20-F/A: VinFast Restates 2023 Financials Due to Revenue Recognition Errors

VinFast Auto Ltd. has restated its 2023 financial statements to correct accounting errors related to revenue recognition from electric vehicle sales and an after-sales policy.

Summary

• VinFast Auto Ltd. is filing an amendment to its original Form 20-F for the year ended December 31, 2023, to restate certain information in its consolidated financial statements.
• The restatement corrects accounting errors related to the recognition of revenue from the sale of electric vehicles (EVs).
• Specifically, the errors involve sales to affiliate GSM where delivery occurred in 2024, sales to a third party where vehicles were returned for software updates, and the accounting for an after-sales policy.
• The company sold 454 EVs and 2,192 e-scooters to GSM, but dispatching for delivery began in early 2024, so the sales should not have been recognized in 2023.
• The company sold 205 EVs to an unrelated third party in Vietnam in 2023, but a majority were returned in February 2024 for a software update, meaning risks and control had not fully transferred in 2023.
• The company announced an after-sales policy in June 2023 that provides cash or service vouchers for technical issues, but expenses were incorrectly recognized as selling and distribution costs rather than a reduction to revenue.
• The restatement impacts several sections of the original Form 20-F, including risk factors, information on the company, operating and financial review, and financial statements.
• Vehicle delivery figures have been recalculated based on revenue recognition rather than invoice issuance, making previously announced figures not comparable.
• The company had net losses of VND32,219.0 billion, VND49,848.9 billion and VND57,429.6 billion ($2,406.3 million) in 2021, 2022 and 2023, respectively.
• The company had total debt of VND71,255.4 billion ($2,985.6 million) as of December 31, 2023.
• The company estimates capital expenditures for 2024 will be between $1.0 billion and $1.5 billion.
• The company has received $59.0 million from the exercise of 5,128,987 warrants as of April 24, 2024.
• The company has identified material weaknesses in its internal control over financial reporting related to accounting policies and personnel expertise.

Sentiment

Score: 3

Explanation: The document indicates negative sentiment due to the restatement of financial statements, material weaknesses in internal control, and continued net losses. However, the company is taking steps to address these issues and has secured funding commitments.

Positives

• The company is taking steps to remediate material weaknesses in internal control over financial reporting by hiring accounting executives, conducting training, refining accounting policies, and improving coordination between departments.
• The company has received $59.0 million from the exercise of 5,128,987 warrants as of April 24, 2024.

Negatives

• VinFast is restating its 2023 financial statements due to errors in revenue recognition, which could negatively impact investor confidence.
• The company has identified material weaknesses in its internal control over financial reporting, which could impair its ability to produce timely and accurate financial statements.
• The company has a history of losses, negative cash flows, and negative working capital, and expects to require additional capital.
• The company's ordinary shares are trading below the warrant exercise price of $11.50, potentially resulting in no cash proceeds from warrant exercises.

Risks

• The restatement of financial statements could expose the company to additional risks, including potential lawsuits and reputational damage.
• Failure to maintain an effective system of internal control over financial reporting could adversely affect investor confidence and the company's financial position.
• The company's close relationship with Vingroup affiliates could be impacted by adverse business conditions or reputational issues affecting those affiliates.
• A significant portion of the company's EV deliveries to date has been to one of its affiliates, creating a reliance on related-party transactions.
• The company faces challenges in marketing and selling its EVs in international markets outside of Vietnam.
• The implementation of the company's business plans and growth strategy may be subject to delays or cost overruns.
• The company obtains component parts and raw materials from third-party suppliers, and any failure on their part could materially and adversely affect the company's business.
• Reservations for the company's vehicles may not result in completed sales.

Future Outlook

The company expects to continue to incur operating and net losses in the near term as it scales production, establishes manufacturing operations, and expands its marketing, sales, and service network.

Industry Context

The EV industry is highly competitive, and VinFast faces challenges associated with marketing and selling its EVs in international markets outside of Vietnam.

Comparison to Industry Standards

• It is difficult to compare VinFast's results directly to industry standards due to its unique business model and stage of development.
• Tesla, a leading EV manufacturer, has achieved significant scale and profitability, setting a high benchmark for the industry.
• Other established automakers like GM and Ford are also investing heavily in EVs, increasing competition.
• Start-up EV companies like Rivian and Lucid are facing similar challenges in scaling production and achieving profitability.
• VinFast's reliance on related-party transactions is a significant differentiator compared to most other EV companies.

Legal Proceedings

• The company does not rule out the possibility of any lawsuits being commenced against us and our officers and directors based in part or whole on allegations related to the restatement of the Prior Financial Statements.

Related Party Transactions

• In 2023, 72.2% of the company's EV deliveries and 43.8% of its e-scooter deliveries were to related parties.
• The majority of these deliveries were to GSM, an electric taxi company in Vietnam owned by Mr. Pham.
• The company has signed several vehicle sales agreements with GSM for the sale and delivery of up to 30,000 VinFast EVs and 200,000 VinFast e-scooters in 2023 and 2024.
• In 2023, revenue from sales of EVs to customers applying VinFast vouchers provided by Vinhomes Joint Stock Company (Vinhomes) accounted for approximately 14.3% of total revenue from sales of EVs.
• The company has business relationships with Vingroup affiliates relating to key aspects of its business, including the provision of technology services and R&D.
• The company subleases the site in Hai Phong, Vietnam where its main manufacturing facility is located, from Vinhomes Industrial Zone Investment Joint Stock Company (VHIZ JSC).
• The company obtains certain shared management assistance services and license key IP used in its business from Vingroup, including its trade name, logo, names of EVs and e-scooters, and the industrial design for its VF 9 model.
• The company transacts with Vingroup affiliates for leases of retail and advertising spaces, procurement of goods and services related to information security and technology, raw materials and spare parts, and social and other services such health care and education that we provide as employee benefits and compensation.
• The company acquired VinES in January 2024 from Mr. Pham, which was a key battery pack supplier.
• Vingroup announced that VinFasts charging station development department will be formed into a new EV charging station company, V-Green, and will be 90% owned by Mr. Pham.
• V-Green plans to operate and manage all EV charging infrastructure in Vietnam that is currently owned and operated by the company.

Stakeholder Impact

• The restatement of financial statements could negatively impact shareholder confidence and the company's stock price.
• The company's ability to raise capital in the future could be affected by the restatement and material weaknesses in internal control.
• Employees may be affected by the company's cost-cutting measures and potential restructuring.
• Customers may be affected by the company's ability to deliver vehicles and provide warranty services.
• Suppliers may be affected by the company's potential contract terminations and renegotiations.
• Creditors may be affected by the company's ability to repay its debts.

Next Steps

• The company will continue to implement its remediation plan to address material weaknesses in internal control over financial reporting.
• The company will continue to monitor the effectiveness of its internal control over financial reporting.
• The company will continue to evaluate the probability of warrant exercises and the merit of including potential cash proceeds from the exercise of the warrants in its future liquidity requirements.
• The company will continue to update the documenting process and testing control procedures used in the preparation of financial statements, including, in cases where there is a change in operations, entity level, process level and IT general controls, to comply with the requirements of Section 404 of the SOX Act by establishing process guidelines, a risk and control matrix and a guideline for evaluating the effectiveness of internal control over financial reporting.

Key Dates

Keywords

VinFast, restatement, financial statements, revenue recognition, electric vehicles, internal control, material weaknesses, Vingroup, GSM, warrants, debt, losses