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Xpeng jump starts New York IPO, raising capital to expand in China and challenge Tesla in world's largest electric vehicle market

XPeng Inc applied to list its shares on the New York Stock Exchange, as it seeks capital to challenge Palo Alto-headquartered Tesla in China, the world's largest market for electric vehicles.

The Chinese smart electric vehicle maker, which markets a four-door sports sedan and a sports utility vehicle under the Xpeng Motors brand, has filed confidentially for an IPO earlier this year and has now made its plan and financial statements public. The next step will be to start a marketing process to sell its American depositary shares, gather feedback from investors and analysts and establish a price range over the coming weeks.

Xpeng has chosen to list in New York even as US-China relations have deteriorated to the lowest point in decades, because the world's largest capital market still has a far deeper pool of financial liquidity than China for start-ups, according to people familiar with the company's thinking. As a US-listed entity, Xpeng would have to open its audited books to American regulators, or risk being expelled from US exchanges, under legislation passed in the US Senate.

"If any such deliberations were to materialize, the resulting legislation may have a material and adverse impact on the stock performance of China-based issuers listed in the United States. It is unclear if this proposed legislation would be enacted," said Xpeng in its filing lodged with the US Securities and Exchange Commission on Saturday Hong Kong time.

Xpeng's electric sedan, the P7. Photo: Handout alt=Xpeng's electric sedan, the P7. Photo: Handout

China's electric car start-ups are tanking up on capital to fuel their fight for market share in the world's largest car market.

Investors are keen to jump on the 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.

Shares in New York-traded Nio, a Chinese vehicle maker that only produces electric cars, have more than doubled so far this year.

Li Auto's shares have surged 61 per cent since their July 30 trading debut to US$18.50, from their offer price of US$11.50. Founded by serial entrepreneur Li Xiang, Li Auto is not directly comparable to pure electric vehicle maker Xpeng in that it makes so-called extended-range hybrid vehicles, where an internal combustion engine provides electrical power if the car's battery runs down.

Xpeng's fundraising comes after China's passenger car sales rebounded recently from a sharp fall in the first quarter because of the coronavirus pandemic.

Image of the Xpeng P7. Photo: Handout alt=Image of the Xpeng P7. Photo: Handout

Guangzhou-headquartered Xpeng is selling an unspecified number of Class A ordinary shares and 429,846,136 Class B ordinary shares. Each Class A ordinary share will be entitled to one vote, and each Class B ordinary share will be entitled to 10 votes, according to the filing.

Investment bankers at Credit Suisse, J.P. Morgan and BofA Securities are handling the share offering.

Xpeng generated sales of 1 billion yuan (US$141.9 million) in the six months ended June 30, down from 1.2 billion yuan in the same period a year earlier, the filing showed. Some of its offices and stores, as well as manufacturing facilities, were closed for periods in February and March due to the coronavirus pandemic. Its losses shrank over the same time frame to 1.4 billion yuan.

China's government boosted investors' confidence by affirming its support for electric vehicle makers during the coronavirus crisis by extending subsidies for some models until 2022. By 2025, Beijing wants home-grown carmakers to command 80 per cent of the country's electric vehicle market, according to its "Made in China 2025" industrial master plan.

Faraday Future was once the flashiest electric car venture going after Tesla. Its founder filed for bankruptcy in the US last year.

Xpeng has raced past several milestones this year, including launching its second EV model, the P7 sports sedan in April. The P7 sports sedan is Xpeng's second production model and has a driving range of about 706 kilometres (439 miles) on a single charge, the longest among electric vehicles sold in China. Xpeng started deliveries of the P7 last month.

The P7, premiered at the Shanghai Auto Show last April, retails at between 230,000 yuan (US$34,240) and about 300,000 yuan, nearly a third of the price of a Tesla Model S in China.

Xpeng also secured the production licence for its self-built, fully-owned factory in May in the Guangdong provincial city of Zhaoqing, one of the 11 urban centres in the Greater Bay Area plan.

Xpeng's first production model, the G3 electric sport utility vehicle released in 2018, is assembled in the Henan provincial capital of Zhengzhou by contract manufacturer Haima Automobile, a subsidiary of state-owned carmaker FAW Group.

Xpeng delivered 2,451 smart EVs, including 1,641 units of the P7 and 810 units of the G3, to customers in July 2020. It plans to launch its third smart EV, a sedan, next year.

Xpeng's P7 under construction. Photo: Handout alt=Xpeng's P7 under construction. Photo: Handout

Founded in 2015 by entrepreneur and former Alibaba executive He Xiaopeng, the eponymous firm sells to the middle and high-end of the smart electric vehicle market in China and prides itself on building its software in-house, end-to-end. It uses the Nvidia high-performance chip Xavier and its P7 model is capable of Level 3 autonomous driving on highways, which the company plans to implement later this year or early next year after finalising testing. Alibaba Group Holding owns the South China Morning Post.

The mid- to high-end segment represented 30.6 per cent of China's passenger vehicle market by sales last year and had a higher EV penetration rate than other price segments, according to an IHS Markit report. Xpeng had 147 stores and service centers in over 52 Chinese cities as of June 30.

Smart electric car companies are increasingly cutting out dealerships and selling directly to the consumer, maintaining that relationship with upgrades over the air every one and a half months and responding to customer feedback. Xpeng can update its operating system over the air quickly without having to wait for suppliers to be compatible.

Xpeng, registered in China as Guangzhou Xiaopeng Motors Technology, has backers that include Hillhouse Capital, Sequoia Capital China as well as the sovereign wealth funds of Qatar and Abu Dhabi. The firm completed its US$900 million C and C+ funding rounds on August 3, led by Alibaba Group Holding.

Xpeng announced US$400 million of fresh capital in November when investors valued it at nearly US$4 billion.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2020. South China Morning Post Publishers Ltd. All rights reserved.