(Bloomberg) — VinFast Auto Ltd.’s head-scratching surge has given the money-losing electric car startup a bigger market capitalization than Citigroup Inc., with famed short seller Jim Chanos calling the stock’s valuation “insane.”
Most Read from Bloomberg
Yet betting against the US-listed automaker is a risky endeavor.
Just 1% of VinFast’s shares are available for trading, making the stock illiquid and expensive for short sellers to borrow. The tiny free float also makes VinFast vulnerable to unpredictable swings of the sort that added more than $75 billion to its value this week — a jump that helped it overtake General Motors Co. and Ford Motor Co. in size, combined.
That’s keeping short sellers wary even though VinFast’s surge looks out of step with the fundamentals of a company that’s been dogged by poor product reviews and operational problems. While other thinly traded companies that gained US listings via so-called SPAC mergers have eventually given up gains, timing any turn is notoriously difficult.
Shares spiked 32% Thursday to close at $49 with a market valuation above $113 billion.
“Shorting the stock may look logical at first glance but we think at this point, it is not the best trading strategy,” said Maybank analyst Tyler Manh Dung Nguyen.
A VinFast spokesperson said the company doesn’t comment on market moves.
Regulatory filings show Pham Nhat Vuong, Vietnam’s richest man, directly and indirectly controls 99% of the company’s outstanding shares, mostly through his conglomerate, Vingroup JSC. Vuong is Vietnam’s richest person with a total net worth of $56.3 billion as of Thursday, according to the Bloomberg Billionaires Index.
VinFast went public via a special-purpose acquisition company merger this year with blank-check company Black Spade Acquisition Co., founded by casino mogul Lawrence Ho.
Short sellers bold enough to bet against the company have racked up nearly $1 million in paper losses since the deal closed, according to data from financial analytics firm S3 Partners.
The minuscule float and the lack of large institutional investors that participate in traditional lending programs means the supply for would-be short sellers is “very scarce,” according to Matthew Unterman, a director at S3 Partners. “Rates for any scraps of supply are trading in the triple digit fees,” which means shorts are willing to pay more than 100% interest per year to bet against the company.
For investors familiar with companies that merged with SPACs, VinFast’s volatility may not come as a surprise. As the vast majority of shareholders opt to exchange their stake for their money back — 92% of investors in the VinFast deal did just that — the pool of shares available for trading tends to shrink.
Read more: Tycoon’s Fortune Soars $39 Billion on Eyebrow-Raising SPAC
On paper, VinFast is now bigger than more than 400 of the companies in the S&P 500 Index after Thursday’s jump. Its valuation makes it larger than market staples such as Citigroup and Goldman Sachs Group Inc.
VinFast, which began building a factory in North Carolina last month, forecasts sales will reach 45,000 to 50,000 this year and Vuong predicts it will break even by the end of 2024. In May, it recalled all the electric sport utility vehicles shipped to the US over a software malfunction and the company also cut some of its US workforce amid modest sales.
The company expects its revenue to reach $1.88 billion in 2023, according to a investor presentation in June, meaning it is trading at a multiple of roughly 60-times sales. That’s far above valuations for peers like Lucid Group Inc. and Rivian Automotive Inc.
“Professionals wouldn’t touch it with a bargepole,” said Oktay Kavrak, product strategist at Leverage Shares.
–With assistance from John Cheng, Ainsley Thomson, Anders Melin, Nguyen Kieu Giang, Rheaa Rao and Tom Maloney.
(Updates with share movement, market valuation throughout.)
Most Read from Bloomberg Businessweek
©2023 Bloomberg L.P.