Vietnamese electric vehicle (EV) manufacturer VinFast Auto has experienced an astonishing surge in its stock price, making it the second-most valuable car stock in the world, just behind Tesla. With this newfound success, VinFast has an opportunity to leverage its high stock price to its advantage.
While investors closely monitored Nvidia’s stock (NVDA) following its second-quarter earnings report, VinFast’s shares soared by 32% on Thursday, closing at $49. With approximately 2.3 billion shares in circulation, the company now boasts a staggering market capitalization of about $114 billion, surpassing the combined value of Ford Motor (F) and General Motors (GM).
Thursday alone saw a significant increase of about $28 billion in market value for VinFast, while Nvidia’s value grew by roughly $5 billion. Additionally, VinFast’s shares are currently valued higher than the esteemed Porsche (P911. Germany), which is worth approximately $100 billion. Furthermore, it has overtaken BYD (1211. Hong Kong), the second-largest producer of battery-electric vehicles (BEVs) globally, whose worth stands at around $92 billion.
However, Tesla remains the frontrunner as the largest BEV manufacturer, with a remarkable market capitalization of approximately $720 billion.
Interestingly, VinFast’s stock was initially valued at around $23 billion during its initial public offering, making its remarkable gains unforeseen by many.
One advantage of having a high stock price is the potential to raise capital. As VinFast has yet to generate positive free cash flow, it will require additional funding from external sources to expand its operations. The company has not released any immediate comments regarding its plans for raising capital.
The Risk of Raising Capital with a Rapidly Rising Stock
Raising capital can be a double-edged sword for companies with rapidly rising stock prices. On one hand, it provides the much-needed funding, but on the other hand, it can become a catalyst for the stock price to fall. This is a challenge that VinFast, a recently public company, may face if it decides to raise $1 billion by selling around 20 million shares.
Currently, there are only about 17 million shares available for trading after the merger with a special-purpose acquisition company. The majority of these shares are held by insiders, which means that placing an additional 20 million shares with investors would have a significant impact on the market.
The scarcity of available shares is one of the reasons why VinFast’s stock price has been soaring. With less than $1 billion worth of stock actively traded, it is susceptible to the influence of traders. In fact, over the past three sessions, more than 40 million shares have been traded, resulting in an average holding period of approximately 1.3 days per trader or investor.
Among the various types of traders, short sellers play a significant role. They borrow stock that they don’t own and sell it, betting on price declines. However, early short sellers in VinFast have not been successful thus far. According to S3 Partners managing partner Ihor Dusaniwsky, approximately 1.2 million shares were sold short immediately after the SPAC merger closed. These short sellers are currently at a loss of around $20 million. It’s important to note that this number may not accurately reflect their current position as they could have bought and sold stock multiple times since then.
In premarket trading, VinFast shares were again up by about 2% at just under $50 apiece. Meanwhile, futures on the S&P 500 and Nasdaq Composite also showed modest gains of 0.3% and 0.2%, respectively.
While a 2% move is relatively small for VinFast, Friday trading is expected to see more significant fluctuations. However, accurately predicting the direction of these swings has proven to be challenging.