Auto Industry

In Tesla’s wake

Chinese electric car firms are raising cash in US

xpeng

XPENG’s second model, the P7

Tesla’s world-beating stock market valuation has attracted plenty of headlines. Its electric vehicle (EV) sales in China have helped to power its market capitalisation to almost double Toyota’s, triple Volkswagen’s and six times more than Daimler’s.

But it’s not just Tesla that’s capturing investor attention. China’s two New York-listed EV start-ups, NIO and Li Auto, have also enjoyed stock market surges that put their market values in the same league as Peugeot, Nissan and Porsche.

It’s an outcome few would have predicted a few months ago. Back in March NIO was struggling financially after trying to take on Tesla at the high-end of the market. Few had even heard of Li Auto (known in China as Lixiang), which had sold a total of 3,869 cars. But its highly successful Nasdaq debut at the end of July shows how much can change in a short space of time.

Strong demand for the shares prompted an upward revision of Li Auto’s $1.1 billion IPO pricing. Yet even that failed to deter investors: the share price rose 50% in the two weeks after its debut.

Li Auto’s case also demonstrates that there are still Chinese companies which want to list in the US. Another EV brand from China – XPENG (see WiC443 for an earlier Q&A with its head of strategy) – wants to do the same in the coming weeks too, hoping to ride the positive momentum triggered by Tesla’s success.

The timing for its IPO seems to have been accelerated, given that a series C+ funding has only just closed. According to S&P Global Market Intelligence, XPENG attracted $500 million from private equity investors in July, plus a further $300 million from Alibaba and the Qatar Investment Authority in early August.

If investors look closer at the fundamentals, XPENG’s success hinges on sales of its new P7 car. The company’s second model is being pitched as a cheaper alternative to Tesla’s Model 3, with longer driving range. Deliveries began at the end of June, with 1,641 P7s sold in July.

Li Auto, while still selling its first model (the Li One), has enthused investors with its Extended Range Electric Vehicles (EREVs), which incorporate small combustion engines to increase potential driving range. The company’s founder, Li Xiang, also draws on a track record – his New York-listed Autohome has bolstered his credentials with investors.

Two other founders of Chinese car firms are hoping that their business experience will stand them in good stead as they join the race to turn a profit from the EV revolution.

As we wrote in WiC459, Evergrande founder Xu Jiayin has invested heavily in an ambitious bid to become the world’s biggest EV producer. This month, the property tycoon unveiled the first six models (branded Hengchi) in the EV unit’s range, changing the name of Hong Kong-listed Evergrande Health to Evergrande New Energy Vehicles. Evergrande claims it will grow into the world’s biggest EV maker in three years time. The property developer has also launched an aggressive marketing campaign in Hong Kong, where its EVs won’t be available for sale. Yet some investors in the Hong Kong bourse must have believed in the hype. Thanks to a 500% spike in its share price since June, the company’s market value hit almost HK$300 billion ($38.5 billion) earlier this month, making it China’s most valuable carmaker and surpassing the likes of BYD and Dongfeng Motor.

Another contender is Ding Lei (not the NetEase founder), who will be hoping that investors pay more attention to his 23 years at Shanghai Auto (and a stint as deputy mayor of Shanghai’s financial district of Pudong) than the time he spent developing a supercar for Jia Yueting’s bankrupt LeEco group. His new company Human Horizons aims to blend his expertise to create road networks that allow fully automated cars to operate freely and safely.

Human Horizon’s first vehicle, the HiPhi X, will launch at next month’s Beijing Auto Show. A supercar SUV, it has caused a stir by getting rid of door handles (access is enabled via facial recognition). The Jiangsu Yueda group owns 20% of the company and its joint venture with South Korea’s Kia will build the car. But the Chinese press wonders if Ding Lei will run out of time to get the rest of the capital he needs to move into fuller production. Byton Auto’s recent manufacturing halt shows that there are likely to be as many failures as successes in the Chinese EV landscape (see WiC505).


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