In a bewildering turn of events, VinFast Auto Ltd.’s astounding surge has propelled the struggling electric car startup to a higher market capitalization than financial giant Citigroup Inc. Noted short seller Jim Chanos has labeled the valuation of the company’s stock as “insane,” adding to the perplexity surrounding the situation.
However, those who might consider betting against VinFast on the US market are treading on risky ground. Merely 1% of VinFast’s shares are available for trading, rendering the stock both illiquid and prohibitively costly for potential short sellers seeking to borrow shares. This scarcity in the available free float exposes VinFast to erratic fluctuations, exemplified by a recent leap that augmented its value by over $80 billion in a single week, enabling it to outpace industry giants General Motors Co. and Ford Motor Co. combined.
Despite the remarkable surge of VinFast that appears at odds with its underlying operational issues and unfavorable product reviews, short sellers remain cautious. History has demonstrated that other thinly traded firms that accessed US markets through Special Purpose Acquisition Company (SPAC) mergers eventually relinquished their gains, but predicting the precise inflection point is a formidable challenge.
On Thursday, the shares soared by an astounding 53%, reaching as high as $56.75 at 9:59 a.m. New York time, resulting in a market valuation surpassing $120 billion. Analyst Tyler Manh Dung Nguyen from Maybank expressed skepticism toward shorting the stock at this juncture, suggesting that while it might seem logical initially, it might not be the most prudent trading strategy.
VinFast has declined to comment on the market’s fluctuations, as stated by a company spokesperson. Regulatory filings disclose that Pham Nhat Vuong, the wealthiest individual in Vietnam, commands 99% of the firm’s outstanding shares, predominantly through his conglomerate Vingroup JSC. According to the Bloomberg Billionaires Index, Vuong’s net worth totals $43.4 billion as of the most recent update.
This year, VinFast initiated its public listing through a merger with a Special Purpose Acquisition Company, Black Spade Acquisition Co., founded by casino magnate Lawrence Ho. Short sellers venturing against the company have encountered nearly $1 million in paper losses since the completion of the deal, according to data from S3 Partners, a financial analytics firm.
The minuscule available float, coupled with a dearth of substantial institutional investors partaking in conventional lending programs, has led to an acute scarcity in shares for potential short sellers. Matthew Unterman, a director at S3 Partners, highlighted the rarity of supply, stating that rates for the limited available shares are commanding triple-digit fees, with shorts willing to pay upwards of 100% interest annually to bet against the company.
For those familiar with SPAC-merged entities, the volatility exhibited by VinFast might not be entirely unexpected. As the vast majority of shareholders opt for a cash-out, shrinking the pool of tradable shares, such volatility is a predictable outcome.
In terms of market value, VinFast has surpassed more than 400 companies in the S&P 500 Index after its remarkable surge on Thursday. This valuation positions VinFast above market stalwarts like Citigroup Inc. and Gilead Sciences Inc.
VinFast, which recently commenced construction on a factory in North Carolina, has projected sales of 45,000 to 50,000 vehicles for the year. Founder Pham Nhat Vuong anticipates the company to achieve break-even status by the end of 2024. However, the company encountered setbacks, recalling all electric SUVs shipped to the US due to software malfunctions and trimming its US workforce due to sluggish sales.
Based on an investor presentation in June, VinFast expects its revenue to reach $1.88 billion in 2023. This valuation places it at a multiple exceeding 50 times its sales, a figure significantly higher than valuations of comparable peers such as Lucid Group Inc. and Rivian Automotive Inc.
“Professionals wouldn’t touch it with a bargepole,” commented Oktay Kavrak, a product strategist at Leverage Shares. With a confluence of factors defying market norms, the enigmatic surge of the startup VinFast continues to leave industry experts and short sellers perplexed.