On The Fast Track

Welcome to The Rundown! Each week we'll identify and break down for you SPACs that are capturing market share and making an impact.

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Last week, Vietnamese maker Vinfast announced plans to go through a colossal $27 billion SPAC merger with Spade Acquisition Corp, putting it firmly amongst the likes of EV upstarts Lucid Motors and Polestar Electric. Luxury EV maker Lucid debuted through a $24 billion deal in 2021, while Swedish EV maker Polestar previously went public in 2022 through a $20 billion merger.

However, while both deals were characterized by initial excitement, the enthusiasm has given way to the sobering realities of the growing pains of being an EV upstart. Both Lucid Motors and Polestar faced production challenges, the blow of a price war initiated by Tesla, and a weak macroeconomic backdrop—all of which resulted in a slide in their stock prices. Will Vinfast face the same pitfalls that Lucid and Polestar have experienced, or can it find a distinct niche within the EV buyer market?


VinFast's Vision 

Born out of Vietnam's sprawling conglomerate, Vingroup, VinFast has made an impressive sprint since its 2017 inception, rapidly carving a niche in the competitive EV arena. The company boasts a robust manufacturing setup in Hai Phong, leveraging a high degree of automation to deliver up to 300,000 units annually. VinFast's portfolio of electric offerings, which includes four models—VF e34, VF 8, VF 9, and VF 5—shows its ambitions in becoming a prominent player in the EV transition.

While VinFast has seen relative success domestically, it is a relatively unknown brand outside the country. Over the last few years, VinFast has focused its efforts on expanding beyond Vietnam, particularly targeting the US. Despite quite a few delays, VinFast achieved a significant milestone in 2023 with the delivery of the VF 8, to customers in California, marking its first steps in reaching global customers.

The company is also building an assembly plant on an 800 hector megasite near the Chatham County town of Moncure, North Carolina, which will employ upwards of 7,500 people and produce over 150,000 vehicles annually. The new expansion means that VinFast will also qualify for the $7,500 EV tax credit, making it more competitive in the market. 


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Speed Bumps 

As VinFast launches itself into the global EV arena, it needs to grapple with an array of challenges. Foremost among these is the competition from established industry titans such as Tesla, Rivian, and Ford. On its home ground, the threat intensifies with the infiltration of Chinese manufacturers, like BYD and Hongguang Mini.

These competitors, offering affordable EVs, present a stark contrast to VinFast's higher-priced offerings, compelling the Vietnamese automaker to reevaluate its market positioning, and offer discounts to keep interested buyers.

The company's operational efficiency has also come into question following the delayed delivery of the VF 8s to the US market. While minor in isolation, such incidents may hint at underlying logistical challenges, which could tarnish the company's image and strain its reputation in new markets.

One major hurdle for VinFast's global plans has been the initial customer reviews of its first model, the VF8, in the US. These early reviews have been largely negative, which might turn off potential customers and make it more difficult for the brand to establish itself in the crucial market.


Financials and Valuation 

The SPAC deal with Black Spade Acquisition values VinFast at $27 billion, with the deal expected to generate gross proceeds of around $169 million (assuming no redemptions from shareholders). The transaction is expected to close sometime in the second half of the year, with current shareholders retaining a 99% stake in the company.

Despite this optimistic valuation, VinFast's 2022 financial performance paints a concerning picture. The firm reported a substantial loss of $2.1 billion against revenues of $634 million. As with other nascent EV companies like Lucid Motors, Fisker, and Polestar, VinFast's value will depend heavily on its ability to traverse the notorious challenges faced by emerging EV players.

VinFast is forecasting a significant uptick in sales to justify its hefty valuation. The company expects to sell 40,000 to 50,000 EVs in 2023, a significant increase from the 7,400 units sold in 2022, driven by its expansion into North American markets and upcoming foray into . The company predicts the company could break even by the end of 2024 if these plans materialize as expected.

However, considering its recent performance, its valuation is more an optimistic gamble rather than a reflection of its current position. Unless the company can efficiently manage the growing pains associated with being an EV upstart, this valuation could be seen as overly optimistic, if not excessive.


Bottom Line 

VinFast's journey in the EV market is riddled with hurdles, from a highly competitive landscape and production challenges to negative initial reviews. Yet, despite its lofty valuation, there lies potential in its strategic approach, production capacity, and committed investment in future models. The next few years will be critical for VinFast, not just in meeting sales targets and breaking even, but also in establishing its brand in the global market. Only time will tell if the company can break out from the dozens of EV hopefuls, and gain a footing in the market. 


Source: On The Fast Track