Three of the largest Chinese electric vehicle makers listed on the New York Stock Exchange are apparently toying with the idea of offering secondary listings in Hong Kong this year. Following in the footsteps of Alibaba and JD.com, the three companies hope to reach a higher valuation and raise more capital by capturing investors closer to home.
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Tesla’s rival NIO (NYSE: NIO) plans to list at a time where its stock has fallen over 43% in the last month as the U.S. market experienced a downturn. The China-based company will be listed alongside Xpeng (NYSE: XPEV) and Li Auto (NASDAQ: LI) and the proceeds of the Hong Kong listings, based on their New York market caps, could potentially reach $5 billion. The trio plan to sell up to 5% of enlarged share capital in the Asian city.
NIO’s plans come as the company raises capital to fund technology development and expand sales so it can compete in the world’s largest electric vehicle market. Sales of new-energy vehicles (NEVs) are expected to jump 40% in China from last year to 1.8 million units, making it vital for NIO to be able to capture a large portion of this addressable market. For this to happen, EV startups need cash to invest heavily in next-generation technology.
At the moment, U.S.-owned Tesla is dominating this market and it’s understandable why the other companies would want to raise the stakes on their home turf. Chinese vehicle deliveries in 2020 totaled 32,624 for Li Auto, 43,728 for NIO, and 27,041 for Xpeng, whereas Tesla delivered a staggering 147,445.
NIO has expanded with the help of the Chinese government, with the country heavily promoting electric vehicles as the region battles with worrying levels of air pollution. China believes that NEVs will make up 20% of the country’s annual sales in the auto industry by 2025, up from 5% last year.
NIO’s Earnings Report
The company’s fourth-quarter earnings report released last Monday appears to be responsible for NIO’s recent decline, despite many analysts believing the report to be good. NIO’s deliveries rose 111% year-over-year and vehicle revenues grew 130%. The company’s adjusted loss of $0.14 per share did miss Wall Street’s expectations, but an analyst pointed out that this was owed to foreign currency moving which caused the miss.
Therefore, the wider EV market may be the culprit for the fall. Global chip shortages for automakers have spooked investors, as it may represent a lasting effect on NIO as it is a new company that won’t have the same resources as bigger players.
Why is NIO considering secondary offerings?
Chinese companies seeking secondary listings in Hong Kong have become a common trend. Search provider, Baidu, listed on Nasdaq but is also in the process of listing in Hong Kong. Alibaba was the first to take this approach when it decided to opt for a secondary listing in Hong Kong, as the company grew weary of the deteriorating trade relationship between its home country and the U.S.
This move could be very important for the EV manufacturer as it is in an investment-intensive industry that requires large amounts of capital to expand its product to innovate to stay ahead of the curve in the competitive space. In the past, NIO has relied on debt offerings to raise cash so this would allow another source of funding. The speculated move should allow NIO to capitalize on the increased interest among Asian investors for quality, trusted names in the EV space.
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