China’s EV sector to test offshore markets after Zeekr’s strong US IPO

The Biden administration is expected to raise tariffs on Chinese EV imports from 25 per cent to 100 per cent. Photo / 123rf

The Chinese electric vehicle sector has begun to tap offshore markets for more funding, with shares in EV maker Zeekr gaining 34 per cent on Friday in the biggest IPO in the US by a Chinese company since 2021.

In a sign of improving investor sentiment towards Chinese-linked stocks, the Hangzhou-based premium car brand, carved out of China’s privately held Geely group, raised US$441 million ($733.4m) in New York from the sale of 21 million American depositary shares. They were priced at the top of its range of US$18 to US$21 and closed at US$28.26.

Zeekr debuted in the face of new trade barriers set to be imposed by the US and Europe on China-made cleantech. The Biden administration is expected to raise tariffs on Chinese EV imports from 25 per cent to 100 per cent on Tuesday. The European Commission is investigating electric car imports from China and is widely expected to raise tariffs in the coming months.

Investor appetite for Chinese cleantech companies will be tested again soon. Horizon Robotics, a Beijing-based autonomous driving chip design group that formed a partnership with Volkswagen in 2022, and its rival Black Sesame Technologies, both filed prospectuses with the Hong Kong stock exchange earlier this year. CATL, the world’s largest maker of EV batteries, is slowly moving forward on a share sale in Hong Kong, with a stated aim of bringing in its customers as stakeholders.

The outlook for Chinese automakers in Europe and the US is highly uncertain. Officials in Washington and Brussels are stuck between needing more Chinese technology to meet their climate change goals while also wanting to block it on the grounds of national and economic security.

In China, the EV industry is highly competitive and continues to show robust growth, with sales up more than 30 per cent in the first four months of the year. In the first half of April, sales of pure EVs and plug-in hybrids crept above half of new car sales in China for the first time, highlighting the decline of the industry producing cars with internal combustion engines.

The Zeekr listing and flurry of upcoming Chinese EV IPOs also mark a change from a period of strained US-China ties and strict cross-border listing rules that in effect froze the Chinese IPO pipeline.

Analysts say that market conditions have improved for Chinese offshore equities this year. Hong Kong’s benchmark Hang Seng index has notched a 24 per cent gain since a low point in January, while the Nasdaq’s Golden Dragon China Index, which tracks 69 US-listed Chinese companies including EV start-ups Xpeng, Li Auto and Nio, has risen more than 20 per cent from its January low.

The three EV start-ups have had differing fortunes since listing — Li Auto has seen its stock rise 66 per cent while Xpeng and Nio 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 the Polar Capital China Stars Fund. At the same time, investors will seek lower valuations due to intensifying competition in China’s auto market and slowing EV penetration in Europe and the US, he added.

That may have been the case with Zeekr, which had delayed the listing after struggling to attract interest since it published its prospectus last November. Its pitch had not been “as well received as this time, which we can tell from [the company’s] decreased valuation,” said Wendy Chen, a Hong Kong-based senior investment analyst at GAM Investments. “Now [Zeekr has] good timing and a good story.”

The IPO valued the company at about US$5.1 billion, some 60 per cent lower than the US$13b the carmaker was calculated to be worth when it raised US$750m last year. Cornerstone investors, including Geely’s Hong Kong-listed auto unit, soaked up two-thirds of the shares on offer. That left fewer shares available for investors on the open market, creating a “supply-demand imbalance” and thus “a positive reaction” from buyers, said a banker who worked on the deal.

The Zeekr listing is the latest IPO to provide a gauge of Geely’s success at tapping public markets, as it pushes further into the expensive business of developing electric vehicles.

The share prices of Geely units Volvo, EV brand Polestar, Lotus Technology and ECARX are down an average 60 per cent since their listings.

Analysts have questioned the company’s plans to fund businesses through public markets given such low valuations, when it faces steep investment demands for electric cars, self-driving systems and software in the coming years.

Geely declined to comment.

- Additional reporting by Andy Lin.

Written by: Edward White, Gloria Li, Cheng Leng and Jennifer Hughes

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