China's fast-rising new automakers are in the midst of the fiercest market competition, which gives them more incentive to seek a quick entry into the capital market, the latest of which is Extreme Krypton, which is just two years old.
If the IPO is successful, Zeekr will be the fastest start-up car company from establishment to listing. At present, the China Securities Regulatory Commission has confirmed the filing information of Zeekr listed outside the United States, and Zeekr also began a roadshow three weeks ago to test the reaction of investors.
If successful, the IPO, which raised more than $1 billion, will be the largest IPO of a Chinese company in the United States since Didi raised $4.4 billion in funding in mid-2021.
A number of investors told Interface News that the possibility of a successful listing of Zeekr is extremely high. Even when capital was at its most active, it took NIO, the shortest new automaker, to spend four years.
A relevant person close to the investors of the Extreme Kr Roadshow told Interface News that Extreme Kr has not yet negotiated with domestic and Hong Kong investment institutions, and the focus is still on overseas investors. As of early September, Zeekr has opened a testing meeting with some investment institutions in Singapore and Europe.
According to the preliminary negotiation results, Zeekr hopes to obtain a valuation of $18 billion, which is comparable to NIO's current U.S. stock market value, which has reached $18.274 billion.
Several industry investors told Interface News that the valuation was higher than expected. For reference, Xpeng Motors, which received a stake in the Volkswagen Group, has a market capitalization of $15.8 billion after its stock price skyrocketed. In February this year, the post-investment valuation of Zeekr Pre-A round financing was $13 billion.
Considering that it is still in the early stage of intention communication, there will still be room for downward adjustment of Zeekr's quotation to investors.
In recent years, more and more traditional Chinese automakers have created new electric brands, launched independent teams and new products equipped with the latest technology, eager to occupy the global pure electric vehicle market and seek to succeed in the long-term capital market.
Geely Automobile's pure electric brand is also one of the new brands of traditional automobile companies closest to an IPO, and it is rumored that GAC's sub-brand Aion may be listed before the end of the year.
Zeekr is very likely to become another Chinese automobile company to land on the US stock market after Xpeng Motors. It has been three years since Xpeng's successful listing on the New York Stock Exchange, and it is currently the last Chinese automaker to land on the U.S. stock market.
It must be admitted that at present, Extreme Krypton wants to obtain a market valuation comparable to "Wei Xiaoli", and the difficulty coefficient is doubled. The U.S. stock listing environment and the active period of the capital market have been completely different, and investors' enthusiasm for the transformation of the automotive industry and electrification investment has gradually cooled.
The boom of Chinese companies going public in the United States began in the 90s of last century, and the Chinese electric vehicle startup "Wei Xiaoli", which carries Internet genes, also took advantage of the east wind at that time and gradually grew into China's leading new energy vehicle company after the NASDAQ bell rang.
This close capital partnership between China and the United States took a turn at the end of 2020. Subject to enhanced regulatory review, extremely high inflation and rising interest rates, the number of Chinese concept stocks listed on the US stock market and the scale of fundraising have plummeted in the past two years.
To some extent, the closure of the US listing window has limited the financing of some start-up electric vehicle brands, but it has not prevented the Chinese automotive industry from completing the replacement of the old and new order. At present, about one out of every three cars sold in China is a new energy vehicle, and all the other best-selling models except Tesla are Chinese brands.
New automakers are no longer the only protagonists in the new energy vehicle market, and traditional Chinese automakers have incubated new electric brands, competing with the mentality and urgency of startups and the talent structure of technology companies.
These new energy sub-brands also hope to gain the favor of investors. This can not only ensure that it has sufficient funds to cope with subsequent market competition, but also reduce the cost burden of the parent company in the new energy transformation.
After the financing boom for electric vehicle startups peaked in 2021, the Fed continued to raise interest rates in 2022 to fight inflation, borrowing costs rose sharply, and Wall Street new stock issuances, bond financings, and corporate mergers all slowed to almost exhaustion.
While rising funding costs are also hitting speculators in other sectors, capital-intensive EV startups have been hit harder.
The initial investment required to set up a new automobile manufacturing company is high, and it will take several years to achieve profitability. Investors are willing to pay a premium for potentially high returns in the future in an era of hot money, but those days are gone.
Investment bankers, lawyers and investors believe that despite the signs of recovery this year and the gradual rebound of the market, the US IPO market is unlikely to return to the levels of 2020 and 2021. Startups need to re-adapt to a new investor mindset that values a startup's potential to achieve profitability rather than its ability to grow rapidly.
Gui Lingfeng, director of A.T. Kearney Consulting, told Interface News that the US capital market still has reservations about emerging projects such as Chinese concept stocks including Zeekr and vehicle companies that only provide pure electric vehicles.
"The layout of Zeekr in Europe is not calm, especially in the German-speaking area, the promotion is relatively urgent, the core is to enhance the sense of presence in front of overseas investors as soon as possible." From this perspective, they themselves are aware that overseas investors are conservative about their own business models and product and prospects. ”
From the perspective of valuation model, Zeekr is still regarded by investors as a technology-based company, not a traditional automaker. An industry insider who requested anonymity pointed out in an interview with Interface News that the current industry is based on a valuation ratio of 2 to 3 times the price-to-sales ratio.
"From the public market information, the 2 to 3 times market-to-sales ratio actually puts extreme krypton in the 'first echelon', and the valuation prospects are more promising." After the squeeze of the high valuation bubble, the price-to-sales ratio of "Wei Xiaoli" has also fallen from a high of more than 20 times in the past to stabilize between 2 and 4 times.
In comparison, the median price-to-sales ratio of U.S.-listed auto companies is 0.81. Traditional automakers Toyota, Honda, Stellantis, and Geely Automobile, the parent company of Zeekr, all have a price-to-sales ratio of less than 1 times.
The price-to-sales (PS) ratio is often used to measure the valuation of high-growth startups that are not yet profitable, and refers to how high investors are willing to pay for the company to obtain a dollar of revenue.
For the unprofitable Zeekr and new automakers, the core of investors' market value assessment is not the income from selling cars, but largely depends on the future software charges with higher marginal benefits, technology output, and imaginative autonomous driving market prospects.
The particularity of Zeekr is also that it is a Chinese electric vehicle brand that has been spun off from traditional automobile companies and sought to be listed independently. Although the capital market prefers new brands that are completely independent and have no baggage, Geely Automobile, Geely will amortize the platform's R&D investment and capital expenditure together with other Geely brands. This is an extremely advantageous advantage, or makes the financial statement data presented by Zeekr optimistic.
It is worth noting that Geely Group is the automobile company with the most sub-brands in the world.
"Investors will rationally look at whether Geely's R&D and supply procurement costs can pass Geely Automobile's large-scale advantages, which will eventually be reflected in the gross margin data of the financial report."
Gui Lingfeng told Interface News that the extent to which the vast structure of SEA can be enjoyed exclusively, and how much strategic investor CATL supports Extreme Krypton will affect the final valuation of Extreme Krypton.
If Zeekr chooses to delay listing for one to two years, it will also have a higher chance of obtaining a larger financing amount and valuation. The above-mentioned industry insiders believe that as the Fed begins to cut interest rates again in the next 1 to 2 years, it will drive the enthusiasm of the secondary market. From the perspective of market fundamentals, the volatility of the US stock market has declined, inflation has eased, and investors have begun to speculate again.
Considering its own financial situation and subsequent development, Zeekr hopes to seize the market recovery period as soon as possible and rebound with the broader market trend. In the first half of this year, the net loss of Zeekr reached 809 million yuan, which continued to expand from the loss of 759 million yuan in the same period of the previous year. From the construction of offline channels to the completion of the shortcomings of the cockpit and intelligent driving, Extreme Krypton must continue to invest funds.
Including from within the Geely Group, the call for Zeekr to bear its own funds and independence is also increasing. Global rating agencies Standard & Poor's and Moody's have revised the credit outlook of Geely Holding and Geely Automobile's business from stable to negative due to pressure on profitability in the early stage of the new energy transition and investment in the start-up business of Zeekr's high-end smart electric vehicles.
During the capital market slumber, many start-ups were forced to do something that seemed unimaginable two years ago: continue to reduce costs and increase efficiency, with profitability as the core benchmark. Some start-ups that fail to receive timely external financing support have dwindled their cash reserves over time, eventually ending up in bankruptcy or acquisition.
Compared to the competition for customers, automobile manufacturing is more a competition for capital, especially in the start-up stage. Compared with other traditional automobile company sub-brands, Zeekr is already one of the few companies that has mature conditions for listing.
Extreme Krypton has now formed a preliminary scale, and the annual sales of 70,000 single models last year are enough to tell the next story to the capital market. When Li Auto went on the market in 2020, the annual delivery volume was 32,600 units.
Another factor that is easily overlooked is that parent company Geely Automobile may be the most capital-savvy car company in China, and its years of experience in dealing with foreign investment institutions have laid the foundation for Zeekr's US stock listing today. Zeekr considered Hong Kong as its first listing location, but ultimately chose New York, reflecting its confidence and ambition to obtain a higher valuation in the world's largest capital market.
In 2010, Geely Automobile successfully acquired Volvo from Ford Motor, staging a classic M&A case in automobile history, and also made Geely Automobile go to the world. Since then, Li Shufu, chairman of Geely Holding Group, has also included a stake in sports car brand Aston Martin and a dominant stake in electric start-ups such as Polestar and Lotus Technology.
Prior to the successful listing of Zeekr, Li Shufu had already operated and listed for a number of its subsidiaries in the past two years. In 2021, Volvo was publicly listed on the Stockholm Stock Exchange in Sweden, followed by Polestar and Egalton. Lotus Technology is also rumored to be listed on the US stock market through a SPAC this year.
The investment institutions involved in the above-mentioned listing actions are very likely to appear in the list of investors of Zeekr. Benefiting from the close contact between the parent company and global investment institutions, Zeekr does not need to introduce itself to where it comes from when negotiating with foreign investors.
Some relevant people commented to Interface News that Geely Automobile will not make an uncertain listing plan. Except for the impact of Ant's listing in 2021, Geely Automobile withdrew its listing on the Science and Technology Innovation Board, and the rest of the listing goals were successfully achieved.
Investors' concern about Zeekr is how to achieve the 2025 sales target of 650,000 vehicles while maintaining its independence. In terms of investment, platform sharing and the supply of scarce components such as semiconductors and batteries, there will inevitably be conflicts of interest between Zeekr and Geely's other high-end electric vehicle brands.
Extreme Krypton, Volvo, Polestar, Lotus Technology, as well as Geely and Baidu, are all striving for the same customers, and some of the models they have developed are based on the common SEA vast architecture, and even some models are produced in parallel.
The Wall Street Journal, citing investor analysis, argued that Geely Automobile's listing of its subsidiary, rather than the holding company itself, could make the governance challenge of brand competition more difficult: Any suggestion that Mr. Li favors a subsidiary would be significant for minority shareholders.