On August 15, 2023, the Vietnamese Electric Vehicle Company Vinfast merged with a SPAC to list on the NASDAQ. By the end of the first day of trading, the share price closed at 37, almost quadruple the initial spec price of ten dollars. The company has 2.32 billion shares outstanding, so on the first day of trading, they had a market cap of 86 billion dollars. This makes them the second most valuable car maker in the US worth more than Ford or GM and behind only Tesla.

The IPO came in conjunction with their commercial launch in the US. With U.S customers receiving their first deliveries of in fast cars in March of this year, They have ambitious plans to grow in the U.S targeting 50 000 in vehicle sales and 1.9 billion dollars of Revenue in 2023. Even if they can meet this ambitious Target, they will still be the most overvalued major automaker by far. They would have an Enterprise value of 1.8 million dollars per vehicle sold and 48 times projected 2023.

Revenue This makes them more expensive than Tesla Riviant or Lucid, all of which are probably overvalued in their own right. A Wise man once said that if you fool me, you can't get fooled again, But we've seen time and time again that this saying does not apply to the casino known as Wall Street In 2020 and 2021, countless electric vehicle startups went public at absurd valuations. Without exception, these have been major disasters for anyone who bought them. Now in 2023, we have yet another electric vehicle spec that's even more outrageously valued than anything we've seen before.

What makes the situation even more surprising is that according to almost all automobile critics, then Fast Cars are overpriced and of extremely low quality. In this video, we'll take a deep dive into Vinfast and try to understand how it achieved its absurd valuation. Vinpass was founded in 2017 by a Vietnamese conglomerate called the VIN Group. Vin Group is a diversified company operating mostly in real estate and Retail Industries Vin Group's founder and chairman is the richest man in Vietnam With an estimated net worth in excess of 5 billion dollars.

In 2017, he decided he wanted to create an automobile company. so we set up a factory in Vietnam to build cars for the domestic. Market They started off producing internal combustion engine vehicles. In late 2021, they created their first electric vehicle called the E34.

The list price of the car was the equivalent of about 30 000 US Dollars and is only available in Vietnam. In 2022, they made a strategic decision to phase out their internal combustion engine cars and focus purely on electric vehicles. Vietnam is a developing country with the average worker making the equivalent of less than 300 per month. Most people could not afford to buy cars, so despite having over 100 million people, there are about 400 000 new car sales per year.

For compare person, there are about 14 million new car sales in the U.S each year. Thus, for Vin Fast to become a major automaker, they needed to expand air nationally. They decided to Target the U.S Market opening up showrooms in California and accepting reservations from customers. Their first batch of 999 cars arrived to the West Coast in November of 2022, and they made their first deliveries to U.S customers in March of 2023..

they currently have two models available for sale in the U.S the Vf-8 and the Vf-9 The cheapest version is the Vfa Eco which has 264 miles of range and a base price of forty six thousand dollars. Because it's assembled in Vietnam, it does not qualify for the 7 500 EV tax credit under the inflation reduction act. Then Fast is building a factory in North Carolina which would allow them to qualify for those tax credits. It was originally scheduled to start production in 2024, but construction is going slower than expected and they've already had to delay it to 2025..

for comparison, the all-electric Volkswagen Id4 Pro has 275 miles of range and costs forty five thousand dollars. It's assembled in the U.S so it does qualify for the EV tax credit. This brings down its effective price: the thirty seven thousand five hundred dollars almost twenty percent cheaper than the Vf-8 Even the Tesla Model Y is cheaper after their tax credits and has Superior range. Not only are Vent Fast Cars more expensive than established brands, from all the information we have so far, they are of much lower quality.

They started U.S deliveries of the Vf-8 and Vf9 earlier this year and today they've sold a few thousand cars at most, but the early reception has already been a complete disaster. Motor Trend Which is one of the top automobile magazines in the US reviewed the Vf8 in May of 2023. There were serious problems with the air conditioner. the accelerator is jerky and the seat heaters can get dangerously hot.

It has a bunch of Advanced Driver assist and voice control features, but they're glitchy and could make the car more dangerous. You can read the full review Linked In the description below and it's not just Motor Trend Almost all the early reviews have been abysmal. In May, just two months after their first deliveries, they were forced to recall all of those cars because of software glitch that could make the display screens turn blank. This prevented drivers from seeing critical information such as a speedometer and warning lights.

According to the National Transportation safety agency, this could result in an increased risk of a crash. Glitches and recalls happen to all automakers, but the fact that it happened to Vinpass within just two months is not a good sign to say the least. It appears that Vintfast put a bunch of high-tech features in the car, but it's nowhere close to being ready for prime time. The negative reviews shouldn't come as a huge surprise because their cars have also received a poor reaction from consumers in the domestic.

Vietnamese Market As early as 2021, the situation was so bad that Vinpass resorted to filing a police complaint against a YouTuber who made a critical video about one of their cars. The YouTube channel in question is called GoGo TV which currently has over half a million subscribers. Vinfast successfully intimidated the YouTuber to take down the video, but it has been re-uploaded onto another channel the video is in Vietnamese so I had to rely on an imperfect machine translation. Apologies in advance if I misunderstood anything he said: if you speak Vietnamese I've linked the video in the description below so you can check it out for yourself.

In the beginning of the video, he talks about how Vinfast represents a positive step in Vietnam's Economic Development and he's proud that he was able to buy one for himself, but he was deeply disappointed by the low quality of the car. There were problems with the tires, the on-screen display, the wireless phone charger, the car door squeak, and it sometimes creates a weird squeaking sound on when he hits the brake just to name a few. After just two months of driving the car, he had to take it back to get repaired more than 10 times. He says he doesn't like posting negative videos, but his experience was so bad that he felt he had to post it.

From what I could tell, it looked like a regular car review. There are thousands of similar videos on YouTube about Us-made cars and they are rarely the subject of litigation. Of course, the laws and cultural norms of Vietnam are very different than the Us, but now that they're selling cars in the U.S they're going to have to operate under U.S law and Commercial Norms Representatives of Vinfas said they intend to use similar tactics once they start operating in the U.S Critical YouTube videos should be the least of Vinpas concerns. A far more pressing issue is their extraordinary rate of cash burn, which could see the company go bankrupt.

Unless they raise billions of dollars of new capital, then Fast currently produces all of its cars in a factory in Vietnam Wages for assembly workers are relatively low, but this is just one factor in determining the cost of a car, as many of the components have to be imported. Vinfas has not disclosed how much it costs them to manufacture the Vf-8 or Vf-9 but in their SPAC prospectus, they do have financial data for the first nine months of 2022, which includes sales of their cheaper VF E34 in Vietnam Their electric vehicle segment included both the E34 and electric scooters. Collectively, this brought in 2.4 billion Vietnamese Dong of Revenue Their cost of goods sold was 7.7 billion, leaving them with negative 5.3 billion of gross profit for a gross profit margin of negative 220 percent. They sold 2 100 electric vehicles in the period most if not all of them were E31 fours.

The E34 has a list price of 690 million Vietnamese Dong representing 1.45 billion of total revenue, or about 60 of the segment's revenue. If we assume the E34 has a similar gross margin as the E-scooters sixty percent of the cost of goods sold or 4.6 billion should be allocated to the E34 production. This represents 2.2 billion per car. at current exchange rates.

This is equivalent to 96 000. And remember that this is their cheapest model. The Vf8 and Vf9 are presumably much more expensive to produce. The factory was not at Max Capacity so as they ramp up production, the cost per car will decrease as their fixed costs are absorbed over a larger number of cars.

But the point is, we have no evidence to suggest that Vinpas will be able to produce cars profitably at their current prices. And once they start producing cars in the North Carolina Factory costs will probably be even higher because wages in the US are much higher than Vietnam. In the first nine months of 2022, Vinpas burned one and a half billion dollars. We can expect the rate of cash burn to accelerate as they rant production, but they just raised a bunch of money from their spec, so they should be fine for now, right? Wrong.

According to reporting by Bloomberg, Vinpass was originally planning a traditional IPO. They helped preliminary talks with investors with the hopes of raising at least one billion dollars. These talks appear to have been a complete failure, with nobody willing to give them this much money, so they instead merged with a spat called black Spade acquisition. Eighty percent of the SPAC investors redeemed their shares and pulled their cash out.

They presumably bulked at the Absurd valuation due to the high level of redemptions. Vinfas only raised 149 million dollars, which is paltry compared to their rate of cash burn. The spec only bought one percent of in fast total shares. The VIN Group continues to own 99 of the company after the transaction.

Thus far, the company's main source of financing has been the VIN Group and its billionaire founder. In 22 23, they received a 500 million dollar Grant from the conglomerate, as well as a one billion dollar line of credit. They also received a one billion dollar loan from the VIN Group's billionaire founder Pam Nat Vong. with an estimated net worth of 5 billion dollars.

This represents about 20 percent of his wealth. This brings Vinpas total liquidity to about two and a half billion dollars. They were already burning cash at an annualized rate of 2 billion dollars in 2022, and given that they are likely to lose money on every car sold, their cash burn will probably accelerate as they ramp up production. So the two and a half billion dollars they got from Vin Group and its founder could easily disappear within a year or so.

The VIN Group does not have unlimited resources, so they will eventually have to raise money from outside investors. Given the massive amount of redemptions from this pack, any future Equity raises will likely have to be at a much lower valuation in my opinion. The only reason we saw the stock price shoot up to an 86 billion dollar valuation on the first day of trading is because the free float is very small at just one percent of total share. The low free flow means that even a small amount of buying pressure can pump up the stock price to absurd levels.

When and if they do a substantial secondary share offering, the free flow will increase dramatically. When this happens. I Expect the stock price will be crushed like a souffle under a sledgehammer before you wrap up this video. I'd like to let you all know about our recently launched second Channel called Broken Business Models.

This channel takes a podcast format where we discuss overvalued or otherwise interesting stocks. We published our first video a few days ago where we talked about Vinpass before it's T-spac be sure to check it out! Linked In The description below.