VinFast stock price analysis: extremely overvalued as risks mount

VinFast (NASDAQ: VFS) stock price has staged a strong recovery recently, joining other companies like Tesla, Rivian, and Lucid. It has jumped by 22% in the past month and is now hovering at its highest point since June 4th. Also, it has jumped by over 115% from its lowest point this year.

Bad news from VinFast

VinFast, the Vietnamese auto company aiming to become the next big thing in the electric vehicle industry, announced major bad news last week. 

In a statement, the company announced that it would delay its North Carolina plant by three years. It also decided to slash its vehicle delivery target from 100k to 80k in a major blow for the company. 

Therefore, analysts expect that the company will continue struggling in the next few years. Its cash burn will continue and its profitability will remain elusive. 

The plant delay is an important thing for VinFast, a company that hopes to become a major player in the US. For one, since it manufactures its vehicles in Vietnam, it will likely struggle in the US because of local incentives.

EV companies that manufacture their vehicles in the US are usually at a big competitive advantage. These vehicles are usually eligible for federal and state tax credits, which can be lower their prices. In a note, an analyst at Ho Chi Minh City Securities said:

The other big challenge for VinFast is that American consumers are now preferring hybrid vehicles compared to pure EVs. Data released recently shows that hybrid cars are surging as EV sales flatten. Some of the top companies in the hybrid market are the likes of Toyota and Ford.

VinFast earnings challenges

VinFast argues that its global business is doing well, which will help it offset its US weakness. For example, it received 27,649 pre-orders of its VF 3 in Vietnam in 66 hours. It has also launched a plant in Indonesia and expanded in the Philippines market.

While this expansion is good, the challenge is that it will face robust competition from Chinese companies there. With companies like Nio, XPeng, and BYD facing challenges in Europe and the United States, many are now focusing on Southeast Asian countries. 

VinFast is also struggling in its e-scooter business. Vehicle deliveries dropped from 9,757 in the first quarter of 2023 to 6,632. 

Its total revenue rose from VND 6.4 trillion in the first quarter from 1.5 trillion VND in the same period in 2023. Its sales dropped by 31% from the fourth quarter of 2023. Its net loss improved to 14.8 trillion VND. 

Therefore, the company will likely continue struggling in the near term. Worse, it is unclear whether its balance sheet will be able to support this growth without another cash raise. VinFast ended the quarter with $119 million in cash. 

VinFast stock price analysis

VFS chart by TradingView

The other top concern is that VinFast is a highly overvalued company with a market cap of over $11 billion. This valuation makes it a bigger company than the likes Nio and Xpeng that are selling thousands of vehicles. 

VinFast stock price has moved sideways in the past few weeks. It then rose to a high of $5 last week, its 100-day moving average. The Relative Strength Index (RSI) and the Stochastic Oscillator have pointed upwards.

Therefore, the VFS share price will likely resume the downward trend as investors react to the delivery downgrade. That announcement could see it drop to the next key support at $3.