Demand for electric vehicles may be waning, but investors seem excited about the debut of a Chinese luxury EV brand in the US.
Geely-owned Zeekr hit the New York Stock Exchange on Friday, making it the first major U.S. IPO by a Chinese company since 2021, after China effectively banned foreign IPOs. The company’s share price soared 38% in the first minutes of trading, giving Zeekr a potential valuation of $7 billion.
Zeekr’s hype in the market is notable and may indicate that investors see value in the Chinese automakers’ high-quality, low-price offerings. But if the public EV market so far has taught us anything, it’s that the higher stocks climb in the early days, the further they must fall. And Zeekr’s debut comes not only as customers shy away from steep EV prices, but also amid price wars and geopolitical tensions that threaten the automaker’s market position.
However, Zeekr managed to sell 21 million shares at $21 a share to raise $441 million, up from earlier plans to sell 17.5 million shares between $18 and $21, indicating strong investor sentiment. These funds will help Zeekr as it plans to expand outside of China in 2024.
Zeekr has not shared plans to launch electric vehicles in the U.S., but fierce competition at home among other automakers has eaten into each company’s profits, prompting many to look to overseas markets.
Europe is a big target for Zeekr, as it showcases electric vehicles that compete with models from legacy European automakers. The company started shipments of its flagship Zeekr 001 shooting brake SUV in the Netherlands in late 2023 and plans to increase deliveries of that model and the Zeekr X urban SUV to six European countries in 2024. Zeekr said it expects an international presence to reach in eight countries by 2025.
Other Chinese companies disrupting the European EV market include BYD, SAIC and Great Wall Motor.
While Zeekr has not announced any passenger vehicle launches in the US, the automaker plans to put its vehicles on American roads as part of a partnership with Waymo, Alphabet’s self-driving technology unit. In December 2021, Geely and Waymo agreed to build an all-electric, self-driving vehicle by integrating Waymo’s AV technology into a Zeekr vehicle. Neither Waymo nor Zeekr have shared updates on a timeline for the rollout of this vehicle, though Zeekr’s filings highlight that the two are still moving forward with the project.
Previous renderings of the purpose-built vehicle depicted something like a minivan. Zeekr hasn’t confirmed, but it’s possible the Waymo vehicle will be based on Zeekr’s fifth model, the Mix, which debuted in April at the Beijing Auto Show alongside the automaker’s SEA-M architecture. In a regulatory filing, Zeekr said its Waymo vehicles will be based on SEA-M, which is an enhanced version of the original Sustainable Experience Architecture (SEA) that can support a range of mobility products, from robotaxis to logistics vehicles.
Zeekr is a new company, but backing from Geely means the automaker is off to a good start with vehicle deliveries this year. In the first four months ended April 30, Zeekr delivered 49,148 vehicles. By comparison, competition such as Xpeng and Nio delivered 31,214 units 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 reported 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. parity at that time. Mind you, operating expenses also increased significantly, so 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 profit margin in 2023 was 15%.
Zeekr said in filings that it is still preparing financial statements for the first quarter of 2024 and that it expects vehicle sales revenue to be higher than the first quarter of 2023 but lower than the fourth quarter of 2023 due to “seasonality that impacted volume of our deliveries, as well as a lower average selling price caused primarily by the change in our product mix.” Zeekr also estimates that gross profit in the first quarter will be lower than the previous quarter.
And in Europe, the Commission is investigation of import duties on electric vehicles made in China to protect European manufacturers.
Where there is hype, there is danger
Zeekr isn’t the first EV startup to get a warm welcome from the public markets. That doesn’t mean it will stay that way, particularly if Zeekr continues to operate at a loss.
Perhaps more importantly, Zeekr’s US IPO comes amid escalating geopolitical tensions between the world’s two largest economies. While Zeekr holds a lot of promise after receiving so much money from its IPO, it’s not without its challenges — particularly on the regulatory side from both Beijing and Washington.
As a Chinese company, Zeekr has pointed out that one of its risk factors is the influence that the Chinese government can have on business operations. In its prospectus, Zeekr said the government “may intervene or influence our operations as the government deems appropriate to further regulatory, political and social goals.”
In the US, Zeekr notes that ongoing regulatory and legislative hurdles may negatively impact the market price. Obstacles such as its establishment Foreign Corporations Accountability Act (HFCAA), which leads to increased scrutiny of Chinese companies and additional oversight that could put a company at risk of delisting or cause investors to lose confidence.
If Zeekr plans to launch any of its vehicles in the US, it will face stiff scrutiny. Recently debates in Congress have raised concerns about connected and autonomous Chinese vehicles – which are priced much lower than US or European manufacturers – collecting and transmitting data possibly back to the Chinese Communist Party.
And in Europe, the Commission is exploring imposing import duties on EVs made in China to protect European manufacturers.
