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Vietnam-based electric vehicle (EV) company VinFast (VFS) went public this week through a reverse merger with special purpose acquisition company (SPAC) Black Space Acquisition Co. (BSAQ). VinFast soared on the listing, and its market cap surpassed $85 billion based on closing prices from Tuesday, Aug. 15. To put that in perspective, General Motors (GM) and Ford (F) - America’s two biggest automakers - have market caps of $45.1 billion and $47.2 billion, respectively.
VinFast’s listing was a welcome development, as the U.S. IPO market has been virtually dead after setting a record for new listings in 2021. Between 2020 and 2021, a record number of companies went public – including through the SPAC merger route, which provided loss-making startup companies an opportunity to list quickly while avoiding the red tape associated with the traditional IPO process.
Revisiting the EV SPAC Boom
Green energy companies in particular capitalized on the SPAC opportunity, and multiple startup EV names like Nikola (NKLA), Fisker (FSR), Lordstown Motors (RIDEQ), and Lucid Motors (LCID) went public by merging with these “blank check companies,” as they are popularly known.
While VinFast is currently grabbing headlines for its market cap surpassing those of legacy Detroit automakers, we’ve seen this same story play out multiple times since 2020 – beginning with Nikola, which was among the first EV companies to list through a SPAC merger in 2020.
At its peak, Chinese EV company NIO was also valued at more than General Motors. In 2021, Lucid Motors’ market cap also surpassed Ford’s and General Motors’ market caps. Rivian (RIVN), which went public in 2021 through the traditional IPO route, was valued at more than $170 billion at the peak – which was above the combined market cap of both Ford and General Motors.
EV and SPAC Bubbles Burst in 2022
After peaking in 2021, both the EV and SPAC bubbles burst the next year. Since then, many SPACs have liquidated after they failed to find merger targets within the mandated timeframe.
As for EV stocks, most now trade at a fraction of their all-time highs. For instance, Rivian, Lucid Motors, and NIO now have market caps of $19.9 billion, $14.5 billion, and $19.2 billion respectively. While at their peaks, each company was bigger than Ford individually, currently their combined market cap is only about $6 billion higher than that of Ford.
VinFast Is Still Valued More Than Ford and General Motors
Coming back to VinFast, the company was reportedly looking to list in 2021 at a valuation of $60 billion. However, the market has since changed – and quite drastically, judging by the valuation slump in startup EV names.
VinFast managed to score an equity value of $23 billion in the merger with BSAQ, and despite having fallen sharply from its initial peak, it closed above $30 yesterday – which is three times the IPO price, and implied a market cap of around $70 billion. In today's trading, the stock continues to fall fast, down nearly 14% to bring its value down to about $60 billion - still higher than both Ford and General Motors.
While the shares have already given back some considerable gains in this volatile first week of trading, there are valid reasons to stay apprehensive about VinFast’s valuation that go beyond the well-established playbook of startup EV companies going from boom to bust in a matter of months.
VinFast’s Models Haven’t Received Great Reviews
Notably, while models from Rivian and Lucid Motors have received rave reviews from analysts, the same cannot be said about VinFast. In May, while reviewing VinFast’s VF8, Scott Evans of MotorTrend did not mince any words when he said, “I'd be embarrassed to look a customer in the eye when handing over the keys to this vehicle.”
As for the financials and other metrics, VinFast delivered only 11,300 vehicles in the first half of 2023. It currently has an annual production capacity of 300,000 vehicles, and is setting up its next plant in North Carolina, which will have a nameplate annual capacity of 150,000 vehicles.
The company is currently focusing on markets in the U.S., Canada, Europe, and Vietnam. In its merger presentation, VinFast compared itself to other EV companies, and pointed out that its current production capacity is twice that of Rivian and over triple that of Lucid Motors. It also said that it's targeting YoY revenue growth of 196% in 2023, while Rivian, Lucid Motors, and Polestar (PSNY) are expected to report a revenue growth of 145%, 53%, and 30% respectively.
VinFast also used some “innovative” metrics, like “equity value/cumulative deliveries,” to show how its valuation is attractive as compared to other EV companies. The metric, however, also accounts for the internal combustion engine (ICE) vehicle deliveries that VinFast made since 2019, before it pivoted to a pure-play EV company.
Why VinFast Stock Looks Grossly Overvalued
In its merger presentation, VinFast projected revenues of $1.875 billion for this year - which, at its current pro forma market cap of around $60 billion implies a 2023 price-to-sales multiple of 32x.
In contrast, Rivian trades at a 2023 price-to-sales multiple of 4.62x, and Lucid Motors – which I believe is among the most overvalued startup EV companies – trades at around 18x. Even as the stock extends its sell-off into today's trading, there is no way VinFast’s current mammoth valuation can be justified – similar to the incredible valuations of names like Nikola, NIO, and Rivian at their peaks.
I believe the initial rally in VinFast was driven primarily by speculation, as well as the “scarcity effect.” The public shareholding in VFS is minuscule after 90% of SPAC shareholders opted to redeem their units, and if we leave aside the BSAQ sponsor shares, only about 0.07% of VinFast’s total shares are currently available to trade.
Such stories typically don’t have a happy ending for investors, and I expect similarly unhappy results will play out for VinFast as its valuation reverts to more normalized levels.
On the date of publication, Mohit Oberoi had a position in: NIO , F , GM , RIVN . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
