The latest electric vehicle startup to bring in money on a new wave of hype and space investment is Li Auto, a five-year-old Chinese company that began trading on the Nasdaq on Thursday after raising $ 1.1 billion in initial public offering. It is the second Chinese startup EV to become a publicly traded company in the United States, following Nio’s 2018 IPO and subsequent listing on the New York Stock Exchange. Another, XPeng, will supposedly be next.
With Tesla recently becoming the most valuable producer in the world, there is suddenly a renewed focus on financing EV startup. Fresh money has been rushing like those of Rivian, Nikola, Fisker, Karma, and even suppliers like Velodyne and Hyliion over the last few months from the public and private sectors.
While many public goers are taking advantage of the so-called ̵6;reverse-merger’ (where they combine their business with an already publicly traded company that only exists as a shareholder in the stock market, thus removing Traditional IPO), which Auto has gone the standard route. She filed to go public earlier this year and spent months working with banks and investors. This week, regulators approved Li Auto’s presentation, and the company’s shares began trading on the Nasdaq exchange.
Li Auto’s IPO comes at a strange and tense time, as both the Trump administration and a number of lawmakers in the Senate have spent months leaving oversight to step up oversight of Chinese companies in the stock exchanges. the United States either take them (or “delist”) from them altogether. In addition to the general tensions of Trump’s trade war with the country, there are concerns about transparency with Chinese companies going public in the U.S. – especially because the guard who is supposed to keep tabs on them, the A Public Company Accounting Supervisory Board (PCAOB), has had trouble getting Chinese banks to agree to proper audits.
Li Auto is also taking a different approach than electric vehicles from startups like Nio. The company’s SUVs are type hybrids. They use electric motors to run (one on the front axle and one on the rear), but those motors are powered by a 40.5kWh battery pack combination. u a 1.2-liter turbocharged engine paired with a 45-liter (about 12-gallon) fuel tank and a 100kW electric generator, which can power the battery pack in real time . The idea is that the car can be driven for about 180 kilometers (about 112 miles) on battery power only, but has a total range of about 800 kilometers (almost 500 miles) when the engine is powered up. of combustion. (There are different driving modes that can mix energy sources as well.)
The company says this approach helps detect China’s “inadequate fast charging infrastructure both private and public” while also maintaining lower costs than all electric vehicles. He also argues that the approach will “contribute to a wider and earlier adoption of electric vehicles in China.”
Li Auto is looking to sell a variety of SUVs built on its hybrid technology ranging from about $ 21,000 to about $ 70,000. The company began shipping its first model in late 2019 and has delivered just over 10,000 so far. It is a medium-sized SUV that is well appointed and filled with many touchscreens and other technology, such as an advanced driver assistance system. A full-size premium version is set to be released in 2022.
Like many of its peers, Li Auto sells its SUVs directly to consumers. But unlike Nio, who pays a state-owned auto manufacturer to contract all of its car manufacturing (and plans scrapped last year to build its own factory), Li Auto builds the vehicles its own. Startup revenue is modest for an automaker ($ 120 million in the first quarter of 2020) and lost about $ 344 million in 2019 and about $ 214 million in 2018. But it may have a faster path to profitability than Nio because of that in-house production, losing just $ 11 million in the first quarter of 2020, the first full quarter of its deliveries.
Li Auto’s first model sales were boosted in these early days with China’s generous subsidies for “new energy vehicles” (including hybrid cars, all-electric, and even hydrogen-powered). ), and the company admits in submissions to the Securities and Exchange Commission that changes in subsidy policy may affect future sales.
An even greater policy risk could be the approach of hybrid technology itself. The Chinese government has different regulatory regimes for internal combustion vehicles and new energy vehicles. Since Li Auto’s vehicles are powered by both a battery pack and petrol, the company – by its own admission in these presentations – is vulnerable to the vagaries of both regimes.
Another notable risk that the startup admits is that the accounting firm it hired to prepare its IPO, the Chinese branch of PricewaterhouseCoopers, found that Li Auto lacked “sufficient competent financial reporting and accounting with proper knowledge of American GAAP. ” (GAAP means “generally accepted accounting principles,” and is a common set of standards by which companies should define their financial reporting.) According to PCAOB guidelines, Li Auto had to admit that there is ” a reasonable possibility that a material misstatement of our company’s annual or interim financial reports should not be avoided or detected in a timely manner. ”Li Auto says it has hired additional staff to address this but admits that other accounting problems may have gone unnoticed.
In addition, Li Auto is classified as a “growing” company because it generated less than $ 1 billion in revenue last year, according to our JOBSart Business Startup Act (JOBS) from the Obama era. This means that it is already exempted from certain transparency requirements set out in the Sarbanes-Oxley Act of 2002.
Such risk factors are in part because lawmakers have raised issues with Chinese companies being publicly traded in the United States. Li Auto is also aware of this: the company admits in its SEC filings that the PCAOB will not be able to inspect any audit that has been done of its finances. As a result, Li Auto says, “[i]nvestors may lose confidence in our reported financial information and procedures and the quality of our financial reports. “And if there is legislation he Passing to regulate Chinese companies more closely than listing on U.S. exchanges, Li Auto admits its share price may fall or may have to leave the Nasdaq altogether.
If any financial problems end, shareholders will not have much recourse. Li Auto founder Li Xiang has 73 percent of the voting power.
Despite all this, Li Auto generated enough interest to draw $ 1.1 billion and saw its share price rise during the first morning of trading on the Nasdaq stock exchange. Maybe that’s a result of the new momentum in the global electric vehicle startup space, or maybe it’s just a side effect of the current stock market volatility and unpredictability. Whatever the answer, Li Auto’s initial success – and the money raised by the other companies mentioned above – must have the EV startup stopped, such as Byton and Faraday Future. , ask how they can ride this wave as well before leaving.