VinFast Auto (VFS) Analysis
VinFast is attempting to become another legacy name in the automotive industry with electric vehicles as the entry way. The company has 2-3 major models along with other products like electric scooters and e-buses, but the majority of their revenue is coming from vehicle sales. The company’s’ revenue growth has been strong, with last year posting 77% growth and the first two quarters of this year averaging a faster pace. While year over year growth is notable, it’s not enough to make VinFast a sound investment on its own.
As a vehicle manufacturer, it’s easy to see strong revenue growth because you’re selling a high ticket item. In this case, VinFast is entering one of the most challenging industries. Development and manufacturing costs eat into revenue quickly; in fact, VinFast lost more in net income than it made in revenue last quarter, and this has been the case for more than 12 months. Looking further into their financials, the company’s liabilities outweigh its assets, leaving them with -$3.84 billion in negative equity. And finally, free cash flow is sinking, reaching -$2.16 billion per their most recent report.
Investors are willing to overlook poor balance sheets and negative free cash flow for a young company that’s still in its early growth stage, but VinFast doesn’t yet indicate that it’ll be an industry giant. The infamous Tesla wasn’t profitable until 2020, and by that time they were a household name, selling millions of cars.
VinFast’s biggest opportunity may come from sales abroad. The company’s highest delivery counts came from Vietnam, so perhaps further adoption in those markets can help. If VinFast can find a way to have more reach in Southeast Asia then it can perhaps gain significance, but for now, it remains a high risk play in the EV space.
Note, the EV production expenses aren’t just limited to VinFast. Other companies like Rivian and Lucid see the same struggles. There’s a high likelihood that not all these companies will “make it.” Some may be bought by bigger conglomerates, some may phase out. Investing in the vehicle market is tough unless it’s Tesla, which is really a technology company. Headwinds like supply chains, competitors, tariffs, consumer preferences, and more are just some of the things they face. Production costs can tear away at revenue, especially in the early years as a new company learns the ropes.
Final comment: it’s interesting to see that 95% of VinFast’s shares are owned internally and only 5% of its shares are really available to the public market. That means insiders own the majority of this company, perhaps because of their strong belief in its success. While that may be good news, if insiders begin selling, it can seriously cause a landslide.
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