Chinese manufacturer of electric cars Xpeng (NYSE: XPEV) is now public. The aspirant Tesla (NASDAQ: TSLA) rival announced that it was selling 100 million U.S. depository shares (ADSs) for every $ 15, raising about $ 1.5 billion in an initial public offering that began trading on August 27th.
That was a better-than-expected result, suggesting that car investors are still keen to capture shares of electric car start-ups in the wake of huge gains by Tesla shareholders NIO (NYSE: NIO), among others.
Here’s a look at Xpeng, its public offering, and how it fits into the white-hot electric car market in China.
Who is Xpeng?
Xpeng is a new name in the US, but it is not very new in China. Founded in 2015 by former Alibaba executive Xiaopeng He and auto industry veteran Heng Xia, the Guangzhou-based automaker builds “smart EVs” meant to compete more or less directly with Tesla’s cheaper offerings, the Model 3 sedan and Model Y crossover SUV.
The two models of Xpeng, the G3 crossover and the P7 sedan, are in concept similar to the two Teslas, because they are exclusive electric cars with a lot of range and advanced features for driver assistants. But they differ in some important ways. Notably, the Xpengs are tuned to provide comfort instead of performance, with a smoother ride and plush interiors that (the company claims) are better suited to Chinese driving conditions.
Xpeng’s P7 sedan is about the same size as Tesla’s Model 3, but it emphasizes comfort over performance. Image Source: Xpeng.
Both cars are in production: the G3 since November 2018 at a contract manufacturing plant owned by established car manufacturer Haima, and the P7 at Xpeng’s new factory in Zhaoqing. Haima’s factory can produce a maximum of 150,000 cars a year, and Xpeng’s Zhaoqing plant can build 100,000.
As of July 31, Xpeng had delivered a total of 18,741 G3s and 1,966 P7s to customers.
The company has no plans to export its cars to the United States. For now, it’s a lone game in China.
Xpeng’s IPO went really well
Xpeng had expected to sell 85 million ADs for about $ 12 each. In fact, it sold about $ 100 million for every $ 15, raised about $ 1.5 billion for fees, and gave its underwriters a 30-day option to buy up to 15 million additional shares.
If all those additional shares are sold at $ 15, that will raise another $ 225 million in fees.
The company plans to use the proceeds to expand its sales and service networks in China, to get its upcoming models into production, and for general business purposes.
Xpeng had previously raised $ 400 million in November 2019, prior to the opening of its Zhaoqing plant. It raised an additional $ 500 million in July.
Xpeng started shipping P7s from its new factory in May. Image Source: Xpeng.
Is Xpeng profitable?
Not yet. The company posted business losses of $ 535 million in 2019 and $ 202 million in the first half of 2020.
How much cash did it have for the IPO?
As noted above, Xpeng raised $ 500 million in a private round in July. At the end of June, it had about $ 150 million in cash and equivalents, less than $ 276 million at the end of 2019.
Business operations were negative $ 172 million in the first half of 2020, and negative $ 504 million in 2019.
Where does it fit in China’s EV market?
Xpeng is one of several domestic Chinese electric car makers aiming to take part in the exclusive EV brand aimed at Tesla, which opened its own factory near Shanghai late last year.
With the exception of Tesla, Xpeng’s competitors include NIO, Li Auto (NASDAQ: LI), WM Auto (not yet public), upscale models of BYD (OTC: BYDD.Y), and electric models from established global automakers including BMW and Mercedes-Benz.
Is Xpeng share a buy?
Given the large number of new shares for electric cars that have hit the market in recent months (and also a large number of companies in the space that are not yet public), I would suggest that car Investors take a deep breath before diving into this. Personally, I think we need better readings about Xpeng’s performance and competitive position before we call it a purchase, and it will take some time to get those.
That said, if you already own shares of companies like NIO and Li, and you want to add a small stake in Xpeng to your electric car portfolio, I would not argue against it.
