Finding a young electric vehicle (EV) automaker that's poised to soar as EVs transition from early adopters to mainstream is a compelling investment opportunity. A new brand, a full portfolio of EVs, state-of-the-art manufacturing, and a deep-pocketed backer is what VinFast Auto (VFS -3.35%) has to offer potential investors.
Indeed, 2024 could be a breakout year for the intriguing Vietnamese automaker, but is it time for investors to buy the stock?
Pricing could be power
2023 was the year Tesla (TSLA -1.11%) flexed its pricing power. Tesla was committed to slashing prices left and right to make sure demand was strong and told the competition that volume was more important than higher profits, for now.
Tesla's move crippled some automakers already struggling with cash crunch and low volume. But here's why that could give VinFast an edge in the valuable U.S. market. China is known for cheaper labor and production, but in 2022 VinFast noted that manufacturing in Vietnam was three times cheaper than China.
VinFast's state-of-the-art plant in Haiphong boasts up to 90% manufacturing automation with annual production capacity of up to 300,000 units and it caught the eye of Wedbush analyst Dan Ives. While most of Wall Street is betting against VinFast, Ives zigged as others zagged and visited Vietnam to see the operation.
"We have seen the impressive VinFast operations in Vietnam firsthand and came away extremely impressed with its EV footprint," Ives said in a research note. "VinFast EV vehicles are the result of years of R&D, massive engineering resources, complex supply chain relationships, and are now set for prime time."
Further, VinFast recently acquired VinES, giving it in-house control of its battery technology. Management expects a 5%-7% savings on battery costs while also securing supply of critical components.
VinFast has an advantage with cheaper production and boasts an impressive production operation, but what's the company's near-term strategy?
What's in store for 2024
VinFast plans to get its foot in the door of the U.S. market pretty quickly with a nationwide dealer network. In fact, the company expects 125 sales points via a dealer network in the first phase and "hundreds" more by the end of 2024 -- all selling multiple EV models.
It's an interesting move compared to its prior strategy of direct-to-consumer sales, and should enable the company to expand faster if the consumer demand is there. And while the U.S. market will be a critical component of VinFast's success or failure, the company also has a global strategy to expand into Canada, Europe, and parts of Asia -- all highly valuable EV markets.
VinFast believes its EV markets will grow at a compound annual rate of 31% between 2022 and 2028, so there's a large piece of a growing pie for the Vietnamese automaker to capture.
Is the stock a buy?
VinFast is certainly intriguing -- the company has excellent operations, a stranglehold in its home market, and the backing of a larger business group. In fact, Vingroup and its affiliates have invested roughly $10.7 billion in VinFast through September 2023.
To be fair, investors could see that large investment to mean that VinFast is a black hole for investment dollars. Or they could see it as a firm commitment from the larger business entity. However you see it, the company has a huge uphill battle breaking into the Western markets as an unknown brand. It has been done before, and successfully, but the company will have to nearly flawlessly execute its growing dealership network and prove not only vehicle quality but after-sales service.
Savvy investors would be wise to wait and see how the brand's initial models score in quality and if EV consumers are more willing to give a new brand a chance in a new EV segment, compared to how historically loyal the internal combustion segment has been.
Buying into VinFast at this early stage would be highly speculative and risky, with odds stacked against the company. Investors would be wise to wait and see how 2024 plays out before banking on a breakout year for the Vietnamese automaker.
