Shares of VinFast Auto (VFS +6.75%) slumped as much as 30% this week, according to data from S&P Global Market Intelligence. The Vietnam-based electric vehicle (EV) manufacturer reported poor growth and earnings for the first quarter of 2024, causing investors to sell off the stock. As of this writing, shares of VinFast Auto have fallen 96% from all-time highs set in late 2023 when it made its debut on the public markets.
Here's why Vinfast Auto stock slipped around 30% this week.
Slowing growth, elusive profits
VinFast Auto makes EVs and has global ambitions for distribution. In fact, it has plans for a manufacturing facility in North Carolina as it hopes to expand to the United States market. The problem is that building EVs is expensive and comes with a lot of competition from larger players. This is showing up in Vinfast's financials, which look ugly at the moment.
In the first quarter of 2024, VinFast delivered about 9,700 EVs to customers, down from 13,500 in the fourth quarter of 2023. At such a small scale -- competitors such as Tesla sell over 1 million units per year -- VinFast's income statement looks ugly. In Q1, it generated $300 million in revenue. On these sales, it had a gross loss (meaning its variable costs were higher than its sales) of $150 million. Add in operating expenses and the company posted an operating loss of $422 million on just $300 million in revenue. VinFast needs to scale its EV plans quickly if it is to reach profitability and positive cash flow.
Even worse, VinFast has major financing costs, sitting at $173 million last quarter. Add it all together and the company is losing money at a rapid rate.
NASDAQ: VFS
Key Data Points
Stay far away from this stock
At the end of Q1, VinFast Auto had just $123 million in cash on the balance sheet. This leaves it with less than a quarter before it needs to raise more money. It is no surprise then to see the company paring back its ambitions for its North Carolina plant. And the stock still isn't cheap, trading at a market cap of $6 billion when it only does $1.4 billion in sales and generates zero profits.
Making cars is difficult. Despite how exciting the industry looks to many investors, it is best to stay away from EV stocks for your portfolio. VinFast Auto stock included.
