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A Chinese carmaker is the most talked-about electric vehicle initial public offering (IPO) this year.

Despite falling demand for EVs, investors are excited about the launch of a Chinese premium EV brand in the United States.

As a result of China’s effective 2021 prohibition on overseas IPOs, Geely-owned Zeekr made history on Friday when it made its splashy debut on the New York Stock Exchange. With a 38% surge in the first few minutes of trade, Zeekr’s stock price might reach $7 billion.

The impressive market buzz around Zeekr suggests that investors like the affordable, high-quality products offered by Chinese automakers. However, if the public EV market has taught us anything, it’s that initial share price spikes often lead to subsequent share price drops. Zeekr’s launch coincides with a number of factors, including consumers’ reluctance to pay exorbitant rates for electric vehicles, ongoing pricing wars, and geopolitical concerns, all of which threaten the automaker’s dominant market position.

Despite initial intentions to offer 17.5 million shares between $18 and $21, Zeekr was able to sell 21 million shares at $21 each, raising $441 million, indicating strong investor confidence. With this financing, Zeekr may go on with its plans to expand outside China in 2024.

Even though Zeekr hasn’t said anything about bringing any electric vehicles to the US market just yet, many companies are looking to international markets for growth because of the intense rivalry among domestic manufacturers. 

As it releases electric vehicles to compete with those of established European manufacturers, Zeekr is focusing heavily on the European market. Zeekr started production of the Zeekr X urban SUV and the flagship Zeekr 001 shooting brake SUV in the Netherlands towards the end of 2023, and plans to ramp up production in six more European nations in 2024. The company projects that Zeekr will expand its global reach to eight nations by 2025.

Chinese conglomerates BYD, SAIC, and Great Wall Motor are also making waves in the European electric vehicle industry. 

Despite the lack of an official announcement on U.S. passenger car launches, Zeekr intends to cooperate with Waymo, Alphabet’s self-driving technology business, to distribute its vehicles in the United States. By combining Waymo’s autonomous car technology with a Zeekr vehicle, Geely and Waymo planned to create a fully electric, driverless ride-hailing vehicle in December 2021. Though Zeekr’s papers show that the two are still moving forward with the project, neither Waymo nor Zeekr have provided any updates about the launch timeline of this car. 

Earlier conceptualizations suggested minivans as possible inspiration for the custom-built car. Though the carmaker has not officially announced it, Waymo’s vehicle will most likely be based on Zeekr’s fifth model, the Mix, which made its debut in April at the Beijing Auto Show with the SEA-M architecture. Zeekr said in a regulatory filing that the Waymo cars would use SEA-M, an enhanced version of the original Sustainable Experience Architecture (SEA) that can accommodate various mobility products such as logistics trucks and robotaxis. 

The carmaker has gotten off to a good start this year with vehicle deliveries from the fledgling business Zeekr, thanks to funding from Geely. Zeekr delivered 49,148 automobiles in the first quarter ending April 30. According to press announcements and regulatory filings, competitors such as Xpeng and Nio supplied 45,673 and 31,214 units, respectively, over the same time. 

Zeekr continues to be financially unstable, despite all of its potential. 

According to Zeekr’s filings with the relevant authorities, the company earned $7.3 billion (51.7 RMB) in 2023. At the end of 2022, it was around 32 billion RMB, or about $4.6 billion at the exchange rate. This is an increase from then. Net loss was $1.7 billion in 2023, up 8 percent from $1.6 billion in 2022, due to rising operational expenditures. Zeekr achieved a gross margin of 15% in 2023.

We expect vehicle sales revenue to be higher than Q1 2023 but lower than Q4 2023 due to “seasonality that impacted our delivery volume, as well as a lower average selling price, primarily caused by the change in our product mix.” Zeekr is still preparing financial statements for the first quarter of 2024, according to filings. According to Zeekr, the first quarter’s gross profit would likewise be smaller than the previous quarter’s. 

Additionally, the European Commission is considering the possibility of shielding European manufacturers from Chinese electric vehicle import taxes.

The public markets have been kind to other emerging electric vehicle startups, and Zeekr isn’t the only one. However, with great enthusiasm comes great danger. That doesn’t guarantee it will remain that way, especially if Zeekr continues to run at a loss. 

More importantly, geopolitical tensions between the world’s two biggest economies are on the rise, coinciding with Zeekr’s U.S. IPO. The IPO raised a lot of capital for Zeekr, which bodes well for the company’s future, but the company faces obstacles, most notably from Beijing and Washington’s regulatory agencies. 

Because it is a Chinese corporation, Zeekr has identified the potential impact of the Chinese government on its operations as a risk concern due to the fact that it is a Chinese corporation. “The government deems it appropriate to intervene with or influence our operations to further regulatory, political, and societal goals,” Zeekr said in its prospectus. 

Zeekr notes that ongoing legislative and regulatory obstacles in the United States could potentially impact the market price. Difficulties, such as the Holding Foreign Companies Accountable Act’s (HFCAA) implementation, have led to increased monitoring of Chinese companies and the possibility of delisting or investor distrust in such businesses.

There will be a lot of eyes on Zeekr decides to release any of its cars in the US. Recent congressional debates over linked and autonomous Chinese automobiles, sold at significantly lower prices than their American or European counterparts, have raised concerns about data collection and transmission by the Chinese Communist Party.

Additionally, the European Commission is considering the possibility of shielding European manufacturers from Chinese electric vehicle import taxes.

Juliet P.
Author: Juliet P.

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