Leapmotor (9863), a 7-years old Chinese company focused on making electric vehicles, issued its IPO in Hongkong on Sept 29, where they plan to use the IPO funds for research and development and to boost its production capacity and sales network. They raised $800 mn by pricing its shares at HK$48—significantly less than the $1.5 bn it had previously aimed for. On Friday, Sept 30, the shares fell as much as 42% below their IPO price and closed at HK$31.9. Leapmotor only received applications for $13 million worth of shares for their retail portion—about a sixth of what it tried to sell to them.
Leapmotor, based in Hangzhou, produces four EV models that mainly target China’s middle and lower-end mass market in an $11,500-$43,000 price range. The EV market in China is booming as China has issued serval policies, including tax exemption, cash subsidies, and relaxed license quotas, to boost the sales of electric cars over traditional combustion-engine vehicles. Leapmotor, as a result, doubled its company size in just serval years. However, the rising battery prices and supply-chain delays this year have driven up costs further for emerging EV makers as EV startups, like Leapmotor, are already burning cash to build newer and smatter models to gain a foothold in the market. Fitch Ratings said in a note last week that most Chinese EV manufacturers remained unprofitable during the first six months of this year and are unlikely to break even in the next 12 to 18 months. The other major EV startups in China, like Xpeng Inc, NIO Inc, and Li Auto Inc, all showed a fatigue performance this year, which fell 63%, 37%, and 9.3%, respectively.
From my perspective, Leapmotor won’t rise much under the current circumstance. The EV market in China is already crowded, especially when newcomers like BYD and Tesla have been gobbling up a significant portion of the market share. Moreover, China recently issued some restrictions on the import of chips, causing the chip shortage, which also increased the EV company’s cost. As the global markets remain roiled by China’s regulatory uncertainty, rising interest rates, high inflation, and Russia’s war in Ukraine, investors won’t hold much confidence in the current market. Take Hongkong as an example, the New and secondary listings in Hong Kong have only raised $10.6 billion this year, compared with $37.1 billion in the same period in 2021. Considering the performance of other major EV makers in China and Leapmotor’s IPO situation, we should maintain a passive attitude in investing in Leapmotor.
