Comment by Brentward

Personally, I got tired of weird quirks like this with vterm and now bind this command to the key I used to have vterm on to spawn my actual terminal (st) in my current directory. It's probably not what most people want from vterm, but I prefer it.

  (defun open-term-here ()
    "open st in `default-directory`"
    (interactive)
    (call-process-shell-command
     (concat "st bash -c \"cd "
      default-directory
      " && exec zsh\"")
     nil 0))