Geely’s founder Li Shufu, known for capital operations, is about to reach an important developmental milestone with his new energy vehicle brand, Zeekr. Zeekr plans to raise up to $370 million as it is set to go public this Friday at the New York Stock Exchange. This listing will mark the 9th public company within Li Shufu’s capital empire.
Established in March 2021, Zeekr quickly launched several models including 001, 007, 009, X, and plans to deliver nearly 200,000 cars by the end of 2023, solidifying its position in China’s high-end new energy vehicle market. Based on the highest proposed IPO price range, Zeekr’s valuation is expected to reach approximately $5.1 billion.
In the capital chess game played by Li Shufu, this includes other 8 related public companies like Geely Automobile, Volvo Cars, Polestar, Lotus, ECARX, Qianjiang Motorcycle, Hanma Technology, and Lifan Technology, primarily focusing on the automotive, motorcycle, and smart vehicle technology industries. Except for Geely Automobile, which went public in 2005, other major IPOs were mostly concentrated after 2022.
With many companies entering the secondary stock market, Zeekr is one of the strategic outcomes of Li Shufu’s newly revealed “Blue Geely Initiative.” The plan focuses on energy saving and new energy vehicles, specializing in the development of pure electric intelligent cars. The establishment and rapid development of Zeekr reflect Geely’s firm belief and substantial investment in the future transition to new energy.
Although Zeekr’s sales performance in 2023 is outstanding among the new automotive forces, it is still only a part of Geely’s total annual sales of 1.69 million vehicles. Under continuous financial loss pressure, accelerating fundraising has become a significant driver for Zeekr’s listing.
On the other hand, CaoCao Travel, an internet travel brand under Geely, has also begun its steps to list in Hong Kong. Since its founding in 2015, the platform has seen yearly growth in order numbers over the past three years, as per the data in the prospectus, becoming an important competitor in the domestic travel market.
According to the latest prospectus, CaoCao Travel has seen a significant increase in revenue over the past few years. Specifically, its revenue in 2021, 2022, and an ongoing increase in 2023 were 7.15 billion yuan, 10.67 billion yuan, and a growing number, respectively. In terms of profitability, the company made a breakthrough with its first positive gross profit in 2022, reaching 620 million yuan with a gross margin of 5.8%. Despite this, after deducting various operating costs, the company’s cumulative loss over the past three years is close to 7 billion yuan.
Since its inception, CaoCao Travel has completed three rounds of financing, with the most recent one in August 2021, raising 1.8 billion yuan, reaching a valuation of 17 billion yuan before this round B financing. In terms of shareholding structure, Li Shufu holds over 80% through his managed company, becoming the largest shareholder of CaoCao Travel. Other shareholders include Suzhou Xiangcheng Xiangxing Venture Capital, Sanchuan Fund, and Agricultural Bank Investment (Suzhou), etc. Notably, the headquarters of CaoCao Travel is located in Suzhou.
In addition, Li Shufu’s Geely Group is working hard to “lighten the load” by spinning off businesses such as Zeekr and Cao Cao Mobility for separate listings. This strategy aims to reduce investment pressure on the enterprise, simplify management processes, and free up resources to focus on key projects like Zeekr. Furthermore, listing can encourage these companies to become independent from their parent company earlier, facing capital market and market pressures while creating a robust and sustainable growth business model.
However, historical records show that once Li Shufu and his Geely-affiliated companies enter the capital market, they often face a dilemma of a rapid decline in stock prices following initially high valuations. This not only affects the possibility of profiting from an IPO but also has an adverse effect on Li Shufu’s reputation as a “listing master.” The much-valued Zeekr brand by Geely does not paint an optimistic picture regarding cash flow. According to its prospectus, Zeekr suffered net losses of RMB 4.5 billion, 7.66 billion, and 8.26 billion in 2021, 2022, and 2023, respectively. As of December 31, 2023, Zeekr’s total amount of cash, cash equivalents, and restricted cash was only about RMB 4.1 billion.
In contrast, other new energy vehicle manufacturers, such as NIO, Xpeng, and Li Auto, had balances of cash and cash equivalents, restricted cash, short-term investments, and long-term time deposits reaching RMB 57.3 billion, 45.7 billion, and over 100 billion respectively by the end of 2023. Cao Cao Mobility also appears to be under financial strain. Its prospectus indicates that as of the end of 2023, Cao Cao Mobility only had RMB 583 million in cash and cash equivalents, with an operational loss of nearly RMB 1.6 billion for the year, almost three times its cash reserves, making its financial pressure evident.
It is worth noting that in the primary market, internet mobility has passed its prime and is no longer the focus of capital pursuit. Since Cao Cao Mobility completed its last financing of RMB 1.8 billion in August 2021, the company has not released any new financing information. If it needs more financial support, it seems to have to rely on entry into the secondary market through an IPO.
On the other hand, Lotus, which was listed on NASDAQ at the end of February this year, achieved revenues of USD 9.56 million and USD 130 million in 2021 and 2022 respectively. However, its net losses were as high as USD 110 million and USD 730 million. Entering 2023, although Lotus set a new record for the 76-year-old brand with nearly 7,000 vehicles sold and raised its revenue to USD 680 million, its net loss also ballooned to USD 750 million.
As of the end of 2023, Lotus had cash and cash equivalents of USD 419 million, which is still not enough to offset a year’s loss. The company itself estimates that positive growth in profits and cash flow will not be realized until at least 2026.
Recently listed on the US capital market, Polestar also encountered similar challenges. Public data shows that from 2019 to 2021, Polestar’s revenue grew from less than $100 million to $1.34 billion, while its net losses ballooned from $200 million to $1 billion. In June 2022, Polestar successfully completed its initial public offering on NASDAQ. That year, the company saw a significant improvement in its financial situation, achieving $2.5 billion in revenue and reducing its net loss to $470 million. By the end of the year, Polestar’s total cash and cash equivalents reached $974 million.
Unlike Lotus and Polestar, Extreme Krypton’s situation is much more stable. In 2023, Extreme Krypton sold nearly 120,000 cars, with a total delivery exceeding 190,000 units. Its revenue soared from 31.9 billion yuan the previous year to 51.7 billion yuan, with a gross profit of nearly 7 billion yuan and a vehicle gross margin reaching 15%. According to official company data, in the first four months of this year, Extreme Krypton has delivered a total of 49,148 new vehicles, a year-on-year increase of over 110%. Larger batch delivery capabilities have helped Extreme Krypton more smoothly achieve economies of scale, reduce costs, and reach the breakeven point faster. Geely Group has also stated that its goal is to turn losses into profits by 2024 according to Hong Kong financial reporting standards.
After the companies went public, Lotus and Polestar, among others, experienced a situation where the stock price was strong at first but then weakened, lingering at a low level in the long term. For example, when Lotus was listed on NASDAQ at the end of February this year, the stock price was $13.8 on the first trading day, with a market value of $9.29 billion, and at one point exceeded NIO and Xpeng. However, Lotus’s delivery volume for 2023 was only about 7,000 cars, far below the monthly sales of NIO and Xpeng. The high valuation of Lotus in the capital market was greatly influenced by Li Shufu and Geely. Yet, the stock price of Lotus continued to decline in the following two months. As of the close of the US stock market on April 30th, the stock price was only $5.83, and the market value shrank to less than $4 billion, shrinking by nearly 60% from its previous high point.
The stock price trend in the initial stage of Polestar, which went public two years ago, was even more striking. On June 24, 2022, Polestar was listed on NASDAQ, and the stock price rose nearly 16% on the first day, to $13, with a market value of $26.6 billion, almost catching up with the market value of Geely Automobile at that time. However, even with the support of Geely and Volvo, Polestar’s performance could not be sustained. Over the past two years, Polestar’s stock price has fluctuated, and it has now fallen to $1.39, with a market value of less than $3 billion, shrinking by nearly 90% from its peak.
In addition to Lotus and Polestar, other enterprises cultivated by Geely Group have not gained favor from investors in the secondary market. In 2017, Li Shufu recruited Shen Zi Yu, an expert in the connected car industry, to establish ECARX, which focuses on smart and connected vehicle fields, providing Geely and other car enterprises with digital cockpits, active safety electronics, and connected vehicle cloud platforms. ECARX successfully listed in the United States at the end of 2022, with an initial stock price of $10.75 and a market value close to $4 billion. However, just ten trading days later, ECARX’s stock price had already slid by about 20%; to this day, the stock price has fallen to $1.64, with a market value of only $550 million, roughly a 86% decrease.
Despite the poor recent stock performance of companies such as Lotus, Polestar, and ECarx, this should not be misconstrued as a deterioration of business operations. In fact, these companies have secured the necessary funds through the capital market for critical investments such as innovation and product development, as well as scaling up production. This strategy has been effective, enabling them to increase vehicle delivery, boost revenue, and reduce losses.
The slump in stock prices is more likely related to a disconnect with the company fundamentals, particularly if their listing prices were too high. Generally, if the initial public offering (IPO) price is set high, the company can raise more funds. However, the issue price cannot be determined arbitrarily by the company but is finalized the night before listing through communication with significant investors, such as large funds, based on their feedback.
Usually, a company will first set a price range for the issue and then, after sufficient communication and negotiation, confirm a price that both parties can accept, which helps stabilize the stock price. However, Lotus, Polestar, and ECarx chose to go public through a SPAC (Special Purpose Acquisition Company), which, unlike the traditional IPO process, lacks a roadshow phase, and hence its listing price is often not determined by the market but negotiated between the SPAC and the target company.
This rapid but potentially market-depth lacking pricing method leads to significant price fluctuations after listing. Especially under the influence of Li Shufu and Geely, expectations for these companies were elevated, but with insufficient support, their stock prices quickly fell. Fortunately, Li Shufu and Geely seem to have realized the problem with this method, and their recent ventures, Zeekr and Cao Cao Mobility, have abandoned SPACs in favor of the more traditional IPO process.
Even if this prolongs the time required to go public, this approach helps establish more stable expectations in the capital market to avoid the issues that Lotus and others have faced. Currently, due to the overall weakness of the US stock market, Zeekr’s IPO faces significant fundraising pressure and has been forced to reduce its anticipated fundraising size. Even the proportion of its public offering is very low, and the IPO valuation is significantly lower than the valuation from its previous round of financing.
While the reduction of the IPO size by the listed companies and the subscription of most shares by existing investors helps lower external expectations, this can also be a positive signal for public market investors. Ultimately, Zeekr’s medium to long-term stock price will depend on whether its sales performance and financial condition can improve further.
Even without a fundamental improvement in performance, the eagerness of companies like Zeekr and Lotus to go public may not be a decision made with the maximization of interests in mind. However, under multiple pressures, Li Shufu appears unwilling to wait patiently. An unfavorable ratio of investment to output has become one of the greatest pressures faced. In recent years, Geely’s massive investment in these companies has not resulted in a corresponding return.
Take Lotus as an example, Geely invested over 400 million RMB in 2017 to acquire a 51% stake in the company and fully transformed it. Subsequently, R&D departments were established in Hangzhou, Ningbo and other places to promote Lotus’s electrification transformation. In August 2021, Lotus Technology was established in Wuhan with an initial funding plan reaching up to 26.3 billion RMB, of which 12 billion RMB was designated for product technology development, and the remaining 14.2 billion RMB for building factories and a global headquarters. However, Lotus is still struggling with losses, and its sales have not seen a significant increase. From 2021 to 2023, Lotus’s sales were 1,566 vehicles, 576 vehicles, and 6,970 vehicles, respectively. Compared with Porsche, another high-end sports car brand, the latter sold more than 320,000 vehicles in 2023 alone.
Another brand, Polestar, received support from Volvo and Geely in 2017, yet its performance was mediocre years later. In 2023, it sold only 55,000 vehicles globally. According to reports by Jiemian News, third-party data platforms revealed that last year, Polestar’s sales in Mainland China were only 1,100 vehicles, a decrease of 34% compared to the previous year, with total sales of around 5,000 vehicles from 2020 to date. In January this year, Skandinaviska Enskilda Banken (SEB) significantly lowered the valuation of Polestar from 18 billion SEK to zero, resulting in an immediate 35% devaluation of Volvo’s approximately 48% shareholding in Polestar. A month later, Volvo announced that it would transfer its 62.7% stake in Polestar to Geely Holdings.
In contrast to Lotus and Polestar, Cao Cao Mobility’s order volume and revenue were relatively stable, but there was still a significant gap compared to industry leaders. In 2023, Cao Cao Mobility’s order volume reached 448 million, equivalent to 3% of Didi’s; revenue reached 10.7 billion RMB, which is less than 6% of Didi’s income. On the other hand, Cao Cao Mobility’s loss was nearly 2 billion RMB in 2023, still a distance from breaking even, while Didi achieved a net profit of 540 million RMB.
At the same time, Geely still needs to further focus its resources to quickly catch up in the new energy vehicle sector. Looking back at 2015, Geely launched the “Blue Geely Initiative,” aiming for new energy vehicles to account for 90% of its sales by 2020; however, by the target year, Geely had only achieved a 5.2% share. In February 2021, Geely released an updated plan, which no longer set specific sales target ratios; a month later, the Zeekr brand was born. With product lines like the 001 and 007, Zeekr quickly grew into a sub-brand with huge potential. In 2021, Zeekr achieved a delivery number of 6,007 vehicles; this grew to 72,000 vehicles in 2022 and steadily increased to 119,000 vehicles in 2023. Driven by Zeekr, Geely’s new energy vehicle sales last year surpassed 480,000 vehicles, accounting for 28.7% of the company’s total sales. However, Geely still has a vast room for growth in the overall new energy vehicle market. In 2023, China’s new energy vehicle sales approached 9.5 million vehicles, with Geely holding only a 5.1% market share.
When new competitors step onto the stage, the market landscape changes accordingly. Xiaomi’s first car model SU7 debuted at the end of March this year, quickly heating up and becoming one of the most sought-after new energy vehicles on the market. Priced on par with Zeekr’s main sales models, this undoubtedly brings immense market pressure to Zeekr.
Against this backdrop, allowing various business units to go public independently and seek more external investment becomes a wise strategic move. This not only helps Geely reduce financial burden but also ensures that limited resources and capital are invested in the most critical areas. Particularly during the IPO process of brands like Lotus, Geely repeatedly used SPACs, a special method of going public, reflecting Geely’s urgent need from one aspect.
As companies like Zeekr and Cao Cao Mobility push towards the market, Li Shufu and Geely Group can move towards the future with a lighter step, exchanging for a more flexible posture to meet the fierce competition within the industry.
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