New Delhi: In a remarkable turn of events, an unprofitable electric vehicle manufacturer, VinFast Auto from Vietnam, has surged to become the world’s third most valuable automaker, surpassing established giants like General Motors Co. and Ford Motor Co.
The meteoric rise in shares, which have climbed nearly 700% since their mid-August debut on the Nasdaq Global Select Market index, has propelled VinFast’s valuation to nearly $200 billion, reported Bloomberg. This valuation eclipses the combined worth of GM and Ford, trailing only behind Tesla Inc. and Toyota Motor Corp.
The Cause Behind VinFast’s Dramatic Surge
VinFast’s swift ascent can be attributed to scarcity, with just 1% of its shares available for trading. Consequently, significant purchases of these limited shares can disproportionately impact the stock’s overall price.
The enthusiasm of retail traders, particularly drawn to electric vehicle manufacturers, has further propelled the surge.
The Key Player and Shareholder
Pham Nhat Vuong, Vietnam’s wealthiest individual, commands ownership of 99% of the company’s outstanding shares. This control is partially exercised through shares held by Vuong’s wife and his conglomerate, Vingroup JSC.
VinFast’s Financial Standing and Growth Prospects
As a relatively new company, VinFast is not yet profitable, which is not uncommon for such a capital-intensive business. Reports indicate that the company incurred a loss of $598.3 million in the three months ending on March 31, while generating $65.1 million in revenue from vehicle sales during the same period.
VinFast anticipates further operating losses in the short term as it expands vehicle production, establishes factories, and invests in marketing, sales, and servicing.
Despite its immense valuation, VinFast has sold comparably few vehicles. The company’s projections for the year estimate sales between 45,000 to 50,000 units. Vuong anticipates that the company will break even by the end of 2024 and potentially turn profitable after 2025.
Quality and Challenges
While VinFast’s share price surge is not directly linked to vehicle quality, the company has faced criticism for certain models, which may impact its brand image and demand. Despite negative press, VinFast’s CEO, Le Thi Thu Thuy, asserts a commitment to improving the vehicles based on feedback.
Potential Risks and Uncertainty
VinFast’s dramatic rally, while impressive, is not immune to potential pitfalls. History has shown that similar rapid increases in stock prices can lead to sudden declines. VinFast’s surge draws parallels with AMTD Digital Inc., which skyrocketed and then plummeted by over 99%. Risks include the global chip shortage, rising inflation, and stiff competition from established EV players like Tesla, Ford, and GM.
