What happened
After a dazzling debut in August, VinFast Auto (VFS -5.92%) stock is on an eight-day losing streak as of this writing. Shares of the electric vehicle (EV) manufacturer surged 184.7% in August, according to data provided by S&P Global Market Intelligence. That’s after accounting for the stock’s 58% fall in the last three days of August. It has dived further this month and is now almost 78% off highs.
So what
VinFast Auto stock went public via a special purpose acquisition company (SPAC) on the Nasdaq stock market on August 15. Within days of its debut, the stock’s price shot up from $10 apiece to a record high of $93 per share. It couldn’t get any crazier, with VinFast Auto stock momentarily becoming more valuable than Ford and General Motors combined when its market capitalization crossed $230 billion at its peak.
For a loss-making company that generated $634 million in revenue in 2022, that valuation was unsustainable, and it’s not surprising to see VinFast Auto stock falling back to the ground.
In the days following its debut, VinFast announced that its all-electric, full-size SUV, VF 9, had bagged a better-than-expected range rating from the U.S. Environmental Protection Agency (EPA). While VF 9 Plus is certified with an EPA range of 291 miles, the VF 9 Eco trim can go 330 miles on a full charge. VF 9 is among the several SUVs from VinFast that are already available in Vietnam and will soon be available in the U.S., Canada, and Europe.
The update sent VinFast Auto stock surging, but it wasn’t the only reason why the stock went parabolic last month. VinFast Auto has a free float of 7.18 million shares, meaning only that many shares are available to the public for trading. That’s only a fraction — 0.3% to be precise — of the company’s authorized shares, or total outstanding shares in this case since there’s no concept of authorized share capital under Singapore law. Vietnam-based VinFast Auto shifted its headquarters to Singapore before filing an initial public offering (IPO) in the U.S.
Put simply, when VinFast Auto went public last month, it made less than 1% of its shares available to the public. The remaining are directly or indirectly owned by the company’s founder and billionaire, Pham Nhat Vuong. Stocks with such a low float are typically highly volatile as every trade can impact their market value to a large extent. That largely explains the dramatic swings we’ve seen in VinFast Auto’s stock price over the past three weeks or so.
Now what
To be fair, VinFast Auto isn’t all hype. It is already producing electric cars, commands 50% share in Vietnam’s passenger EV market, according to BMI research, is already present in Europe, and is now expanding in the U.S. In a presentation released in August, the company revealed that it had delivered 11,700 EVs so far, including 11,300 units in the first half of 2023, and had 26,000 EV reservations as of June 30. VinFast Auto also makes e-scooters and has a total annual capacity of 300,000 units. In July, it broke ground in North Carolina at an EV factory with an annual estimated capacity of 150,000 units and expects to start producing EVs in the U.S. by 2025.
That said, although emerging companies, especially in a high-potential industry like EVs, often trade at premium valuations, VinFast Auto will have to fight really hard to make a mark in the competitive U.S. EV market. VinFast stock clearly ran up too far to justify whatever we know about the company’s fundamentals so far, and the volatility won’t die down anytime soon.
Neha Chamaria has no position in any of the stocks mentioned. 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.
