China Joins Electric Vehicle Fundraising Gold Rush

News Analysis

Chinese electric vehicle (EV) manufacturer Xpeng priced its initial public offering on Aug. 26 and subsequently saw its stock price surge more than 50 percent above its IPO price by Friday, becoming the latest EV maker to see its shares skyrocket in recent weeks.

Everything EV has gone hyperbolic in 2020. Nevermind a recession or a virus pandemic—Tesla Inc., the biggest name in the industry, has seen its shares soar more than 400% percent since Jan. 1. It is now the worlds most valuable automaker by market capitalization. Xpengs fortuitous timing of its IPO means it just became the latest company to ride the EV high tide.

Guangzhou-based Xiaopeng Motors (commonly known as Xpeng) sells EV models in China and competes with Tesla as well as other domestic Chinese EV makers such as NIO and Li Auto. Xpeng has also developed its own autonomous driving capabilities. Its IPO was priced at $15 per share, above the initial expected range, raising approximately $1.5 billion on the New York Stock Exchange.

EV Industry High Tide

EV stocks have been on fire this year, propelling Tesla to become the worlds most valuable automaker despite meager profits. Market capitalization changes daily, but as of Aug. 28 Teslas value of $412 billion is worth around twice as much as the worlds second-most valuable automaker, Japans Toyota.

Teslas success has spurred a spate of new fundraising for EV makers. The highest profile was Arizona-based EV startup Nikola Motors, which merged with a special-purpose acquisition company (SPAC) called VectorIQ in June to become a publicly traded company. And despite showing no revenues, Nikolas stock closed at $41.35 on Aug. 28, giving the company a $15.6 billion valuation.

Nikolas success story—financially, if not businesswise—has led several other EV makers to pursue public listings via SPACs. Other EV companies merging with SPACs include Fisker, Canoo, and Lordstown Motor, all of which announced transactions in July or August 2020.

This is the environment the Alibaba-backed Xpeng has chosen to sell its U.S. ADR (American depository receipt) shares. It follows the footsteps of another Chinese EV maker, Li Auto, which raised $1.1 billion through an IPO on Nasdaq in July. Li Auto priced its shares at $11.50 a share at a valuation of $10 billion. On Aug. 28, Li Auto stock closed at $17.60, or 53 percent above its IPO last month.

Another Chinese EV maker, Nio, held its U.S. IPO in September 2018. Nio has also taken advantage of current market conditions and raised $428 million in cash from a follow-on stock sale in June. On Aug. 28 it just announced that it would seek to sell more shares, up to 86 million shares, raising up to $1.7 billion in cash. All three companies are among the largest Chinese EV manufacturers.

Raising capital from foreign investors to spearhead Chinese technological development is not a new idea. But it has received added focus as Chinese Communist Party (CCP) boss Xi Jinping has issued his economic treatise of “dual circulations,” a symbiotic economic program to stimulate domestic development consumption while expanding production for exports at the same time.

EV development is a central element of this as China views itself as a global leader in EV research and adoption. And it would play a role in both boosting domestic consumption (EV adoption by Chinese buyers) as well as driving international demand (exporting its EVs globally).

Rush to Raise Cash Before New Disclosure Rules Kick In

Another, and more immediate, impetus to raise cash quickly is that the United States may soon close off its financial markets to Chinese IPOs.

A wave of accounting scandals and financial frauds have soured U.S. investors on Chinese listed companies. Following the massive Luckin Coffee fraud earlier this year—one of the biggest Chinese corporate frauds in recent years—the Senate unanimously approved legislation that would prevent companies that refuse to hand over accounting records for examinRead More – Source