VinFast Auto (NASDAQ: VFS) shares plummeted by up to 30% this week, as reported by S&P Global Market Intelligence. The Vietnam-based electric vehicle (EV) manufacturer faced disappointing growth and earnings in the first quarter of 2024, prompting investors to offload their shares. As of the latest update, VinFast Auto’s shares have dropped by 96% from their peak levels reached in late 2023, following its initial public offering.
Slowing growth, elusive profits
VinFast Auto, known for its electric vehicles (EVs) and global distribution aspirations, is facing significant challenges in its financial performance. Despite plans for expansion into the United States market with a manufacturing facility in North Carolina, the high costs associated with EV production and intense competition from larger players are weighing heavily on the company’s financials.
In the first quarter of 2024, VinFast delivered approximately 9,700 EVs to customers, marking a decline from the 13,500 units delivered in the previous quarter. With such modest sales figures, especially in comparison to industry giants like Tesla, which sells over 1 million units annually, VinFast’s financial outlook appears grim. In Q1, the company generated $300 million in revenue but incurred a gross loss of $150 million, indicating that its variable costs exceeded its sales revenue. When factoring in operating expenses, VinFast recorded an operating loss of $422 million on revenue of $300 million. To achieve profitability and positive cash flow, VinFast urgently needs to scale up its EV production.
Moreover, the company faces significant financing costs, totaling $173 million in the last quarter alone. When considering all these factors together, VinFast is experiencing substantial financial losses at a rapid pace.
Stay far away from this stock
As of the end of Q1, VinFast Auto had a mere $123 million in cash on its balance sheet, leaving it with less than a quarter before it must seek additional funding. Given this financial constraint, it’s unsurprising to observe the company scaling back its ambitions for its North Carolina plant. Moreover, despite its high market capitalization of $6 billion, VinFast Auto’s revenue stands at only $1.4 billion, with no profits generated.
Manufacturing cars is a challenging endeavor, and despite the allure of the industry to many investors, it may be wise to steer clear of EV stocks in your portfolio, including VinFast Auto.
