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Vietnamese electric carmaker VinFast (VFS) staged one of the most remarkable market debuts earlier this year, propelling its valuation to over $190 billion – exceeding those of industry giants like Ford and GM. But the hype was short-lived, with the stock losing over 90% of its value from its peak, raising questions about whether it was just another special purpose acquisition company (SPAC) bubble. 

VinFast Had a $200B Marketcap After IPO

Following its recent substantial declines, VinFast joined the list of stocks that have crashed notably below their IPO prices after their merger deals.

In August, the Vietnamese electric vehicle (EV) maker staged its public debut through a merger with a SPAC – an alternative way to the stock market that became particularly popular during the coronavirus pandemic. After completing the merger, VinFast’s shares saw an astonishing price surge, taking its valuation to nearly $200 billion.

At one point, VinFast was the third-most valuable carmaker in the world, behind only Tesla and Toyota Motors. But the following crash in VinFast’s stock served as yet another warning to investors that the initial hype around SPAC mergers usually does not end well. 

Unlike traditional IPOs, SPAC deals allow companies to make grand business projections and lure individual investors before the mergers are wrapped up. In other words, these deals let anyone buy shares of the blank-cheque company before it combines with the target business, making them significantly more accessible than IPOs – typically accessible to professional investors only before the listings are completed. 

VinFast Down 90% from Peak 

Additionally, there was no fundamental soundness within VinFast to support the company’s staggering valuation. 

The EV maker reported a net loss of $622.9 million in Q3 2023, although it was 33.7% higher in the year-ago period. Also, VinFast posted a negative gross margin of 29.9%, marking a significantly high figure despite improvements from the earlier quarters. On a more positive note, VinFast’s deliveries grew in the third quarter amid strong demand in North America.

To offset these losses, VinFast may have to raise capital soon. The company had just $131 million cash on its balance sheet at the end of September, and considering the rate at which it is burning cash right now, the pursuit of additional funding is likely unavoidable. 

Finally, the automaker has filed for insiders to sell more than 75 million shares, usually a negative sign for a stock price. All things considered, it is no surprise that VinFast’s shares crashed recently.

The stock is currently trading at $7.34 apiece, down over 90% from its all-time high of more than $82 per share in late August. The sell-off was likely exacerbated by the broader stock market downturn triggered by rising bond yields and the Federal Reserve’s hawkishness.

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