Zeekr steps on IPO accelerator as its prospects run low on fuel

The new energy vehicle maker is reportedly jumpstarting its stalled plan to list in New York as valuations for its peers rapidly fall

Key Takeaways:

• Zeekr has reportedly restarted its IPO process with reduced fundraising plans, seeking to list before its valuation falls more as prospects worsen for Chinese NEV makers
• The company’s revenue from vehicle sales slowed to 44% year-on-year in the second half of last year from about 150% in the first half

By Doug Young

After putting its U.S. IPO on hold due to weak market sentiment, new energy vehicle (NEV) maker Zeekr Intelligent Technology Holding Ltd. is suddenly stepping on the accelerator in an apparent bid to list before conditions get even worse.

That’s our assessment based on a new Reuters report saying the company has jumpstarted its plan to list in New York, after filing its original application last November. In fact, Zeekr has been filing regular updates to its original prospectus every month since that original filing, including the latest one on March 20.

The latest document provides some new insight to what’s happening at Zeekr these days, including full-year data for all of 2023. The update shows that Zeekr’s sales slowed sharply in the second half of last year in tandem with broader trends in the China NEV market.

As that happens, valuations of Zeekr’s closest peers like Li Auto (LI.US; 2015.US) and Nio (NIO.US: 9866.HK) are also rapidly shrinking as investors fret over their continuing losses and slowing sales growth. Nio recently passed a dubious milestone when its price-to-sales (P/S) ratio officially sank below the 1 mark, with a current reading of 0.97. A P/S of 1 is hardly anything to write home about, but anything below that is quite an embarrassment for a company that considers itself in a hot growth area. Li Auto still trades above 1, now at 1.84, but it could soon fall below that level as well if recent trends continue.

A P/S of 1 for Zeekr, which looks suitable given its similar profile to Nio, would give the company a market value of $7.1 billion, based on its 2023 sales figure in the updated prospectus. That’s well below the $10 billion a similar analysis gave it when we first wrote about the IPO last November, and about half the $13 billion the company was reportedly worth during a February 2023 fundraising.

Such a rapidly shrinking valuation was reportedly what made Zeekr delay the original listing plan. But now it seems the company is rushing to get to market before its valuation slips even more. Reflecting the worsening sentiment, Zeekr’s fundraising plans have dropped to around $500 million from its previous target of $1 billion or more, according to the Reuters report.

The IPO would come in an anemic market for new U.S. listings by Chinese companies in general. Such listings raised just $46.9 million in the first quarter, down from $428 million in the same period a year earlier, marking the slowest first quarter since 2017.

In fact, the broader category of offshore-listed Chinese stocks have been showing some new signs of life lately, with the iShares MSCI China ETF (MCHI.US) up about 10% from a recent low at the end of January. But NEV stocks have defied that trend over concerns about a rapid slowdown in China and efforts in the West to limit the import of Chinese-made NEVs. Reflecting that, Nio’s stock has lost about 30% of its value over the same period as the recent rally for offshore-listed Chinese stocks.

Sales slowdown

Zeekr is quite a late arrival to the Chinese NEV market, launching its first model only in October 2021. Its big advantage is its A-list of backers, led by Geely, one of China’s leading private carmakers whose other brands include Volvo and Lotus in addition to its Geely brand. Zeekr’s history actually dates back before 2021, but before then it earned all of its revenue from the sale of batteries and NEV components, mostly to Geely affiliates.

The company currently has four models for sale, including its original Zeekr 001. The latest of those, its Zeekr Upscale Sedan Model, was just released last November and began deliveries in January targeting “tech-savvy adults and families,” according to the prospectus. The company considers itself an upscale brand with models typically costing 300,000 yuan ($41,478) or more, similar to the positioning for Nio.

The company’s growth in 2022 was quite explosive since it only began delivering vehicles in October 2021. Its growth last year was more reflective of its future potential, with total revenue rising 62% to 51.7 billion yuan for the full year from 31.9 billion yuan in 2022. A breakdown of those figures on a half-year basis shows its revenue growth slowed sharply from 136% in the first half of last year to just 33% in the second half.

The trends for its NEV sales, which now account for about two-thirds of the company’s total revenue, showed a similar slowdown, dropping from about 150% growth in the first half of the year to 44% in the second half.

One slightly positive trend is that the company’s revenue from NEV sales rose 72% last year, outpacing the 65% growth in the number of vehicles delivered, indicating it was getting more money per vehicle. That’s significant because many NEV makers spent much of last year cutting prices as sales began to slow. But it could also reflect that Zeekr is rolling out increasingly upscale models following the launch of its original Zeekr 001, whose staring price of 300,000 is at the bottom of its target range.

The company has said it’s aiming to deliver 230,000 NEVs this year, which would be nearly double the 118,685 it delivered in 2023. It was on track to meet that growth rate at the start of the year, with unit sales up 134% year-on-year to 20,047 in January and February combined, according to data in the prospectus. But that kind of growth will be increasingly difficult to maintain in the slowing market, and also as the year-ago comparison figures become much stronger later in the year.

The bottom line is that Zeekr’s prospects – and prospects for Chinese NEV makers in general – are rapidly running out of fuel. That would explain why the company is suddenly so eager to jumpstart its stalled listing, which could ultimately raise even less than the already-reduced $500 million target and result in a valuation well below $10 billion.

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