota. The parent continues to issue bonds to supplement the company's capital needs and is also leveraging capital from its healthier businesses to give it a longer cash runway. The sole beneficiaries are those benefiting from the stock being "meme-ified" skywards.
In Conclusion
The parent isn't particularly known to throw good money after bad for very long. For instance, its subsidiary VinSmart announced ceasing production of smartphones and televisions three years after it began since growth rate remained stagnant at 0% despite capturing 10% of the local market. From a long-term investor's perspective, there could be two possibilities if VinFast fails to capture substantial U.S. market share and Year-on-Year (YoY) growth on its own:
Given its ties with General Motors, it might eventually create jointly-developed models or produce rebadged-but-variably-configured versions of GM EVs at different price points for various markets around the world.
Given its ties with BMW, it might eventually create licensed "previous-generation-yet-enhanced" models of the German carmaker for the U.S. market and around the world.
In either scenario, it is possible that the senior carmaker might make an offer for shares of the company. Thus, for the long-term investor, there is some buffer of inherent value. This is, of course, speculation. Both carmakers have more than sufficient wherewithal to go their own way but it is, of course, easier to simply pick up existing assets if the price is right. A third carmaker can conclude the matter for the same reasons.
It bears noting that a number of reviews of the U.S.-bound VF 8 have been negative, with a prominent reviewer's headline being "Return to Sender". On balance, though, car-making is a long game; the company has responded that it will continue to strive to bring quality products to the market.
In the present, the stock's valuation merits a "Hold" rating under very specific circumstances:
In the vanishingly small likelihood that a growth investor has acquired the stock at the $22-32 level with an aim to hold past 2026, there is some potential argument for a "wait-and-watch" approach to see how sales figures work out in the 3-5 year horizon.
A growth investor who has acquired the stock at the $75-85 level will have to "wait-and-watch" longer, say a 5-10 year horizon, to see how sales figures work out with the downside risk likely being ameliorated by the possibility that the production assets developed by the company might find a buyer if all else fails.
For those looking to cash in on the "meme," VinFast's price trajectory is extremely volatile and wholly unsupported by fundamentals. Quick profit taking is the name of the game. The stock's trajectory isn't exactly unique in EV SPACs: Lordstown Motors Corp, Nikola Corp ($Nikola Corporation(NKLA)$) and Faraday Future Intelligent Electric Inc ($Faraday Future Intelligent Electric Inc.(FFIE)$) lost more than 90% of their market value since their mergers with their respective SPACs. Since its listing at the $22 price level, there has been a 274% increase till the closing price as of the 28th. That seems to imply that there is a lot more ground to pull back through. Over the past day (28th), the stock price fell in excess of 40%, which justifies this argument.
On a macro level, as a previous article on Tesla ($Tesla Motors(TSLA)$) published in May mentioned, there is plenty of room to give in the U.S. market, where German, Korean and even Japanese carmakers have been gaining at Tesla's expense. For EV adoption to grow and the addressable market to expand, a range of options for EVs at affordable price points is needed. It remains to be seen if VinFast will be a trigger that propels development work in that regard.
For broader articles that deep-dives in business and culture in Asia, visit asianomics.substack.com. The latest article discusses the massive potential inherent within recycling for less developed countries seeking to get a foothold in the rare earth minerals ecosystem. Other articles discuss overblown valuations of Korea’s EV Battery Sector, the probable effect of China’s chipmaking metal export curbs, India’s jet engine boom, and many other topics.
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