On Friday, Vinfast (VFS) stock sat out a broad-market rebound to hit an intraday low of $7.65 before managing to close marginally above $8. The startup electric vehicle (EV) company hit new all-time lows of $7.55 again this morning, and is now down around 24% from the special purpose acquisition company (SPAC) IPO price of $10.

VFS joins the long list of former SPACs that have crashed below the IPO price after the merger. Practically all of the green energy companies that went public through the SPAC reverse merger process over the last three years are now trading below the $10 price level – and if anything, VinFast stock’s boom-to-bust story has played out quite quickly.

VinFast Stock Has Fallen Over 90% from Its Peaks

Vinfast soared after its initial listing in August, and printed as high as $93 – which gave the startup EV company a market cap in excess of $200 billion. That exceeded the combined market caps of Ford Motor (F), General Motors (GM), and Volkswagen (VWAGY). 

Despite the recent collapse off those highs, VinFast still commands a market cap of over $17.5 billion - which is higher than the individual market caps of Rivian (RIVN), Lucid Motors (LCID), NIO (NIO), and Xpeng Motors(XPEV).

Let’s begin by understanding why VinFast stock has crashed.

1. Macro Sell-Off

Growth stocks have crashed amid the rise in bond yields. September was the worst month for stocks in 2023, as the month held on to its historical reputation – and so far, October also looks on track to be a volatile month, as it has been historically. Loss-making growth names, like VinFast, have crashed over the last few weeks amid this risk-off sentiment. 

2. Unsustainable Valuations

The kind of valuations that VinFast soared to were not justifiable by any stretch of the imagination. We have seen a similar story play out before in names like Lucid Motors and Rivian after their listings - but they have also since dropped to much more believable levels.

3. VinFast Insiders Have Been Selling Shares

VinFast has filed for insiders to sell 72.08 million shares. Insider selling is often a negative for stock price, and we have seen this manifest in Vinfast's stock price.

4. Widening Losses

In Q3 2023, VinFast posted a net loss of $622.9 million, which was 33.7% higher YoY and 19.7% higher than Q2 2023. The company posted a negative gross margin of 29.9% in the quarter - which, despite being an improvement from the previous quarters, is still quite high.

I believe that despite having fallen over 90% from its all-time highs in less than 2 months, VFS still looks overvalued, and might fall more from these levels for the following reasons:

The EV Price War Could Intensify 

First, the EV price war is set to intensify further, as Tesla (TSLA) has yet again lowered car prices to boost shipments. With industry-leading operating margins and a massive cash pile of $23 billion on its balance sheet at the end of June, Tesla has the luxury of cutting vehicle prices; however, the price war spells doom for loss-making EV companies, especially those whose balance sheets are weak.

VinFast Might Need More Capital to Fund the Losses

This brings us to the second reason why investors should avoid VFS. It only had $131 million cash on its balance sheet at the end of September, and given the cash burn, it will need to do a capital raise sooner rather than later.

While it has funding arrangements in the form of grants and loans from chairman Pham Nhat Vuong, it is looking to “strengthen its balance sheet” - and during the Q3 earnings call, management talked about the possibility of selling shares to raise more cash. Any capital raise would lead to dilution for existing stockholders, especially if done at lower valuations, which could put further pressure on VFS.

VinFast Car Reviews Are Not That Great

Also, VinFast cars don’t have great reviews, unlike models from some of the other EV companies - like NIO, Rivian, and Lucid. VinFast might have a really tough time competing in the U.S., where Tesla is the market leader, while the Chinese market already looks oversaturated with domestic companies like BYD (BYDDY). This suggests the company’s chances are not very bright in the world’s most profitable and largest automotive markets. 

While VinFast is looking at increasing sales in markets like India and Indonesia, these regions are not as lucrative. Incidentally, both Ford and General Motors quit India after failing to crack the code on profitability and scalability in the third-largest auto market.

Over Half of VinFast Sales Are to a Group Company 

Another concerning aspect has been the high percentage of VinFast's sales to Green and Smart Mobility (GSM), which is a taxi rental company established by VinFast’s parent company Vingroup. While VinFast’s CEO Le Thi Thu Thuy, who’s popularly known as Madame Thuy, tried to justify its business arrangement with GSM during the Q3 earnings call, I am somehow apprehensive about over half of the sales being made to one single company - which also happens to be a related entity.

Overall, given the current macro environment and VinFast’s still-high valuations, I would steer clear of the stock for now.