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China’s EV troika marches to Wall Street as Xpeng joins listing wagon

Tesla aspirant surges over 50% on trading debut after USD 1.5 billion upsized offering.

Photo: Shutterstock

The three leaders on China’s electric-vehicle scene are now all trading in the US after Xpeng Motors’ blockbuster listing Thursday on the New York Stock Exchange, defying Sino-American tensions.

The Chinese startup opened 54% higher on its first trading day amid strong demand, after raising USD 1.5 billion — more than it had originally sought — in an initial public offering.

Guangzhou-based Xpeng, backed by e-commerce leader Alibaba Group Holding, has been trading at around USD 23 per American depositary share. Current market prices value the company at at least USD 15 billion.

Its IPO followed Chinese rivals NIO, which listed on the NYSE in 2018, and Li Auto, which went public on the Nasdaq Stock Market last month. All compete with American giant Tesla for China’s massive market.

Xpeng boosted the size of its offering to 99.73 million shares from an original 85 million, the Nikkei Asian Review reported ahead of the offering. The company also increased its offering price to USD 15 a share from initial guidance of USD 11 to USD 13.

Strong gains for electric-car makers led by Tesla and Beijing-based Li Auto bolstered investors’ appetite for Xpeng’s offering despite mounting US-China tensions, according to two people familiar with the deal.

“The demand was so overwhelming that we just had to upsize,” a person familiar with the deal said.

“NIO trading significantly higher helps” Xpeng’s debut, said Toh Zhen Zhou, an analyst at Singapore-based Aequitas Research, in a note published on investment research platform SmartKarma.

NIO has doubled its stock price since its 2018 listing, despite multiple crises along the way, including a battery recall and severe cash problems.

Li Auto surged 28% on Wednesday but fell back down Thursday amid the strong reception for Xpeng’s listing.

Current market prices value Xpeng at around USD 15 billion. Photo: Stock.tuchong.com

Feng Linyan, an analyst at Beijing-based research company EqualOcean, said Xpeng’s strong fundamentals would appeal to institutional investors.

Investors were also reassured by Alibaba’s backing at a time when some Chinese electric-vehicle startups are struggling for survival. The e-commerce conglomerate is the startup’s second-largest shareholder with a stake of 14.4%.

He Xiaopeng, Xpeng’s namesake chairman and co-founder, controlled 31.6% prior the IPO. Alibaba has indicated that it plans to buy another USD 200 million worth of Xpeng shares in the IPO.

While Xpeng has not turned a profit like Li Auto and Nio, another Chinese electric-car company with New York-listed shares, its loss narrowed to RMB 796 million (USD 115.4 million) in the first half of the year on revenue of RMB 1 billion. It had posted a loss of RMB 1.9 billion during the same period last year.

Xpeng started production of its first vehicle, the G3 compact SUV, in late 2018, with a selling price half that of models offered by Nio and Li Auto.

Last year, Xpeng targeted higher-spending buyers by launching a four-door sports sedan, the P7, with features comparable to Tesla’s Model 3. About 2,000 P7s have been sold so far, and the company expects the new model to be its main source of future revenue.

Xpeng plans to launch a new sedan model as well as an advanced autonomous driving system in 2021, according to the company’s prospectus.

The new funds are expected to ease financial pressures and provide additional firepower to fend off Tesla in Xpeng’s home market. The California-based automaker has grabbed more than a 20% market share in China in just a few months.

Tesla delivered 45,754 vehicles in the first half of the year, as its Shanghai factory started to deliver Model 3 sedans. Xpeng shipped 5,499 vehicles in the country during the same period, compared with 9,500 for Li Auto and Nio’s 14,169. BYD, China’s biggest domestic EV producer, sold 57,449 passenger electric vehicles.

A move by Tesla in May to cut prices for both its imported and locally made models in China is posing further challenges for Xpeng.

“The brand appeal of Tesla is extremely strong in China,” said EqualOcean’s Feng. “Its price cuts will have an impact on Xpeng’s sales for sure.” She said that the current delivery figure largely reflects the volume of orders made before Tesla’s announcement. “I am a bit concerned if Xpeng can maintain the momentum going forward.”

But Feng said that Tesla’s strong showing is not necessarily a bad thing for domestic players, as it fuels the appetites of both customers and investors for electric vehicles and accelerates the growth of the supply chain.

China digest

Still, many players have not been able to survive.

After years of fierce, cash-burning competition that has ended the hopes of hundreds of startups in the electric-vehicle sector, Xpeng, Nio, and Li Auto have emerged as the strongest in the race, according to Wayne Shiong, partner at venture capital firm China Growth Fund.

“From an investor’s point of view, we think the top three players should be able to survive,” he said. Shiong said the turnaround of Nio in April — thanks to fresh funding from the government of Hefei in Anhui province — has boosted investors’ confidence in the industry, benefiting other EV players.

Nio in March told investors that it did not have enough capital to survive for another 12 months after several failed attempts to raise money. But its fortunes changed and its stock price soared after the municipal government agreed to invest RMB 7 billion for a 24.1% stake.

“If Nio had failed to raise new funds back then, the IPO prospects for Li Auto and Xpeng wouldn’t be the same,” Shiong said. He expects Xpeng to follow Li Auto’s IPO success.

However, Shiong also notes the political risks that Xpeng and other Chinese electric-vehicle makers face in the US, given Washington’s heightened crackdown on Chinese technology companies.

Xpeng warned in its prospectus that its business could be adversely affected by the political tensions between the two countries because a “substantial part” of its research and development on autonomous driving is conducted in the U.S.

Further, proposed US legislation that would limit Chinese companies’ access to New York capital markets might also have an impact on its fundraising activities, it said.

In addition, its development of core technologies may also face legal risks. For example, Tesla has sued one of Xpeng’s employees for misappropriation of trade secrets when he was employed by the US company.

A US court has ordered Xpeng, at the request of Tesla, to present sensitive business materials, including the source code for development, for inspection. Xpeng believes that the order is unreasonable, and has filed a motion to block the request. The legal case is pending.

Shiong believes that Chinese manufacturers of electric cars have the potential to shake up the global supply chain.

“It’s very likely that the U.S. government would target Chinese electric-vehicle companies in the future,” he said.

Credit Suisse, JPMorgan, Bank of America, ABC International Holdings, BOC International, Futu, and Haitong International served as joint bookrunners for Xpeng’s listing.

This article first appeared on Nikkei Asian Review. It’s republished here as part of 36Kr’s ongoing partnership with Nikkei