What happened
Shares of recently minted public company VinFast Auto (VFS 10.41%) collapsed as much as 44.6% this week, according to data provided by S&P Global Market Intelligence. The Vietnamese manufacturer of electric vehicles (EVs) just went public through a special purpose acquisition company (SPAC) and soared over 100% on the back of investor hype and its low float. Now, shares have come back down to Earth and -- at a price of $17 -- the stock is down 50% from its debut price of close to $40.
So what
SPACs were hugely popular in 2020 and 2021, with a record amount of start-ups going public through these reverse mergers during the height of the COVID-19 pandemic. While the hype around SPACs has subsided, it still is a viable route for some companies to enter the public markets. This is what VinFast Auto decided to do when it merged with Black Spade Acquisition back in August.
VinFast is a Vietnamese automaker focused on scaling its EV operations and exporting cars to North America and Europe. The company made its first U.S. delivery in March and is building a plant in North Carolina that hopes to produce 150,000 vehicles per year by 2025. This could present an uphill battle, as VinFast is operating well behind the eight ball of EV incumbents such as Tesla and even upstarts like Rivian Automotive, which is on pace to deliver 50,000 vehicles this year (Tesla is at well over 1 million).
So why has the stock traded so wildly? It likely has nothing to do with the underlying business, but is just due to the fact that the stock has a low float (meaning only a sliver of its total shares outstanding are available to trade at the moment). Only 1% of VinFast Auto's shares are available for outsiders to trade right now. This can cause huge swings in stock prices, especially in the weeks after a company makes its public debut.
At one point, VinFast Auto had a market cap of over $150 billion. Today, its market cap sits at just $40 billion.
Now what
Early-stage companies with stocks soaring over 100% can get your emotional juices flowing. But investors should temper their expectations here. VinFast Auto has only delivered a total of 19,000 vehicles in its history, making it essentially still pre-revenue. It is still a long way out from generating any sort of profit.
At a market cap of $40 billion, the stock currently trades at a value close to Ford Motor Company, which produces millions of vehicles each year. No matter how fast VinFast Auto grows, it is best to avoid this stock for the time being, as it is grossly overvalued.
