A message obtained on March 10 showed that there was a saying that NIO (NIO), Xpeng (XPEV) and Li Auto (LI) were negotiating with several banks for stock issuance in Hong Kong and planned to return to Hong Kong for secondary listing this year. The “three car manufacturing giants” did not respond to the “listing” saying.

Before the listing saying, these “three giants” released the up-to-date 2020 financial statements one after another. From the share prices of the “three giants” in the capital market, it can be found that they have suffered from several sharp declines.

On March 10 when the American stock market was closed, NIO share price experienced a drop by 40% compared with the top; Li Auto by 50%, a-half loss; Xpeng was the worst with the drop by 60%. However, the share price drop rate was calculated after a rebound for several previous trading days. It can be concluded that this price adjustment greatly hit the new car manufacturing forces.

Photo by Denin Lawley on Unsplash

Why the “three car manufacturing giants” suffered from the drop by about a half? Is it feasible to return to Hong Kong for listing? What are their objectives?

A Loss of RMB 8.5 billion for All Three, Is It True?

On March 8, Xpeng released the up-to-date 2020 financial statements, being the last among the “three giants”. However, from the data on these financial statements, are their operating situations truly that bad?

According to these statements, in 2020, NIO released a revenue of RMB 16.258 billion with a year-on-year growth rate of 107.77%; Xpeng’s revenue is RMB 5.844 billion with a year-on-year growth rate of 151.79%; and Li Auto’s revenue is RMB 9.461 billion with a year-on-year growth rate of 3231.33%, growing by over 30 times. However, these three companies are still faced with the same question, unprofitable as well. Their total loss in 2020 reached RMB 8.5 billion.

Data source: corporate financial statements; arranged and prepared by: Mantou Caijing

From the perspective of revenue, their financial statements are quite satisfactory, but unprofitability remains on a significantly smaller scale. Li Auto seemed to be close to profitable.

Concerning the gross profit of the “three giants”, in 2020, NIO realized a gross profit of RMB 1.873 billion, rising by 256.34% compared with the previous year. The gross profit rate is 11.5%; while the rate in 2019 is -15.3%, indicating the first positive annual profit rate. In 2020, Xpeng’s gross profit rate is 4.6% with -24% in 2019, also the first positive annual profit rate. Li Auto realizes a gross profit rate of 16.4% in 2020 and -0.03% in 2019. The above data show that all three companies witness a rising gross profit rate.

Data source: corporate financial statements; arranged and prepared by: Mantou Caijing

NIO is undoubtedly the top in both sales volume and reputation among all three; but regarding efficiency, Li Auto is the best; Xpeng seems to be left behind by NIO and Li Auto.

With respect to the sale volume throughout the year 2020, the sales volume is 43,700 for NIO and 32,600 for Li Auto. Though Xpeng released 2 vehicle models last year at a cheaper price, the sales volume reached 27,000 only. The publicly praised services of NIO and practical distance-increasing form of Li Auto highlight the lack of attractive points of Xpeng among the “three giants”.

In Q4 of last year, Li Auto realized the first positive quarterly profit, showing super-high proficiency among the “giants”.

Share Price Decreased in Half Indicates the Neglected Value

The new round of collective share price decline for the new car manufacturing forces is started by Tesla. After January 25, the share price of Tesla suffers from a continuous decrease, reaching 40% within less than 2 months. The market value evaporation amount exceeds USD 300 billion. At the same time, the new energy sector follows and starts the a-half decrease in share price for the “three-car manufacturing giants”.

However, the existence of bubbles does not mean any value. Under such a circumstance when the new car manufacturing forces suffer from a great share price drop, there must be value that has been neglected. This round of sharp drop of share price directly affects crowds’ confidence in the new energy vehicle industry, which leads to the exaggeration of the sales volume decline of Q1 in 2021.

Due to COVID-19, the year-on-year growth rate does not provide much reference value, which is also known by the capital market. But, we seem to have neglected that because of the spring festival vacation in China, the sales volume in Q1 fluctuates naturally, reducing the reference value of the data comparison on a quarter-on-quarter basis.

When listing in the USA, the dominant American investors are used to Christmas and the New Year and have little knowledge about the Chinese vehicle market. This is also one of the reasons for the “three giants” to go public in Hong Kong since Chinese companies can better grasp the market fluctuation.

Going Back to Hong Kong is Another Turning Point?

Though currently the “three giants” suffer from heavy losses in share prices, there was a saying that they will go public in Hong Kong together on March 10. More sayings went that the three companies will release at least 5% of the enlarged share capital after returning to Hong Kong with a total fundraising amount of USD 5 billion. Till now, none of the three companies has admitted the saying, but there will be a long way to go for the “three giants” to go back according to the current listing rules of the Hong Kong stock market.

There are two ways available now for China Concept Stocks listed in the USA to go public in Hong Kong on the premise of no delisting or splitting:

1. The stock must be major listed stock in both markets and complies with regulatory requirements of both markets, which will greatly add the compliance cost;
2. When listed in the second market, the stock must abide by three restriction conditions: an innovative industry company, good compliance records within 2 complete accounting years with the total market value of no less than HKD 40 billion, or the total market value of no less than HKD 10 billion upon listing and the annual income of the current accounting year of no less than HKD 1 billion.

In July and August last year, Li Auto and Xpeng were declined as per the second rule when going public in the USA. The second rule requires good compliance records within 2 complete accounting years, but the listing period of both Li Auto and Xpeng is less than 1 year. When entering into a financing agreement with Hefei municipal government last year, NIO committed to place capital related to complete vehicle research and development, supply chain and manufacturing, sales and service in NIO China, but realizing the Hong Kong stock market as a secondary listing market is still difficult and time-consuming. Reuters had said that Xpeng was also trying to deem STAR Market as the third listing market.

In a word, it will be a long journey for the three giants to go public in the Hong Kong stock market with a certain time and compliance cost required.

Though bubbles exist in the new energy vehicle industry now, the share price has dropped greatly. The share price is dependent on the expectation of investors rather than the actual value, and the market value of listed companies is not their now business but determined by the attitude of the capital market. The story of the “three car manufacturing giants” does not end and many investors are still concerned whether going back to Hong Kong will be a turning point for the share price and what actions will they take in 2021.