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Li Auto electrifies Nasdaq with US$1.1 billion IPO, the largest by a Chinese company in the US since 2018

South China Morning Post logo South China Morning Post 30/7/2020 Alison Tudor-Ackroyd and Georgina Lee alison.t-a@scmp.com and georgina.lee@scmp.com
a sign on a pole on a city street: Li Auto is raising US$1.1 billion from an IPO on the Nasdaq. Photo: Bloomberg © Bloomberg Li Auto is raising US$1.1 billion from an IPO on the Nasdaq. Photo: Bloomberg

Li Auto, a Chinese electric vehicle maker backed by mainland online services delivery giant Meituan Dianping, has priced its American depositary receipts at US$11.5 each in an initial public offering on Nasdaq that will raise about U$1.1 billion for the firm to expand in the world's biggest car market, according to a person familiar with the matter.

The IPO by the Beijing-based start-up, which designs and makes electric SUVs, looks set to be the largest fundraising by a Chinese company on US exchanges since December 2018 when Tencent Music Entertainment Group raised US$1.07 billion or NIO's US$1.15 billion offer in September 2018, depending on how much of its overallotment option Li Auto exercises, according to data provided by Refinitiv.

"Electric vehicles will be the largest opportunity for technology start-ups worldwide after smartphones and mobile internet," said Mingming Huang, founding partner at early-stage venture capital firm Future Capital, who was an angel investor in Li Auto and topped up in multiple funding rounds. "EV plus autonomous driving will change the way people travel ... the trillion-dollar companies will come from this sector."

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a car parked on the side of a road: Li Auto's SUV. Photo: Handout © Provided by South China Morning Post Li Auto's SUV. Photo: Handout

China's electric car start-ups are tanking up on capital to fuel an intense fight for market share.

Xpeng Motors has made a confidential filing for a listing in the US, while New York-listed NIO shares have tripled so far this year. Elsewhere, Zhejiang-based carmaker Geely Automobile Holdings, which makes the Geometry A electric car, said it plans to list on Shanghai's Nasdaq-style Star Market later this year.

Investors are keen to jump on the electric-vehicle bandwagon after watching 17-year-old, California-based Tesla overtake Toyota Motor, Volkswagen and Hyundai Motor this year in terms of combined market value to become the world's most valuable carmaker. Tesla sells its Model 3, Model S and Model X in China.

Li Auto, founded by serial entrepreneur Xiang Li, is the first company in China to commercialise what is known as extended-range technology for electric vehicles, which helps solve the problem of a lack of charging infrastructure across China and still developing battery technology. If the car's battery runs down then a combustion engine provides electrical power.

More than 80 per cent of Chinese car owners do not have their own car parking space which means they cannot install their own charging point, said Future Capital's Huang. Many consumers are still anxious about their car's charge running low with nowhere to top up.

"Xiang Li has a deep understanding of the preferences and the pain points of car owners in China," said Huang, who has known Li for more than 15 years.

While Li Auto still has negative cash flow, the capital-intensive electric vehicle market is at a very early growth stage, still only around 5 per cent of car sales in China. "Its still at a very fast growing and everybody is trying to grab market share," said Huang.

Li also founded car internet platform Autohome, which now has a market capitalisation of over US$10 billion on the New York Stock Exchange, which gave many investors the confidence to back his new venture despite fierce competition in the sector.

Li Auto and Xpeng have chosen to list in the US despite rising US-China tensions.

Legislation passed by the Senate would kick Chinese companies off US stock exchanges unless their audits are open to inspection by US regulators.

However, New York still has a far deeper pool of liquidity for start-ups to tap than Greater China, meaning Xpeng and Li Auto could potentially achieve a higher valuation in the US than they would have done closer to home.

The company's offer of 95 million ADRs are priced above the marketed range of US$8 to US$10 each due to strong demand among investors. Bookrunners for the deal included investment bankers at CICC, Goldman Sachs, Morgan Stanley and UBS.

Li Auto's ADR is expected to begin trading on Nasdaq on July 30. One ADR represents two ordinary shares in the company.

Asia-focused private equity firm Hillhouse Capital will buy up to US$300 million of the stock at the offer price, according to its prospectus.

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With the successful completion of the IPO, Li Auto will also privately place new ordinary shares to existing shareholders totalling US$380 million. These shareholders include Meituan Dianping, which through an affiliate owns about 14.5 per cent in the company before the IPO, and ByteDance, the owner of video-sharing social network operator TikTok.

Li Auto plans to use proceeds from the share sale to develop manufacturing facilities, research and development of new products, and as working capital.

For the three months ended June this year, Li Auto recorded a net loss of 75.2 million yuan (HK$83 million), narrowing it by 2.5 per cent from a net loss of 77.1 million yuan in the first quarter this year.

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This article originally appeared on the South China Morning Post (www.scmp.com), the leading news media reporting on China and Asia.

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