China EV Startups Chase Tesla's Success, Ride the IPO Wave

Electric vehicle (EV) trends are getting hotter with each passing day. Climate change concerns, stricter emission rules, favorable government regulations and improvement in the EV infrastructure on the back of superior technologies are fueling the demand for green vehicles. Banking on the EV frenzy, various China-based EV startups are seeing this as an opportunistic time to raise public funding. 

Tesla & NIO’s Strength to Prompt More Startups to Go Public

U.S. red-hot EV maker Tesla TSLA has been capitalizing on the growing demand for green vehicles in China, which has been Tesla’s fastest-growing international market and has helped the company tide over various external headwinds including the COVID-19 pandemic. It should be noted that Tesla, which claims the lion’s share in China’s flourishing EV market, was the top seller of green vehicles in the country in the first half of the year. The company’s popular Model 3 production and demand trajectory in the country remain robust. Markedly, shares of Tesla have rallied more than 380% on a year-to-date basis.

Tesla’s prominent China-based rival NIO Inc. NIO — which went public on the NYSE in September 2018 — has also had an amazing run on the bourses of late, gaining around 300% year to date. NIO’s recent funding deals have breathed new life into the stock. Strong delivery numbers and encouraging EV fundamentals have pushed the firm’s share price from sub $3 level in mid-March to $14.97 as of yesterday.

Tesla has managed to set itself apart from peers and sort of conquered China’s EV market by slashing car prices for customers and manufacturing vehicles at the Shanghai Gigafactory. Nonetheless, it is likely to face competition from the domestic rivals in the coming years. Tesla’s success in China and NIO’s recent rally are encouraging many local companies to go public as they vie to increase their market share in the country’s EV industry. While NIO currently holds a Zacks Rank #2 (Buy), Tesla has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

China-Based EV Makers Choose the IPO Path

Lixiang Automotive Inc. — aka Li Auto — recently debuted on Nasdaq, becoming the second China-based EV maker to be listed on the U.S. stock market after NIO. Founded in 2015, Li Auto was formerly known as CHJ Automotive. Volume production of the firm’s sole offering, Li ONE, began in November 2019. Li ONE is a six-seat, extended-range electric SUV with Level 2 autonomous driving features. LI Auto is equipped with next-gen extended range electric vehicle technology. Li Auto’s EVs — which depend on both batteries and gasoline — are powered by its battery pack and range extension system. The company delivered more than 10,000 vehicles as of Jun 30.

China-based electric automaker Xpeng Motors, backed by e-commerce giant Alibaba BABA, also applied for an initial public offering (IPO) in July. Hoping to raise up to $1.1 billion in IPO, Xpeng will become the third China-based EV maker to go public in the U.S. stock market. Xpeng sells two EV models: the G3 SUV, launched in 2018, and P7 sedan, which debuted earlier this year. Xpeng delivered roughly 19,000 and 2,000 units of the G3 and P7, respectively, as of July-end. The company expects to make market debut this Thursday under the ticker symbol “XPEV”.

Despite rising political and economic tensions between China and the United States, Li auto and Xpeng Motors have chosen to go public in the United States.

China-based WM Motor Technology Co. is also weighing an IPO in Shanghai as soon as this year. WM Motor is expected to seek an offering that would value it at more than 30 billion yuan. Founded in 2015, WM Motor's investors include technology powerhouses Baidu Inc. BIDU and Tencent Holdings Ltd. TCEHY. WM Motor achieved a new milestone in July with the delivery of its 30000th EX5 smart, pure electric SUV. The company intends to expand its line up and aims to launch two new e-SUVs and one electric sedan by 2021-end.

Another China-based EV startup Hozon Auto is also eyeing Shanghai IPO by 2021. Currently, the company has two battery-enabled EV models in its kitty — the Nezha N01 and Nezha U. The Zhejiang-based firm delivered more than 16,000 EVs as of June-end. It is planning to launch a third model — with a range of 401 kilometers on a single charge — in third-quarter 2020.

EVs Strike the Right Chords With Investors

Lately, it has been raining IPOs in the EV Market. The latest U.S. EV startup that plans to go public is Canoo. The company, which plans to begin vehicle deliveries by second-quarter 2022, intends to go public later this year at a valuation of $2.4 billion. Instead of an IPO of new Canoo shares, the firm will be acquired by a Special Purpose Acquisition Company (SPAC), Hennessy Capital Acquisition Corp IV, which has raised funds for the purpose. With this, it will join the likes of EV manufacturers including Nikola NKLA, Fisker and Hyliion, which have also gone public via the SPAC public listing method.

The EV industry requires huge investments in technology, product manufacturing/development, and R&D expenses. Financing from the public market can further boost its development. Enormous amount of money is being injected into markets by investors who fear missing out on EV stocks’ crazy rally. Prospects of green vehicles are bright and the e-mobility industry is expected to witness massive growth in the coming years. Automakers are also fast changing their gears to electric as they are realizing the strong potential of green vehicles. In the coming years, the race for EV supremacy will only get fiercer.

The Hottest Tech Mega-Trend of All

Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>

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