$27 Billion Electric Vehicle Deal Shows SPAC Silliness Is Back

Just when you think blank-check firms are dead in the water, a cash-burning Vietnamese electric-vehicle manufacturer announces it's going public in the US via a SPAC. The purported $27 billion valuation (which includes debt) would make it the third-largest such transaction in history.

However, the merger of VinFast Auto Pte. Ltd. with Hong Kong-based Black Spade Acquisition Co. announced Friday feels more like an act of desperation than a revival of a maligned asset class. The transaction won't raise much money and the purported valuation looks as rocky as VinFast's US vehicles.

Founded in 2017 and backed by Vietnam's richest man Pham Nhat Vuong, VinFast has invested around $8 billion so far in a bid to turn Vietnam into an automaking powerhouse. It's accomplished a lot in a short time but lost $2.1 billion last year, bringing the total deficit since inception to an eye-watering $5.4 billion, according to a March financial filing.

After initially producing combustion engine cars and focusing on its home market, VinFast has switched its attention entirely to EVs and recently began exporting to North America. A North Carolina factory is expected to open in 2025, but until then its cars won't benefit from Inflation Reduction Act purchase subsidies (though state incentives may still be available).

VinFast filed for a regular US initial public offering in December, but last week announced it would go public via the SPAC route, without explaining its change of heart. Of course it's hard for anyone to do an IPO at the moment, but the company's recent news hasn't been encouraging: Its initial US vehicle deliveries were delayed, it cut part of its US workforce and it tapped Vuong and related entities for $2.5 billion.

Unlike some neophyte EV firms that have joined the public markets recently, VinFast does at least generate revenue. Vuong is welcome to spend his fortune however he wishes, but he's asking SPAC investors who come along for the ride to pay a high price. Excluding debt, VinFast's $23 billion equity value is almost double the market capitalization of EV startups Lucid Group Inc. and Rivian Automotive Inc., and more than twice that of established European automotive groups like Volvo Car AB and Renault SA.

One lesson we really should have learned by now is that trying to produce electric vehicles from scratch is a costly and very risky endeavor. The recent price war Tesla Inc. seems hellbent on initiating makes it even more so.

Lucid and Rivian are burning heaps of cash, but their cars have at least won plaudits. In contrast, the first US reviews of VinFast's $50,000 VF8 City Edition SUV have been abysmal: One reviewer claimed to have become car sick for the first time when riding in it.

Had VinFast tried to join the stock market two years ago, investors might have ignored such blemishes. But the everything bubble has popped and EV makers have had to lower their aspirations. When another Asian billionaire-backed electric-car company, Lotus Technology Inc., tested the SPAC market in February, it opted for a comparatively modest $5.4 billion price tag.

Of course, SPAC deal values are more of a place marker than a firm promise when first announced: VinFast doesn't appear to have lined up institutional investors to invest alongside the SPAC in a private investment in public equity (PIPE) transaction. It also hasn't published a slide deck explaining how it arrived at the valuation. So for now, VinFast is worth $27 billion because the company and Black Spade say it is.

In these situations, the valuation can adjust to something more reasonable once the transaction closes. The most valuable SPAC deal in history, healthcare litigation firm MSP Recovery Inc.'s merger with Lionheart Acquisition Corp. II, did not retain its initial $33 billion price tag for long. The shares have since fallen 96% (and MSP has changed its name to LifeWallet).

SPAC shareholders have the option to redeem, or ask for their money back if they don't like the deal they’re offered. Black Spade's $169 million pot of cash might therefore be considerably smaller by the time this deal closes in a few months.

Even if there are no redemptions, VinFast's existing shareholders are set to own 99% of the shares; with such a low float, the stock is likely to be volatile.

Eventually VinFast may be able to use its US share listing to raise more capital, and it's sure to need plenty. Cumulative capital expenditures are estimated at around $3 billion over the next two years, according to the IPO prospectus. (VinFast is yet to publish a SPAC IPO prospectus, so we don't know if these estimates will change.)

The IPO documentation listed Deutsche Bank AG as financial advisor and Citigroup Inc., Morgan Stanley, Credit Suisse Group AG and JPMorgan Chase & Co. as underwriters. Their endorsement might have instilled more investor confidence; in contrast, the SPAC transaction advisors — Chardan and JonesTrading Institutional Services — aren't as well known.

Bulge bracket banks have shunned SPACs lately amid heightened regulatory scrutiny, and retail investors have gone ice cold on the asset class. This transaction isn't a great advertisement for why SPACs deserve a second chance.

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$27 Billion Electric Vehicle Deal Shows SPAC Silliness Is Back