Chinese EV and self-driving tech corporations flip to IPOs for money | USAEMALL.com

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China’s electric vehicle and self-driving start-ups are heading to markets to raise cash at the risk of lower valuations, with funding drying up amid intense competition in the sector.

In what is set to be Hong Kong’s biggest share sale this year for a primary listing, Horizon Robotics is raising HK$5.4bn ($696mn) in an initial public offering this week. The self-driving chipmaker, backed by big names such as Alibaba, Baidu, BYD, Intel and Volkswagen, is selling 1.36bn shares at HK$3.99 that will value the company at $6.7bn — about 23 per cent lower than the $8.7bn it was worth based on its last funding round in December. 

Even at that lower valuation, a good reception from investors is far from assured when it starts trading on Thursday, with prospects for Chinese companies in the sector damped by an economic slowdown and a cut-throat market at home as well as political resistance to their products in the US and Europe. Horizon rival Black Sesame slumped 27 per cent on its Hong Kong debut in August. 

“The industry-wide reshuffle is going on . . . over the past three years, there’s been a notable decline in total net current assets of listed Chinese auto companies, which is something investors are concerned about,” said Li Jingtao, an analyst at Citic Securities. “A valuation gap sometimes appears at the IPO stage.”

Other autonomous driving start-ups Zongmu and Minieye also filed IPO prospectuses with the Hong Kong stock exchange earlier this year, along with EV maker Hozon. Elsewhere, self-driving tech developer Momenta and robotaxi operators WeRide and Pony.ai have successfully lobbied China’s securities regulators to allow them to list in the US. Pony.ai filed its prospectus last week to list on the Nasdaq.

Their moves come against a background of financing for start-ups working on smart car technology more than halving to Rmb45bn ($6.3bn) in 2023, from Rmb100bn in 2021, according to data from the China Industry Innovation Alliance for the Intelligent and Connected Vehicles.

“Multiple factors have contributed to the drop in investors’ enthusiasm for the sector, including a chilly venture market and an uncertain path to profitability,” said Xu Yanhua, general secretary of the industry group, at an event earlier this year. 

“Existing shareholders have piled pressure on these companies to [list their shares],” said an investor in a Chinese self-driving start-up preparing for a public offering, adding that investors have become more cautious amid China’s economic slowdown. 

Despite the discount risks, a public listing remains crucial for cash-strapped Chinese auto groups to survive in a crowded market where consolidation has been taking place.

“The situation will be difficult for new entrants, especially those that haven’t gone public yet. Cash flow pressure will naturally weed them out,” said Li from Citic Securities. 

“They are in need of a continuous cash injection,” said S&P Global Mobility analyst Lu Daokuan, pointing to the substantial losses being recorded by start-ups every year.

The Chinese government’s attitude towards the self-driving industry is “overall positive”, Lu added, noting that Beijing aims to achieve large-scale production of Level 3 autonomous vehicles by 2025 and local governments around the country are pushing to scale up deployment of robotaxi fleets on the road.

Hozon, known for its Neta brand and the only EV maker in the IPO line-up, has admitted to paying some of its staff only half their wages for September, raising questions about the company’s financial health. As of April 30, the CATL-backed automaker had assets worth Rmb10.4bn that were exceeded by Rmb12.2bn in liabilities, its prospectus showed. 

Hozon declined a request for comment. 

The performance of overseas-listed Chinese EV companies also gives little cause for optimism. Zeekr, an electric car brand spun off from Chinese auto conglomerate Geely, was the latest to list its shares in New York earlier this year — but at a valuation less than half what the company was worth in its previous financing round, and its stock has fallen around 20 per cent since going public in May.

Chinese carmakers’ international revenues are also being threatened by political opposition in the US and Europe. Last month, the Biden administration proposed banning Chinese software and hardware for internet-connected vehicles, citing a threat to national security. In Europe, the EU is poised to impose tariffs of up to 45 per cent on imports of Chinese EVs, mirroring similar measures by the US and Canada.