Breaking Down the Numbers:

• Zeekr restarts IPO process with lower fundraising goals amid a slump in Chinese NEV market prospects
• Revenue growth from vehicle sales plummeted to 44% year-on-year in the latter half of last year from around 150% in the first half

By Doug Young

After halting its U.S. IPO due to market pessimism, Zeekr Intelligent Technology Holding Ltd. is now picking up the pace to go public before conditions sour even further. This rush is suggested by a recent Reuters report detailing the company’s revived plans to list in New York after submitting its initial application in November. Zeekr has been consistently updating its original prospectus monthly since then, with the latest update filed on March 20.

The recent report sheds light on Zeekr’s current situation, offering a comprehensive overview of its performance throughout 2023. The data reveals a significant deceleration in the company’s sales in the latter half of last year, mirroring broader trends in the Chinese NEV market.

This lag in sales has caused valuations of Zeekr’s counterparts like Li Auto (LI) and Nio (NIO) to dwindle rapidly. Investors are growing wary due to escalating losses and stagnant sales growth. Nio’s price-to-sales (P/S) ratio recently dipped below 1, hitting 0.97, indicating a concerning trend. In comparison, Li Auto’s P/S ratio, currently standing at 1.84, might soon dip below the significant threshold if current trends persist.

A P/S ratio of 1 for Zeekr, akin to Nio’s profile, would peg the company’s market value at $7.1 billion, based on the 2023 sales figure in the updated prospectus. This valuation is notably lower than the initial $10 billion estimate last November and approximately half of the reported $13 billion value from a fundraising round in February 2023.

The rapid decline in valuation was the primary reason behind Zeekr’s postponement of its IPO listing. However, with conditions deteriorating, the company is now aiming to go public swiftly before its value further deteriorates. Echoing the negative sentiment, Zeekr’s funding target has shrunk to around $500 million from its original goal of $1 billion or more, as indicated in the Reuters report.

The IPO launch comes amidst a sluggish period for new listings by Chinese firms in the U.S. The total raised in the first quarter plummeted to $46.9 million from $428 million a year ago, marking the slowest first quarter since 2017.

While offshore-listed Chinese stocks exhibit signs of recovery with the iShares MSCI China ETF (MCHI.US) climbing around 10% since late January, NEV stocks resist this trend. Concerns regarding a sharp downturn in China’s economy and Western constraints on Chinese NEV imports have impacted the performance of companies like Nio, which has witnessed a 30% drop in its stock value during this period.

The Slowdown in Sales

Entering the Chinese NEV market relatively late, Zeekr unveiled its first model in October 2021. Backed by prominent investors like Geely, a major Chinese car manufacturer with brands like Volvo, Lotus, and its namesake brand, Zeekr initially generated revenue through battery and NEV component sales to Geely subsidiaries.

Currently offering four models for sale, including the inaugural Zeekr 001, the company’s most recent release, the Zeekr Upscale Sedan Model, launched in November and commenced deliveries in January, targeting tech-savvy adults and families. Priced above 300,000 yuan ($41,478), Zeekr positions itself as an upscale brand similar to Nio.

The explosive growth in 2022, with vehicle deliveries commencing only in October 2021, hints at Zeekr’s potential. Total revenue surged by 62% to 51.7 billion yuan for the year from 31.9 billion yuan in 2022. Segmenting this on a semiannual basis, revenue growth dwindled sharply from 136% in the first half of last year to 33% in the latter half.

The NEV sales trend, comprising approximately two-thirds of total revenue, mirrored this slowdown, plummeting from around 150% growth in the first half to 44% in the latter half of the year.

A glimmer of positivity arises from the 72% surge in revenue from NEV sales last year, surpassing the 65% rise in vehicle deliveries, indicating higher revenue generation per vehicle. While many NEV manufacturers slashed prices as sales tapered off last year, Zeekr’s premium positioning, coupled with new upscale models post the Zeekr 001 launch, likely drove this increase.

The company’s target to deliver 230,000 NEVs this year, nearly doubling the 118,685 delivered in 2023, seemed feasible at the year’s onset. January and February witnessed unit sales climb by 134% year-on-year to 20,047, as per prospectus data. Nevertheless, sustaining such growth in a decelerating market, exacerbated by tough year-ago comparison figures, will pose challenges.

Ultimately, Zeekr and the broader Chinese NEV industry face a dwindling outlook. This urgency explains the sudden push to revive the stalled IPO, potentially raising even less than the revised $500 million target and yielding a valuation far below $10 billion.

This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.