China’s electric vehicle start-ups view IPOs as way to survive

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BEIJING, HONG KONG • makers in the cut-throat Chinese market face a potentially lethal mix of plummeting demand and a Tesla offensive, prompting more start-ups to see initial public offerings as a way to ensure survival.

Li Auto, backed by food delivery giant Meituan Dianping, has launched an initial public offering (IPO) of up to US$950 million (S$1.3 billion), in one of the biggest US listings by Chinese companies this year.

The five-year-old maker of premium electric sport utility vehicles (SUVs) is selling 95 million American depositary shares at an indicative range of US$8 to US$10 a share, according to its updated prospectus filed with the US Securities and Exchange Commission last Friday.

It is set to price the float on Thursday and begin trading on the Nasdaq under the symbol “Li” the next day.

Also last Friday, Hozon New Energy Automobile became the latest contender to launch its IPO path, saying it wants one in Shanghai as soon as next year.

WM Motor Technology is weighing an initial stock sale in the same city as soon as this year, people familiar with the matter said.

The manufacturers are vying for a foothold in China’s once heavily subsidised electric car sector, with several being squeezed out by a lack of funding this year alone. But at the same time, the seemingly unstoppable market leader Tesla and one of its more established Chinese challengers, NIO, have gained buyers in a potential sign of long-term strength for the industry.

“The strength in Tesla and NIO shares is creating a window for new electric vehicle start-ups to list,” said Mr Robert Cowell, an analyst at Shanghai-based private equity firm 86Research.

“The current conditions provide an attractive opportunity to raise funds, which can help some of these smaller start-ups sustain the investments necessary to compete effectively.”

Shares of Tesla and NIO have more than trebled this year, even as the broader Chinese electric vehicle market has been shrinking.

Wealthier buyers are drawn to the companies’ premium vehicles, while the government’s subsidy reductions and the coronavirus pandemic have hurt demand for cheaper models.

While the number of Chinese electric car hopefuls runs into the hundreds, a smaller group of potential survivors is starting to emerge. Just 11 succeeded in raising funds last year, among them WM Motor, Li Auto and Hozon, according to strategy and investment advisory firm Automobility.

WM Motor, based in Shanghai, is expected to seek an offering that would value it at over 30 billion yuan (S$6 billion), the people said.

A company representative declined to comment.

Founded in 2015, WM Motor has backers including technology powerhouses Baidu and Tencent Holdings. It recently delivered its 30,000th EX5 SUV, the company announced this month.

Zhejiang-based Hozon is banking on future growth potential for more affordable electric vehicles in rural areas, with its first model, an SUV, starting at less than US$10,000.

Deliveries of Hozon’s second model started last month, and in total the company has shipped more than 16,000 vehicles.

The carmaker wants to raise 3 billion yuan in Series C financing on the way to the planned IPO, it said last Friday. The company completed a Series B fund-raising of a similar amount last year.

As for Li Auto, alongside its IPO, it will also raise US$380 million from a concurrent private placement of shares to investors. It plans to use most of the proceeds raised for capital expenditures as well as research and development of new products. It is building Li ONE extended-range electric SUVs in China and delivered 6,604 of the model in the second quarter.

“This industry by nature requires huge investment in product development and manufacturing,” said Mr Charley Xu, managing director and partner at Boston Consulting Group in Shanghai. “Financing from the public market can further boost its development.”

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