Shares of Vietnamese carmaker VinFast Auto (VFS +5.59%) skidded 6.5% through 1:55 p.m. ET Monday on bad news out of India.
As The Hindu BusinessLine reported Sunday evening, a plan to have VinFast build a $2 billion car plant in Tamil Nadu, in southern India, is falling apart because of "confusion" over Indian government policy on electric vehicles (EVs).
NASDAQ: VFS
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Big trouble in India?
VinFast signed a Memorandum of Understanding with the Indian government on Jan. 6, 2024, and has already started work on its Indian factory. But at a meeting Thursday with India's Ministry of Heavy Industries, says BusinessLine, VinFast was told it won't receive subsidies for EV production until India has decided on a formal policy to support EV investment -- which hasn't yet happened.
Additionally, VinFast was surprised to learn that India wants it to invest $500 million over the next three years -- not five years, as VinFast had believed was required.
So you can see why VinFast, and its shareholders, might be upset to hear this. VinFast has just learned it needs to invest $500 million in a factory faster than it planned. Even worse, VinFast doesn't currently have $500 million to invest, but only $116 million in the bank! And subsidies from the Indian government, which might have helped VinFast build its factory, won't be forthcoming until... whenever India gets around to passing an EV policy!
Which is a factor completely outside of VinFast's control.
Is VinFast stock a buy?
It's hard to recommend investing in VinFast stock with so much uncertainty arising so suddenly. While India is certainly a huge market for VinFast to target, the company is now reported to be reconsidering whether it should build the factory at all.
Exactly how all this will affect VinFast's recent pledge to build and sell 100,000 EVs worldwide this year isn't yet clear. But it probably won't help. With VinFast stock still burning through cash at the rate of more than $1.1 billion per year, it might be time to throw in the towel on VinFast.
