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Vietnamese EV manufacturer Vinfast, one of the top 5 clients of Tata Technologies, is drawing attention due to significant fluctuations in its stock price.
Vinfast along with Jaguar Land Rover (JLR), Tata Motors contribute the most to the revenue of Tata Technologies, whose IPO concluded recently. Around 57 percent of overall revenue and around 71 percent of services revenue in the first half of FY24 came from the five anchor clients,
A signficant portion of this revenue came from Vinfast, who has been Tata Tech’s client since 2018. Analysts have recently expressed concerns about about the Nasdaq-listed Vinfast on account of related party-driven electric vehicle (EV) sales, frothy valuations and declining customer traction.
According to US Securities and Exchange Commission filings for the July-September quarter, a substantial majority of Vinfast’s EV sales in the nine months ending September 2023 were to related parties or affiliates of its parent. This trend has raised serious doubts about the company’s ability to establish a robust market presence.
Data also showed that over half the EVs sold by VinFast this year have been to a related party, highlighting the limited market demand for the company’s models. Of the 11,300 vehicles sold in the first half of this year, 7,100 were sold to Green and Smart Mobility (GSM), a Vietnamese taxi company controlled by the carmaker’s parent Vingroup, according to a Barron’s report.
Overseas expansion, sales concerns
Vinfast has big international ambitions. However, early reviews of the company’s EVs by some professional US car reviewers were scathing, calling them “simply not ready”, and “abysmal”. Its initial shipment of cars to the US experienced substantial delays, and a major recall ensued after the US National Highway Traffic Safety Administration (NHTSA) identified a software error posing an increased risk of crashes.
Undeterred by these setbacks, the EV maker is persisting in its global expansion efforts. Despite the challenges posed by a weakened global economy, Vinfast aims to deliver between 40,000 and 50,000 vehicles in 2023, almost seven times the 7,400 EVs sold last year, all within Vietnam. Some analysts, however, view the company’s ambition to deliver up to 50,000 vehicles this year as “unrealistic.”
Net loss concerns
During the September quarter, Vinfast more than doubled its revenue, propelled by a surge in vehicle sales and deliveries. At $319.5 million, vehicle sales almost tripled from the year-ago quarter, while deliveries surged above 10,000, from just 153 in the same quarter last year. Despite this, the company’s net loss widened almost 34 percent to $623 million, from $466 million in the same quarter last year, as expenses mounted.
The auto company expects to break even by the end of 2024, its founder Pham Nhat Vuong reportedly told investors at the company’s annual general meeting in May.
Wild share price swings, frothy valuations
Established in 2017 by one of Vietnam’s largest private conglomerates Vingroup, it is the first Vietnamese car brand to expand into global markets as well as the first to expand into producing EVs such as cars and scooters. The company made history with the rapid climb of its stock price following its explosive listing earlier this year.
The auto company went public by merging with a shell company, an alternative route to the stock market. The stock price has seen eye-popping swings since listing, similar to the volatility seen among startups that went public the same way. Vinfast shares last closed at $6.56, materially below the all-time high of $93 apiece.
Despite selling just 24,000 cars last year, Vinfast’s valuation at one point in September this year propelled it into the ranks of the world’s most valuable automakers, even surpassing rivals such as Volkswagen, Ford and General Motors (GM), whose sales are in the millions.
At their peak, VinFast’s shares briefly valued the six-year-old business at $200 billion, twice the combined value of Ford and General Motors, despite the company just starting to increase production.
In the last six months, Vinfast Auto shares have tumbled more than 80 percent. The small amount of shares available for trading has made it prone to wild swings. The shares are now below the $22 listing price, giving the company a market value of about $15.46 billion.
According to independent investment research network SmartKarma’s analyst Arun George, VinFast remains an avoid due to related party-driven EV sales, declining customer traction, operating losses, cash burn, equity raise overhang and frothy valuation.
Tata Technologies IPO
Tata Technologies is heavily dependent on five clients including Vinfast, and any deterioration in the financial position of these clients could result in a substantial loss of revenue for the Tata Group firm. Despite this concern, Tata Technologies IPO was well-received by investors.
The first IPO from the Tata Group in two decades was subscribed an overall 69.43 times with bids worth Rs 1.56 lakh crore for an issue size of Rs 2,200 crore, excluding the anchor portion.
Several brokerages have assigned a ‘Subscribe’ rating to the issue, given that Tata Technologies is a cash-generating company and had cash worth $150 million on its books at the end of FY23. Analysts have pegged the post-issue market cap to be somewhere between Rs 19,200 crore and Rs 20,250 crore.
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