Demand for electric vehicles may be slowing, but investors appear excited about the U.S. debut of a Chinese luxury electric vehicle brand.
Geely-owned Zeekr made a splash on the New York Stock Exchange on Friday, making it the first major U.S. listing by a Chinese company since 2021, following China’s effective ban on IPOs on foreign stock exchanges. The company’s stock price soared 38% in the first minutes of trading, giving Zeekr a potential valuation of $7 billion.
Zeekr’s market hype is notable and may indicate that investors see value in the high-quality, low-price offerings from Chinese automakers. But if the public EV market has taught us anything so far, it’s that the higher stocks go up early, the more they have to fall further. And Zeekr’s debut comes not only as customers eschew the high prices of electric vehicles, but also amid a price war and geopolitical tensions that endanger the automaker’s market position.
Nonetheless, Zeekr managed to sell 21 million shares at $21 per share to raise $441 million, an increase from earlier plans to sell 17.5 million shares between $18 and $21, reflecting strong investor sentiment. These funds will help Zeekr in its plans to expand outside of China in 2024.
Zeekr has not announced plans to launch electric vehicles in the United States, but intense competition in the country between other automakers has eaten into each company’s profits, forcing many to turn to external markets.
Europe is an important target for Zeekr as it rolls out electric vehicles that compete with legacy European automakers’ models. The company began shipments of its flagship Zeekr 001 Shooting Brake SUV in the Netherlands in late 2023, and it plans to scale up deliveries of this model and the Zeekr X urban SUV to six European countries in 2024. Zeekr has said it expects its international presence to reach eight countries by 2025.
Other Chinese companies disrupting the European electric vehicle market include BYD, SAIC and Great Wall Motor.
Although Zeekr has not announced any passenger vehicle launches in the United States, the automaker plans to put its vehicles on American roads in a partnership with Waymo, Alphabet’s self-driving technology unit . In December 2021, Geely and Waymo agreed to build a fully electric, autonomous ride-sharing vehicle by integrating Waymo’s AV technology into a Zeekr vehicle. Neither Waymo nor Zeekr have shared an update on the launch timeline for this vehicle, although Zeekr documents emphasize that the two are still pursuing the project.
Previous renderings of the purpose-built vehicle depicted something like a minivan. Zeekr has not confirmed, but it is likely that the Waymo vehicle will be modeled after Zeekr’s fifth model, the Mix, which debuted in April at the Beijing Auto Show alongside the SEA architecture- M from the car manufacturer. In a regulatory filing, Zeekr said its Waymo vehicles will be based on SEA-M, which is a beefed-up version of the original Sustainable Experience Architecture (SEA) that can support a range of mobility products ranging from robot -taxi to logistics vehicles.
Zeekr is a young company, but Geely’s backing means the automaker has had a good start to vehicle deliveries this year. In the first four months ended April 30, Zeekr delivered 49,148 vehicles. For comparison, competitors like Xpeng and Nio shipped 31,214 units and 45,673 units, respectively, during the same period, according to regulatory filings and press releases.
Despite its promises, Zeekr is still operating at a loss.
In regulatory filings, Zeekr said it generated $7.3 billion (RMB51.7) in revenue in 2023. That’s up from about RMB32 billion at the end of 2022, which would have been d ‘approximately 4.6 billion dollars according to the exchange rate at the time. Mind you, operating expenses also increased significantly, so the net loss of $1.7 billion at the end of 2023 was 8% higher than it was at the end of 2022. The margin gross recorded by Zeekr in 2023 was 15%.
Zeekr said in its filings that it is still preparing its financial statements for the first quarter of 2024 and that it expects vehicle sales revenue to be higher than in the first quarter of 2023, but lower than that of the fourth quarter of 2023 due to “seasonality which had an impact on our delivery volume, as well as a drop in average selling price mainly due to the modification of our product mix. Zeekr also estimates that first quarter gross margin will be lower than last quarter.
Where there is hype, there is risk
Zeekr is not the first electric vehicle newcomer to receive a warm welcome from the public markets. That doesn’t mean it’s going to stay that way, especially if Zeekr continues to operate at a loss.
Perhaps more notable is the fact that Zeekr’s US IPO comes amid growing geopolitical tensions between the world’s two largest economies. While Zeekr shows a lot of promise after raising so much money from its IPO, it is not without its challenges. Particularly on the regulatory side of Beijing and Washington.
As a Chinese company, Zeekr has highlighted that one of its risk factors is the influence that the Chinese government is able to exert over its business operations. In its prospectus, Zeekr said the government “may intervene or influence our operations as the government deems appropriate to advance regulatory, policy and societal objectives.”
In the United States, Zeekr emphasizes that persistent regulatory and legislative obstacles could have a negative impact on its market price. Obstacles such as the enactment of the Holding Foreign Companies Accountable Act (HFCAA), which brings increased scrutiny of Chinese companies and additional scrutiny that could put a company at risk of delisting or cause investors to lose confidence.
If Zeekr plans to launch any of its vehicles in the United States, it will face intense scrutiny. Recent discussions in Congress have raised concerns that Chinese connected and autonomous vehicles — priced significantly lower than those of U.S. or European manufacturers — are potentially collecting and transmitting data to the Chinese Communist Party.
And in Europe, the Commission is considering introducing import duties on electric vehicles made in China to protect European manufacturers.
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