Why do investors support VinFast Auto?

VinFast Auto (VFS -7.58%) it was an interesting investment from the start. At a time when investors are turning over every rock to find the next one adzeVinFast dominated its home market in Vietnam, offered compelling cost advantages and had state-of-the-art production facilities and a very wealthy backer and founder. The electric vehicle (EV) maker also had extensive plans to expand into Europe and the US markets. However, the hype has worn off, and recently investors seem to have backed off. what’s going on

Brief recap

The biggest hurdle for investors was VinFast’s recent weaker-than-expected quarterly results. VinFast on Friday reported a second-quarter loss of $0.33 per share on sales of $357 million, which was well below Wall Street estimates calling for a loss of $0.21 per share on sales of $419 million . Compared to the previous year, VinFast’s loss widened from a loss of $0.24 per share on sales of $328 million, putting sales growth at 9.1% year-over-year.

Elephant in the room

The biggest issue, perhaps, concerns the company’s full-year delivery estimates, which seem a bit aggressive at the moment. VinFast delivered 13,172 electric vehicles during the second quarter, bringing the first half of 2024 to around 22,000 deliveries. In a vacuum, these results look good: Q2 shipments were up 43% year-over-year, and H1 2024 shipments were up 101% year-over-year.

If investors want to take it a step further, it’s worth noting that about 12,000 of the company’s sales in the first half of the year were to related parties. Remember that VinFast’s parent company, VinGroup, has its hands in many industries and uses VinFast electric vehicles for its taxi fleets. Management still expects to hit the estimate of 80,000 deliveries in 2024, which leaves about 58,000 vehicles to be delivered in the second half of the year. That appears to worry investors that sales growth may not pick up fast enough to meet full-year estimates.

Weaker-than-expected second-quarter results initially sent shares of VinFast down nearly 8 percent on Friday, but to be fair, trading the electric vehicle company has always been difficult. In fact, VinFast shares have lost nearly 80% of their value in the past year and 56% in 2024 alone.

Moving forward

For investors, the company’s most important market and still a big driver of its financial results is its home market of Vietnam. Lan Anh Nguyen, Chief Financial Officer, noted: “Q2 2024 was in line with our forecast, driven largely by growing demand for VinFast EVs in Vietnam…”

But the company is still expanding. As of Q2, it operates in eight states: California, Connecticut, Florida, Kansas, Kentucky, North Carolina, New York, and Texas. In fact, as of August 31, VinFast had 155 showrooms across all markets; about 70% of them were representatives.

VinFast also plans to launch two small crossovers in the US next year, the VF 6 and VF 7, which is actually a delay from the original 2024 launch estimate. The VF 3 is also planned for US roads eventually.

Conclusion

Finally, VinFast is a unique electric vehicle manufacturer with unusual financial backing and parent company interests. For investors, it’s incredibly important to remember that this stock will fluctuate in price and should be limited to a small portion of any portfolio. It has a core strength in its home dominance, but to become a value investment, management needs to prove that the company can successfully expand into the US and European markets, but that proof is still a long way off.