Demand for electric vehicles may be weakening, but investors appear excited about the U.S. debut of a Chinese luxury electric vehicle brand.
Geely-owned Zeekr landed on the New York Stock Exchange with great success on Friday, making it the first major listing by a Chinese company in the US since 2021 after China effectively banned foreign IPOs. The company’s stock price rose 38% in the first minutes of trading, giving Zeekr a potential value of $7 billion.
The market hype surrounding Zeekr is notable and may indicate that investors see value in the high-quality, low-cost offerings from Chinese automakers. But if the public electric vehicle market has taught us anything so far, it’s that the higher stocks go in the early days, the further they have to fall. And Zeekr’s debut comes not just as customers balk at the high prices of electric vehicles, but also amid price wars and geopolitical tensions that threaten the automaker’s market position.
Nevertheless, Zeekr managed to sell 21 million shares at a price of $21 per share, raising $441 million. That’s an increase from previous plans to sell 17.5 million shares between $18 and $21, indicating strong investor sentiment. These funds will help Zeekr expand outside of China in 2024.
Zeekr hasn’t shared its plans to launch electric vehicles in the U.S., but intense competition in its home country among other automakers has dented profits for all companies, prompting many to look to markets outside the U.S.
Europe is a big target for Zeekr as the company launches electric vehicles that compete with models from older European automakers. The company began deliveries of its flagship Zeekr 001 Shooting Brake SUV to the Netherlands at the end of 2023 and plans to increase deliveries of this model and the Zeekr X city SUV to six European countries in 2024, reaching eight countries by 2025 to reach.
Other Chinese companies shaking up the European electric vehicle market include BYD, SAIC and Great Wall Motor.
Although Zeekr hasn’t announced a passenger vehicle launch in the U.S., the automaker plans to bring its vehicles to American roads through a partnership with Waymo, Alphabet’s autonomous driving technology unit. In December 2021, Geely and Waymo agreed to build an all-electric, self-driving ride-hail vehicle by integrating Waymo’s AV technology into a Zeekr vehicle. Neither Waymo nor Zeekr have provided any updates on when this vehicle will be launched, although Zeekr’s filings indicate that the two are still moving forward with the project.
Previous renderings of the custom-built vehicle showed something like a minivan. Zeekr hasn’t confirmed this, but it’s likely that the Waymo vehicle will be based on Zeekr’s fifth model, the mix that was unveiled at the Beijing Auto Show in April alongside the automaker’s SEA-M architecture. In a regulatory filing, Zeekr said its Waymo vehicles will be based on SEA-M, an improved version of the original Sustainable Experience Architecture (SEA) that can support a range of mobility products from robotaxis to logistics vehicles.
Zeekr is a young company, but Geely’s backing means the automaker is off to a good start to vehicle deliveries this year. In the first four months ended April 30, Zeekr delivered 49,148 vehicles. In comparison, competitors such as Xpeng and Nio shipped 31,214 and 45,673 units, respectively, during the same period, according to regulatory filings and press releases.
Despite its promise, Zeekr is still operating at a loss.
In regulatory filings, Zeekr said it expects to generate revenue of $7.3 billion (RMB 51.7) in 2023. That’s up from about RMB 32 billion at the end of 2022, which would have been about $4.6 billion at the exchange rate at the time. However, operating costs also increased significantly, such that the net loss of $1.7 billion at the end of 2023 was 8% higher than at the end of 2022. Zeekr’s recorded gross margin in 2023 was 15%.
Zeekr said in its filing that it is still working on preparing financial statements for the first quarter of 2024 and expects revenue from vehicle sales to be higher than the first quarter of 2023 but lower than the fourth quarter of 2023 due to “the seasonality that has impacted our shipment volume, as well as lower average selling price is primarily due to the change in our product mix.” Zeekr also estimates that gross profit in the first quarter will be lower than last quarter.
Where there is hype, there is also risk
Zeekr isn’t the first EV upstart to be positively received by public markets. That doesn’t mean it will stay that way, especially if Zeekr continues to make losses.
Perhaps even more salient is the fact that Zeekr’s U.S. IPO comes amid growing geopolitical tensions between the world’s two largest economies. Although Zeekr shows promise after raising so much money through its IPO, it is not without its challenges. Particularly on the regulatory side of both Beijing and Washington.
As a Chinese company, Zeekr has noted that one of its risk factors is the influence that the Chinese government can exert on its operations. In its prospectus, Zeekr said the government “may intervene in or influence our operations as the government deems appropriate to achieve regulatory, political and social objectives.”
In the US, Zeekr points out that ongoing regulatory and legislative hurdles could have a negative impact on the market price. Hurdles such as the passage of the Holding Foreign Companies Accountable Act (HFCAA), which leads to increased scrutiny of Chinese companies and additional oversight, could result in a company being delisted or losing investor confidence.
If Zeekr actually plans to launch one of its vehicles in the US, it will face severe scrutiny. Recent discussions in Congress have raised concerns about connected and autonomous Chinese vehicles that are priced well below those of U.S. or European manufacturers and that may collect and transmit data back to the Chinese Communist Party.
And in Europe, the Commission is considering imposing import duties on electric vehicles made in China to protect European manufacturers.