Chinese #EV startup #Lixiang Automotive Inc (Li Auto) plans to list on the #NASDAQ under the symbol "LI" on July 31. It will be the second Chinese EV maker to list in the US following #NIO, which launched on the NYSE in September 2018. pic.twitter.com/156h75La17— The Business Source (@GlobalTimesBiz) July 20, 2020
Li Auto, a five-year old Chinese company that started trading on the Nasdaq on Thursday after collecting $1,1 billion from an initial public offer, is the latest electrical car startup to cash in a new wave of hype and investment on the ground. After Nio 's 2018 IPO and subsequent listing on the New York stock exchange, it was the second Chinese EV startup to become a publicly traded company in the United States. Another, XPeng, is going to be next.
With Tesla becoming the most valuable car manufacturer in the world recently , the focus on financing EV start-ups has suddenly increased. Fresh money has been spread over recent months from both public and private sectors to the likes of Rivian, Nikola, Fisker, Karma and even suppliers like Velodyne and Hyliion.
While most people are making public use of what is called a reverse merger (in which their business is combined with an already publicly traded company that exclusively exists as a stock market holder, thus evading a traditional IPO), Li Auto has taken the standard route. It was published earlier this year and worked with banks and investors for months. This week Li Auto was approved by the regulatory authorities and its shares began trading on the Nasdaq exchange.
Li Auto's IPO has come at a strange and tense time, with both the Trump government and several Senate legislators laying the foundation for months to either increase supervision of Chinese companies in the US bonds or delete them completely (or delete them). In addition to the general tensions that Trump has experienced in the country's trade war, Chinese companies are also worried about their transparency in the United States , especially because the watch dog who should tag them has had difficulty getting the Chinese banks to agree to proper audits. the Public Company Accounting Oversight Board (PCAOB).
Li Auto also approaches electric cars differently from startups such as Nio. The SUVs of the company are a kind of hybrid. The motors are moving by electric motors (one on the front axle, and one on the rear), but they are powered by a mixture consisting of a 40,5kWh battery pack and a 1.2-liter turbo-charged engine coupled with a 45-liter fuel tank (12 gallons) and a 100kW generator which can supply power in real time to the battery pack. The idea is that the car can be powered by the battery alone for around 180 kilometers (approximately 112 miles), but the combustion engine has a total range of about 800 kilometers (almost 500 miles). (The power sources can also be combined with various driving modes)
According to the company, this approach contributes to China's "insufficient private- and public-sector high-speed charge infrastructure." The approach also argues that "it will help to make electric vehicles more and more popular in China before they are adopted."
Li Auto is trying to sell a range of SUVs that are based around $21,000 to about $70,000 in hybrid technology. In the end of 2019 , the company began shipping its first model and has produced just over 10,000 products so far. It's a medium-size SUV is equipped with many touch screens and other technologies, such as a state-of-the-art driver assistance system. The 2022 release of a full-size premium version is set.
Like many of its colleagues, Li Auto directly sells its SUVs to consumers. However, unlike Nio, the manufacturer of all its cars (and last year the plans for building an own factory) that pays the state's automaker, Li Auto constructs its own cars. In the first quarter of 2020, the start-up 's revenue is modest, losing some 344 million US dollars in 2019 and some 21 4 million US dollars in 2018. However, it might be faster to profit than Nio, as it lost just 11 million dollars in its first full quarter of deliveries in the first quarter of 2020.
In these early days, sales of Li Auto's first model were boosted by China's generous subsidies to 'new power vehicles' (including hybrid, all-electric or even hydrogen powered cars), and the company admits that changes in its policy on subsidies could affect future sales in its submissions to the Securities and Exchange Commission.
The hybrid technology approach itself could, however, be an even greater political risk. China has different internal combustion and new energy vehicles regulatory regimes. Chinese government has different rules. Li Auto is powered by both a battery pack and petrol, so the company is vulnerable to the fantasies of the two regimes by itself admitting that these registrations are made.
A further considerable hazard that the company admitted was that the accounting firm it hired to produce its IPO, the Chinese arm of Price water house Coopers, found that Li Auto lacks "sufficient competent financial reports and accounting staff, adequately understanding the US GAAP."
Li Auto is furthermore classified as a "emerging growth company," since the Obama-era Jump start Our Business Start-ups (JOBS) Act generated less than $1 billion in revenue last year. That means that the Sarbanes-Oxley Act of 2002 already provides for certain transparency requirements.
Risk factors such as these are in part the reason why lawmakers raised concerns about Chinese companies being traded publicly in the US. Li Auto is also well aware of this: in its SEC filings, the company admits that any audit of its finances could not be inspected by the PCAOB. Li Auto says: "[i]investors may lose trust in our reported financial information, procedures, and the quality of our financial statements." And if legislation is adopted that regulates Chinese firms more closely, Li Auto admits that its share price may drop or that its share price may have to leave the Nasdaq altogether.
Nevertheless, Li Auto generated enough interest in the first morning of Nasdaq bonds in order to raise its share price to $1.1 billion. It might result from a new momentum in the world's startup space for electric vehicles or it might simply be a side effect of the current volatility or imprevisibility of the US stock market. Whatever the answer, Li Auto's first success – and the money raised by the above mentioned companies – needs to have the stalling EV startups, such as Byton and Faraday Future, who wonder how they can drive on this wave before it crumbles.