VinFast (NASDAQ: VFS) stock price has been in a steep sell-off in the past few weeks, leaving many investors holding the bag. The shares have plunged from almost $100 on August 28th to below $20. This decline has brought its total market cap from over $200 billion to less than $40 billion.
A mountain of challengesVinFast has had a meteoric rise and fall, as I predicted here and here. The company initially surged after going public in August through a SPAC merger. At the time, its market cap surged to over $200 billion, making it the third-biggest auto company in the world after Tesla and Toyota.
The rally was irrational for several reasons. First, VinFast is a significantly tiny Vietnamese auto company that sold less than 8,000 vehicles in 2022. As such, it did not make sense that the firm would be worth more money than companies that sell millions of vehicles per year.
Second, VinFast hopes to start manufacturing its vehicles in the United States, a highly competitive market. Some of the top companies with a substantial market share in the EV industry in the US are Tesla, Hyundai, GM, and Ford.
Therefore, VinFast will need billions of dollars building its plants and marketing its vehicles. As I have warned before, VinFast will need to raise more money in the coming years to realize its American dream. For one, VinFast lost over $2.3 billion in the past 12 months on revenues of $540 million. It had almost $3 billion of negative free cash flow.
Third, VinFast is moving into an industry that is slowing and saturated. Recent numbers show that the volume of EVs sold in the United States has started softening, forcing companies to slash prices. Tesla has cut prices of its models by more than 20% in the past 12 months.
Notably, there are some quality concerns about the company. It was forced to issue a recall of all vehicles sold in the US in May. Recalls can be highly expensive and lead to negative publicity, especially for a new company.
VinFast stock price forecast
VinFast share price has been in a freefall, in a classic case of a boom and burst. The stock has dived from over $90 to less than $20. Technically speaking, I suspect that the shares will continue falling as initial buyers continue dumping the stock. If this happens, the next level to watch will be $10, which is about 40% below the current level.
To be clear. We can’t rule out a situation where the stock goes through a dead cat bounce, which happens when a falling asset goes parabolic as investors buy the dip. Any bounce will likely be short-term and the stock will continue falling.VinFast has close similarities to AMTD Idea, a Hong Kong-based company that surged and then crashed. At its peak, the company had a market cap of over $300 billion. Today, it is worth just $280 million.
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