As an extra special for VinFast, I’m keeping a beautiful slot open in my increasingly packed pantheon of Imploded Stocks.
By Wolf Richter for WOLF STREET.
Despite the general collapse of the stocks that had gone public via merger with a SPAC, and in particular the collapse of EV SPACs, some of which have already filed for bankruptcy, VinFast Auto went public last week by completing its merger with a SPAC. The SPAC’s share price of $10 gave it a valuation of $23 billion. The Vietnamese company, which incorporated in Singapore for the purpose of going public in the US, is part of the Vietnamese conglomerate VinGroup.
VinFast was founded in 2017 and used to make some gasoline cars for the Vietnamese market, which it stopped, and last year, shifted to EVs. It also makes e-scooters. Now it is attempting to make and sell EVs in the US. In March this year, a big hype-and-hoopla was made out of its first 45 deliveries in the US of its Vietnam-made VF8 EVs. But by the end of July, VinFast had only sold 137 of them in the US, according to a Reuters report. A big deal was also made out of the company’s announcements that it would build a factory in North Carolina, designed to produce 150,000 vehicles a year whenever. That’s all fine and dandy. What is not fine and dandy is the stock.
The company had just $65 million in revenues in Q1, according to its SEC filing, but lost $598 million in the quarter. How can you lose $598 million in just one quarter on $65 million in revenues? VinFast shows how.
At this pace, it will lose $2.4 billion in 2023. It lost $2.1 billion in 2022. It lost $1.3 billion in 2021. In other words, losses are huge an accelerating.
On the first day of trading as a combined company after the SPAC merger, the stock [VFS] more than tripled to $37.07, giving it a valuation of $85 billion. Over the next few trading days it spiked and plunged in crazy leaps.
Today, on its ninth trading day as a public company, VinFast’s stock spiked by another 40%, to $68.77 a share, giving it a market capitalization of $159 billion. This is just nuts.
One thing is guaranteed: EV makers that are starting up production will lose gigantic amounts of money for many years until they get to large-scale production and sales volumes at fairly high prices. Until then, they will burn many billions of dollars of cash. Tesla burned about $20 billion in cash over a period of about 10 years before it reached the volume at which it became profitable. If the company cannot raise enough cash to get there, it will collapse, as some already have.
Set up specifically for the meme-stock crowd.
VinFast is a meme stock specifically designed from get-go for the meme-stock crowd. For the real world, it’s a bullshit stock.
There is nearly no public float. Only 0.3% (or 7.17 million) of the company’s 2.307 billion shares are traded. The remaining 99.7% of the shares (2.30 billion shares) are held by entities that are wholly owned by founder and chairman Pham Nhat Vuong. Effectively he controls 99.7% of the shares, according to the SEC filing.
No price discovery, no liquidity. With such a tiny public float, and low trading volumes, there cannot be price discovery, and there is no liquidity. At the $10 SPAC share price, it took only $70 million to buy the entire public float. Small amounts of money by a few meme-stock traders ganging up together – including hedge funds – are able to push the stock price from ridiculous highs to even more ridiculous highs. And that was the purpose of creating this minuscule float.
A hoped-for PIPE dream was scuttled. After the SPAC merger was announced, VinFast said in June that it would try to raise an additional $250 million via a PIPE (private investment in public equity) from institutional investors. These PIPE deals were a common feature of SPACs during the bubble. But it couldn’t get institutional investors interested in it and scuttled the PIPE dream, I mean deal.
Nearly all of the SPAC investors bailed out beforehand. Black Spade Acquisition Co., a blank-check company, or Special Purpose Acquisition Company (SPAC), raised $169 million at its IPO in July 2021. Then it started looking for a merger target and found VinFast. The holders of a SPAC’s shares get to vote on the merger (they approved it), and they get to redeem their shares and get their money back, if they don’t like the merger. And most of the SPAC’s shareholders chose to get their money back. In the end, of the $169 million raised in the SPAC IPO in July 2021, only $13.6 million decided to stick it out.
Only a pittance of $13.6 million was raised with this SPAC merger, instead of the $419 million that the combined amount raised by the IPO of the Black Spade SPAC and the scuttled $250 million PIPE would have provided.
The original IPO was scuttled. VinFast had originally hoped to go public in the US via a classic IPO. It filed for an IPO in December 2022. Citigroup, Morgan Stanley, Credit Suisse, and JP Morgan led a nine-bank syndicate behind the deal. But there was no institutional interest in the deal, and it couldn’t find buyers for the shares in the IPO. So in May 2023, it withdrew the IPO filing. This was when it shifted to going public via merger with a SPAC.
Pumping up the shares to ridiculous levels to sell more shares to Americans. At the pace of its losses in Q1, the company will lose $2.4 billion in 2023. It lost $2.1 billion in 2022. It lost $1.3 billion in 2021. Huge and accelerating losses.
It only had $158 million in cash as of March 31 and would have already run out of cash.
But in April, the company announced that the parent company VinGroup and chairman Pham Nhat Vuong combined committed to providing $1.5 billion in funding: $500 million as nonrefundable grant from VinGroup; and $1 billion from Pham Nhat Vuong. VinFast also said that it now has access to five-year loans from VinGroup amounting to an additional $1 billion. If all this cash materializes, it would amount to $2.5 billion. So may be enough fuel for about a year?
That’s why the shares are getting pumped maniacally to ridiculous highs: The company has to sell more shares at ridiculous prices to extract more cash from Americans to fuel its cash-burn machine. It said as much.
“We have a number of strategic investors and institutional investors lined up. We expect to formulate some kind of capital raising over the next 18 months, for sure,” VinFast CFO David Mansfield told Reuters, which is like really hilarious because the company has failed so far to line up institutional investors, which is why it had to scuttle the IPO and which is why it had to scuttle the PIPE. And now at these valuations, suddenly, institutional investors are going to bite? I mean, this stuff would be hilarious if it weren’t so serious.
It’s OK to start up an automaker and lose tons of money during the first many years, and maybe until the bitter end. It’s OK to stumble along the way. What’s not OK is to set up a scheme like this, where you sell a minuscule number of shares to the public at a ridiculous valuation and then pump those shares, and when they reach a magic valuation near the moon, sell more shares to the public, thereby extracting billions of dollars that may then vanish into nothingness, as the collapse of the shares of the current generation of EV startups has already done – but not in this magnitude.
But who cares. In this world of meme stocks, there are no innocents and no victims. They’re all playing along, hoping that Consensual Hallucination, as I call it, will still work long enough for them to make huge gains in the shortest period of time and cash out.
So as an extra special for VinFast, I’m keeping a beautiful slot open in my increasingly crowded pantheon of Imploded Stocks.
But don’t worry, the paperwork was surely done right, and if the Big S hits the fan, everything will be cool because they dotted all the i’s and crossed all the t’s. Top-ranked global law firm Latham & Watkins LLP acted as counsel for VinFast; Rajah & Tann Singapore LLP acted as Singapore counsel for VinFast; top global accounting firm Ernst & Young Vietnam Limited – please no snickering in the cheap seats – acted as VinFast’s independent registered public accounting firm.
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