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VinFast Auto (NASDAQ: VFS) disappointed many investors after its public debut last August. The Vietnamese automaker set some ambitious delivery targets before it went public by merging with a special purpose acquisition company (SPAC), but its stock plummeted after it broadly missed its own estimates. Rising interest rates also highlighted its persistent losses and compressed its valuations.

I recently took a closer look at VinFast and said it was still too early to tell if it could overcome its growing pains, scale up its business, and stand out in the electric vehicle (EV) market. However, I also noticed five red flags about VinFast that can't be ignored.

1. VinFast sold most of its cars to its affiliate company

VinFast originally claimed it could sell 50,000 EVs in 2023. However, it only delivered 34,855 EVs and 72,468 electric scooters. That shortfall was disappointing, but an SEC filing revealed that about 70% of its EV deliveries actually went to its own affiliate, Green SM (GSM), a taxi operator and leasing provider that was backed by VinFast's CEO Pham Nhat Vuong.

Pham Nhat Vuong is also the founder and chairman of Vingroup, the massive Vietnamese conglomerate that owns VinFast, GSM, and a wide range of other companies. Vuong only took over as VinFast's CEO this January after its previous CEO, Le Thi Thu Thuy, stepped down after leading the company for less than two years.

VinFast claims it can deliver over 100,000 EVs this year, but investors should see where those shipments are actually going. If it's only selling its vehicles to Vingroup's other affiliates, it could be struggling to gain ground with mainstream consumers.

2. VinFast's North Carolina plant faces major delays

VinFast's plan to sell 100,000 EVs this year hinges on the growth of its U.S. business, but it sold fewer than 1,000 EVs in North America last year. To accelerate that expansion over the next few years, VinFast broke ground on a new $4 billion plant in North Carolina with a planned annual production capacity of 150,000 vehicles last year.

It planned to open the plant in July 2024, but it subsequently postponed its opening to early 2025. However, a recent Reuters report claimed VinFast could push that date back even further as it struggles with slower-than-expected sales.

3. VinFast was sued for unpaid rent on a vehicle showroom

Last month, the real estate services firm SPG Center sued VinFast over 12 months of unpaid rent for its vehicle showroom in Palo Alto, California. The lawsuit alleges that VinFast stopped paying its rent last May and owes SPG Center $356,000.

VinFast calls SPG Center's claims "inaccurate" and says that it only suspended its rent payments this April amid "ongoing negotiations with the landlord to amend the lease agreement." Nevertheless, the fact that VinFast is trying to negotiate lower rent payments on a single showroom suggests it's scrambling to cut costs to stabilize its annual net losses -- which widened from $2.1 billion in 2022 to $2.4 billion in 2023.

4. It's being sued by its investors

Two law firms also filed class action lawsuits against VinFast this April for allegedly making unrealistic delivery forecasts prior to its public debut. Several other law firms are still asking investors to join their similar class action lawsuits.

Many other SPAC-backed EV makers, including Lucid and Nikola, were hit by similar class-action lawsuits in the past. VinFast might be able to weather those headwinds, but they could exacerbate its cash-flow problems with high legal expenses and drive more investors to scrutinize its business practices.

5. VinFast is being probed by federal safety regulators

Last but not least, the National Highway Traffic Safety Administration recently launched an investigation into the fatal crash of a VinFast VF8 SUV in California. The accident, which killed a family of four, occurred when the vehicle veered off the road, crashed into a pole and a tree, and caught on fire. The SUV was being driven by one of the owner’s coworkers with the coworker’s family when the fatal crash occurred, according to the complaint.

Prior to the accident, the SUV's owner -- who was not in the vehicle at the time -- had complained about problems with the vehicle's automated steering system. If this ongoing investigation sparks a total recall of VinFast's vehicles in the U.S., it could tarnish its brand and severely hinder its overseas expansion.

Are these growing pains or red flags?

On the bright side, VinFast is still delivering a lot more vehicles than Lucid, Nikola, and many other SPAC-backed EV makers, its gross margins are gradually improving, and its stock doesn't look expensive, trading at 4 times this year's sales. Therefore, the bulls might believe all these setbacks are simply growing pains that VinFast can eventually overcome.

But I'm not as optimistic. I simply can't trust a company that broadly missed its own delivery forecasts, sells most of its cars to its own affiliate, and faces so many legal and regulatory challenges in its biggest target market. So for now, I'd avoid VinFast's stock until it demonstrates that it can resolve these pressing issues and scale up its business.

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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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