Shares of Vietnamese electric vehicle (EV) manufacturer VinFast (NASDAQ:VFS) stumbled to a fresh 52-week low amid severe viability concerns. While the company announced a plan to raise up to $1 billion in new cash to fund an aggressive expansionary directive, the underlying dilution sparked concerns among stakeholders. Subsequently, VFS stock lost about 12% in the week’s opening session.
According to a Bloomberg report last Friday, VinFast agreed to sell as much as $1 billion of freshly printed shares to Yorkville Advisors Global over a three-year period. Based in Mountainside, New Jersey, Yorkville’s website claims it provides flexible capital solutions to micro and small-capitalization companies to accelerate growth opportunities.
Under the agreement, VinFast can ask the investment firm to buy VFS stock at any time during a period of 36 months. On the other side of the table, under such an acquisition request, Yorkville will have the luxury of buying shares at 97.5% of the market price for the three trading days commencing the advance notice date.
With the added capital, the EV maker plans to move decisively into Southeast Asian markets, with its initial landing point in Indonesia. Further, in the current fourth quarter, VinFast anticipates its first European deliveries. Earlier this year, the company began selling its EVs in the U.S.
VFS Stock Struggles Against Industry Headwinds
Per Bloomberg, VFS stock entered the public arena via a merger with special purpose acquisition company (SPAC) Black Spade Acquisition. Unfortunately, circumstances have not been favorable following an initial bout of upside speculation. Since hitting a peak on Aug. 28, VFS stock has given up more than 90% of its equity value.
On paper, VinFast should appeal to drivers interested in making the transition to electric-powered transportation. Combining relatively low prices with robust performance figures — including extended range options that go beyond 260 miles — the upstart EV manufacturer provides an alternative. Unfortunately, an industry price war and piling inventories cloud the narrative.
With sector giant Tesla (NASDAQ:TSLA) initiating aggressive price cuts, the decision forced competitors to make corresponding moves. However, the discounts haven’t convinced customers to make the leap. Several reports point to dramatically escalating EV inventory at dealerships, boding poorly for VFS stock.
Additionally, there’s the matter of financial woes for VinFast. According to Gurufocus, the company suffers a lowly cash-to-debt ratio of 0.04X, worse than over 93% of companies listed in the vehicles and parts industry. As well, the manufacturer suffers from deeply negative profit margins.
Why It Matters
If the above headwinds weren’t enough to spark alarm about VFS stock, questions exist regarding Yorkville’s practices. Per a 2018 Reuters article, the U.S. Securities and Exchange Commission (SEC) accused the investment firm of valuation fraud. To be clear, a federal judge dismissed the case. Still, chatter on public forums has been quick to raise this issue.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
