May 21, 2024

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China's electric vehicle sector is tapping overseas markets despite increasing Western protectionism

China's electric vehicle sector is tapping overseas markets despite increasing Western protectionism

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China's electric vehicle sector has begun tapping overseas markets for more financing, with shares of electric vehicle maker Zeekr rising 34 percent on Friday in the largest U.S. IPO for a Chinese company since 2021.

In a sign of improving investor sentiment toward China-linked stocks, the Hangzhou-based luxury car company, which was spun off from privately held Chinese group Geely Group, raised $441 million in New York from the sale of 21 million American depositary shares. It was priced at the top of its $18 to $21 range and closed at $28.26.

Zeekr has made its debut in the face of new trade barriers that the United States and Europe are set to impose on clean technology made in China. The Biden administration is expected to raise tariffs on Chinese electric vehicle imports from 25 percent to 100 percent on Tuesday. The European Commission is investigating imports of electric cars from China, and is widely expected to raise tariffs in the coming months.

Investors' appetite for Chinese cleantech companies will soon be tested again. Horizon Robotics, the Beijing-based self-driving chip design group that formed a partnership with Volkswagen in 2022, and its rival Black Sesame Technologies, filed IPOs with the Hong Kong Stock Exchange earlier this year. CATL, the world's largest electric vehicle battery maker, is slowly moving forward with the sale of its shares in Hong Kong, with the stated aim of attracting its customers as stakeholders.

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The outlook for Chinese automakers in Europe and the United States is highly uncertain. Officials in Washington and Brussels are caught between needing more Chinese technology to achieve their climate change goals and also wanting to prevent it on the grounds of national and economic security.

In China, the electric vehicle industry is highly competitive and continues to show strong growth, with sales rising by more than 30 percent in the first four months of the year. In the first half of April, sales of pure electric and hybrid vehicles crept into more than half of new vehicle sales in China for the first time, highlighting the decline of the internal combustion engine vehicle production industry.

Zeekr's listing and the wave of Chinese electric vehicle IPOs also represent a change from a period of tense US-China relations and strict cross-border listing rules that effectively froze the Chinese IPO pipeline.

Analysts say market conditions have improved for overseas Chinese stocks this year. Hong Kong's benchmark Hang Seng Index has gained 24 percent since its January low, while the Nasdaq Golden Dragon China Index, which tracks 69 US-listed Chinese companies including electric car startups Xpeng, Li Auto and Nio, rose. More than 20 percent from January lows.

The fortunes of the three EV startups have been mixed since their listing – Li Auto has seen its shares rise 66 per cent, while Xpeng and Nio's shares are trading below their IPO prices.

“Given the improving sentiment, the appetite and demand for Chinese IPOs in growth industries should be better than before,” said Jerry Wu, lead fund manager at Polar Capital China Stars Fund. At the same time, investors will seek lower valuations due to intensifying competition in China's auto market and the slowing spread of electric vehicles in Europe and the United States, he added.

This may have been the case with Zeekr, which delayed the listing after struggling to attract interest since it published its prospectus last November. Her offer “wasn't so well received this time, that much we can tell.” [the company’s] “Valuation has come down,” said Wendy Chen, chief investment analyst at Hong Kong-based GAM Investments. “now [Zeekr has] Good timing and good story.”

The IPO valued the company at about $5.1 billion, about 60 percent less than the $13 billion value the automaker estimated it was worth when it raised $750 million last year. Anchor investors, including Geely's Hong Kong-listed auto unit, accounted for two-thirds of the shares on offer. That left fewer shares available to investors on the open market, leading to a “supply-demand imbalance” and thus a “positive reaction” from buyers, said one banker who worked on the deal.

Zeekr's listing is the latest IPO that provides a measure of Geely's success in tapping public markets as it moves into the expensive business of developing electric vehicles.

Share prices of Geely units Volvo, electric vehicle brand Polestar, Lotus Technology and ECARX have fallen by 60 percent on average since their listing.

Analysts have questioned the company's plans to finance the business through the public markets at such low valuations, when it faces significant investment demands for electric vehicles, self-driving systems and software in the coming years.

Geely declined to comment.

Additional reporting by Andy Lin in Hong Kong