VinFast stock price surged: Learn from Rivian, Mullen and avoid

VinFast (NASDAQ: VFS) stock price surged this week after the company completed its SPAC merger with Black Spade Acquisition. The shares initially surged to $40 on Tuesday and then retreated to as low as $24 on Wednesday. At its peak, the company had a higher valuation than Ford and General Motors, firms that sell millions of vehicles annually.

Unsustainable rally

VinFast is a Vietnamese company that has transitioned from making internal combustion engine (ICE) vehicles to EVs. It has plants in Vietnam, capable of building 300k vehicles per year. At the same time, the company is building a plant in the United States where it will build vehicles for the North American market.

VinFast is already selling its vehicles. In its most recent filing, the firm said that it sold about 9,500 vehicles in Q2, a big increase from what it sold in 2022. Rivian, an American electric vehicle company sold 13,992 cars in Q2 while Polestar sold 15,800. VinFast’s vehicles are significantly cheaper than Rivian’s and Polestar’s.

Reasons to avoid VinFast stock

There are several reasons to avoid VinFast stock. First, history suggests that EV stocks that surge on listing tend to crash after a few months. For example, at its peak, Rivian was valued at over $125 billion, making it one of the biggest companies in the sector. Today, Rivian shares are down by over 70% from its peak.

The same is true with Polestar, a company backed by Geely. Its stock initially jumped to $16.35 in 2021 and has now slipped by over 7%. Other high-flying EV companies like Lucid Motors, Mullen, Automotive, and Canoo have been humbled.

Most of these firms struggle because of the substantial cash burn that exists in the industry. VinFast is also going through this cash burn, with its losses rising. Its disclosure said that its revenue in 2022 was over $634 million while its loss jumped to $519 million.

Second, history suggests that companies that go public using the SPAC route underperform the market in the long run. For example, while the Nasdaq 100 index has jumped by more than 40% this year, the AXS SPAC and New Issue ETF (SPCX) is hovering near its all-time low having dropped by 27% from its highest level in 2021.

Third, VinFast is coming to a slowing market that is highly competitive. Most EV companies, including Tesla, have recently slashed prices, signaling that demand is waning. In the US, where VinFast will start selling vehicles in 2025, has many alternatives from firms like GM, Ford, Tesla, and Hyundai.

Further, VinFast balance sheet is a bit stretched. Its disclosuresd showed that it had $158 million in cash and almost $2.8 billion in cash. The EV industry is a cash-intensive one and the firm will need to raise additional capital in the short term.

Therefore, I believe that VinFast stock has more downward room to run in the long term. I suspect that the shares will drop below $10 in the long term.