Shares of VinFast Auto, the Vietnamese EV maker, experienced a significant drop of 15.9% to $34.71 on Thursday. This marks the third consecutive decline for the company's stock. Despite this downturn, short sellers may not be reaping substantial profits due to limited shares being shorted.
Comparatively, the S&P 500 fell by 0.2% while the Nasdaq Composite managed a slight gain of 0.1%. VinFast's shares, now down approximately 63% from their intraday high of $93 on Monday, have led to a market capitalization of around $81 billion. Consequently, the company currently holds the fifth position in terms of global automaker value, trailing behemoths like Tesla, Toyota Motor, Porsche, and BYD.
Considering the plummet in stock price, short sellers would typically benefit from such circumstances. However, given the limited number of shares sold short, the impact on these sellers remains relatively minor. VinFast currently has a short interest of $4.9 million, with just 119 thousand shares being shorted, according to insights from short selling research firm S3 Partners managing director Ihor Dusaniwsky. The scarcity of shorted shares implies that short sellers are not capitalizing significantly on the stock's decline.
It should be noted that at its peak value of $93 per share, VinFast's shares were estimated to be worth an impressive $215 billion. Despite the recent setbacks in stock performance, VinFast continues to navigate the market as an influential player in the EV industry.
VinFast Stock: Short Sellers Struggle as Borrow Rates Soar
In the past three days, short sellers in VinFast stock have experienced meager profits due to the limited availability of shares to borrow. David Dusaniwsky, a recognized market expert, states that there are only small portions of stock available for borrowing, estimated at around 20,000 to 30,000 shares. The borrowing fee ranges at a staggering 350%.
The Challenge for Short Sellers
Short sellers face a unique challenge in this situation as they must first secure shares to borrow. However, it is not always possible to find stocks available for borrowing. Even when they do secure the shares, they are required to pay a fee. With a borrowing rate set at 350%, short sellers would need to pay 3.5 times the stock price annually in interest to the original stockholder. Essentially, it resembles an Annual Percentage Rate (APR) for short selling.
Impact on Potential Profits
Borrow rates as high as 350% greatly diminish short sellers' potential profits. With low short interest and high trading volumes, there is only a tiny fraction of VinFast's outstanding 2.3 billion shares available for trading. It is important to note that more than 99% of VinFast stock is controlled by Pham Nhat Vuong of Vingroup (VIC. Vietnam). Consequently, the stock market's profits and losses are merely shifting from one trader to another.
Advice for Automotive Investors
Automotive investors should approach trading VinFast stock with caution and carefully consider their options. Eventually, trading activity will calm down, making it easier to buy shares based on a fundamental outlook. On the other hand, for the broader market, VinFast trading offers an amusing spectacle to observe.