Auto Industry

Dashboard dash

Geely-backed ECARX mulls US listing


Li Shufu: now steering a SPAC

It doesn’t seem that long ago that Li Shufu was making a name for himself by talking about carmaking as being a simple affair of just putting together “four wheels and a sofa”.

No longer the outsider, the founder of Zhejiang Geely now sounds a lot more polished in championing his company as a pioneer in ‘global mobility technology’.

No doubt it helps that he’s also the major backer of ECARX, an automotive technology firm that is joining forces with COVA Acquisition in the biggest blank-cheque merger yet between a Chinese firm and a special-purpose acquisition company (or SPAC). The deal, which should be completed later this year, gives ECARX a pre-money valuation of $3.4 billion.

It comes at a time when the mood has been tense for Chinese companies trying to tap the capital markets in the United States, epitomised by the disastrous year at Didi Global, China’s largest ride-hailing platform, which dropped out of the New York Stock Exchange last week after angering Beijing with an ill-timed share sale.

ECARX will be hoping for an easier ride for its software, which supports the ‘digital cockpits’ of the latest generation of cars in areas like navigational aids and infotainment. But the bigger goal is the introduction of ‘full-stack’ platforms to guide the next generation of self-driving vehicles, powered by chip-set solutions of its own design.

The five year-old firm reported sales of $436 million last year and its technology has already been integrated into more than 3.2 million cars. Much of the sales push comes from automotive brands in which Li also has an interest, including Geely, Lynk & Co, Polestar, ZEEKR, Lotus, Proton and Volvo.

Critics of the deal with COVA are concerned about the reliance on revenues from customers affiliated to Geely but Shen Ziyu, the company’s chief executive, is promising new partnerships with at least two major carmakers in the next six months.

That would be a breakthrough, although some customers might be cautious about committing to an operating platform with such direct connections to a potential rival like Geely.

There are also political uncertainties. The SPAC needs sign-off from the Chinese government, the company acknowledges, and there are risks that the authorities in China might choose to intervene in its future operations.

The regulatory challenges extend to ECARX’s listing in the US as well, where regulators are demanding that American audit firms get full access to the books of Chinese companies on local bourses. As many as 200 China-based firms face forced departures if they ignore the rules, with American lawmakers pushing for the new regime to be implemented from next year.

Geely, which has taken control of a stable of international brands by targeting firms that have fallen on difficult times, is more focused than its Chinese peers on overseas markets. But hotly contested technologies like autonomous driving could put the company in the political spotlight. Sensitivity around the tracking and sharing of data was a factor in the torpedoing of Didi’s debut in New York, for instance, so ECARX will have to tread carefully.

Li Shufu must see the prize as being worth the potential pitfalls, especially in grabbing a chance to get ahead of rivals. “The global auto industry is experiencing the fastest transformation in its history – the era of traditional vehicles is coming to an end,” ECARX also trumpeted in the announcement about the COVA deal, with bold predictions that “vehicle DNA” is going to be more transformed over the next decade than in the last hundred years.

That kind of shake-up could be hugely profitable for the companies that steer the future in their favour. But getting into pole position is also going to chew up cash, which is why Li has been racing to raise funding from some of his other holdings in the sector. Polestar, an EV maker controlled by Geely, is being positioned for another SPAC deal later this year; Lotus, the British sports car brand, is rumoured to be considering a listing in the UK; and Volvo raised $2.3 billion in an IPO in Stockholm last October.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.