China’s Tesla challengers, Xpeng and Li Auto, rev up capital-raising drive as the electric car start-ups target US IPOs
- Xpeng files secretly for US IPO; Hillhouse Capital backing Li Auto’s Nasdaq listing
- China’s passenger car sales recovering after sharp fall in first quarter due to coronavirus pandemic
China’s electric car start-ups are tanking up on capital to gear up for expansion in the world’s largest car market.
Xpeng Motors has made a confidential filing for a listing in the US, Li Auto is marketing a US$950 million initial public offering on Nasdaq this week while New York-listed NIO shares have tripled so far this year.
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China’s government also boosted investors’ confidence by affirming its support for electric vehicle makers during the coronavirus crisis which was followed by a sharp recovery in sales after the slump in February when car showrooms were closed as the virus spread rapidly across the mainland.
The China Passenger Car Association secretary general Cui Dongshu said the association expects new energy vehicle sales, a combination of pure electric vehicle and hybrid models, in the second half of 2020 to be significantly higher than in the same period last year.
Chinese electric vehicle makers mushroomed to number around 400, supported by Beijing’s efforts to lower pollution in the country’s cities and an abundance of private equity capital.
However, significant roadblocks lie ahead for these start-ups, including embryonic charging infrastructure and the relatively high cost of making an electric car versus one with an internal combustion engine.
After the government started to turn off the spigot of subsidies last year, smaller firms have floundered. The largest – NIO, Li Auto, Xpeng and WM Motor – are now looking to grab market share, fuelled by investors’ capital.
The start-ups are targeting tech-savvy 30-somethings who are buying into the idea of smart electric vehicles, cars with souped up features such as tools for automated parking at the click of a smart key, roof cameras for selfies and voice-automated assistants. Smart electric car companies are increasingly cutting out dealerships and selling directly to the consumer and maintaining that relationship with upgrades over the air every one and a half months and responding to customer feedback.
Guangzhou-based Xpeng Motors has filed confidentially to list in the US but has not yet chosen between Nasdaq or the New York Stock Exchange, according to a person familiar with the matter.
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Xpeng has hired investment banks JP Morgan, Bank of America and Credit Suisse to help it find investors, the person said. The start-up is expected to raise well over US$500 million in the IPO, though it has not yet fixed the exact size and percentage of the company for sale. A spokesperson for the company declined to comment; spokespeople for the banks either did not respond immediately or declined to comment.
Founded by Alibaba veteran, Xiaopeng He, the eponymous firm announced US$400 million of fresh capital in November when it was valued at nearly US$4 billion. Since then, the start-up has surpassed several landmarks.
Its second production model, the P7, premiered at the Shanghai Auto Show in April 2019. The sports sedan retails at between 240,000 yuan (US$34,240) and 370,000 yuan, nearly a third of the price of a Tesla Model S in China.
Xpeng also secured a production licence for its self-built, fully-owned factory in Zhaoqing, in Guangdong province in May.
One risk for would-be Xpeng investors is an accusation by Tesla that the Chinese company hired one of the US car maker’s former engineers who still had access to some its technology. To be sure, Xpeng is not a party in the court case slated for January and it has put the former Tesla employee on administrative leave.
Xpeng targets the middle and high-end of the smart electric vehicle market in China and prides itself on building its software end-to-end.
Xpeng and Li Auto have chosen to list in the US despite rising US-China tensions.
However, New York still has a far deeper pool of liquidity for start-ups to tap than Greater China, meaning Xpeng and Li Auto could potentially achieve a higher valuation in the US than they would have done closer to home.
The capital injection has reassured investors that NIO will survive and expanded its market cap to US$14 billion. Analysts at investment bank CICC expect NIO to break even in EBIT terms by 2022.
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China has been gradually cutting subsidies for electric cars since 2015 with plans to completely eliminate them by 2020. However, the government said in March that it would extend them to 2022 for cars costing less than 300,000 yuan as it seeks to bring down pollution in its cities.
Li Auto said in its prospectus that its revenues for the three months ended June 30 reached 1.9 billion yuan, including vehicle sales of 1.9 billion yuan, up 128.6 per cent from revenues of 851.7 million yuan for the three months ended March 31, including vehicle sales of 841.1 million yuan.
Xpeng’s July sales are pointing up year on year, according to the person familiar.