The Chinese electric-vehicle maker Xpeng rang the opening bell at the New York Stock Exchange Wednesday, after raising $1.5 billion in its initial public offering of stock.
The deal went better than expected. Xpeng (ticker: XPEV) planned to raise only about $1 billion, but EV stocks are hot these days and demand was better than expected.
President Brian Gu spoke with Barron’s shortly after the ceremonial event. He opened up about several issues relevant to the growing EV space, ranging from batteries to branding.
The Big Board
Xpeng picked the U.S. and New York Stock Exchange for its listing because the U.S. still offers the most “sophisticated and deepest” capital markets in the world, according to Gu. That is important in a new and growing industry. Xpeng and its U.S.-listed Chinese peers Li Auto (LI) and
(NIO) aren’t profitable yet, but Gu believes the investor base in the U.S. isn’t afraid to project current growth trends into the future.
Xpeng offers two models right now. The G3 SUV and the P7 sedan. Coming in 2021 is another family-size sedan. On the drawing board for 2022—a large SUV.
The G3 is produced by a contract manufacturer. That agreement runs through the end of 2021. “For a young company, it is the most efficient way,” Gu said of Xpeng’s starting life without its own manufacturing capacity.
He is happy with the relationship, but sees the company making more of its own cars to better use its own fixed asset base.
Xpeng cars don’t offer battery swapping like NIO vehicles, or on- board gasoline-powered generators like Li’s. Its cars are more traditional battery-powered electric vehicles.
“Battery costs came down 20% last year and are going down [at double digit rates] in years to come,” said Gu. He sees the tipping point on the costs of EVs and cars with internal combustion engines coming soon.
Typically, the EV story is that battery-powered cars cost more up front, but are easier to maintain, while electricity is cheaper than gasoline. As battery prices come down, however, the initial cost benefit of a gasoline-powered car shrinks.
In addition to the cars, Xpeng positions itself as a smart EV player offering internally developed autonomous-driving solutions. “The autonomous driving landscape in China is similar to the U.S.,” Gu said.
Full autonomy, where there may be no driver at all, is years away, according to the executive, and is mainly being developed by companies that focus on research and development. So-called level 3 autonomy—where the car does a lot, but the driver remains engaged—is achievable with the current generation of software and sensor packages.
Using gear now available to roll out a product is similar to the approach
(TSLA) is taking. Yet Gu sounds confident Xpeng’s autonomous-driving hardware and software give the company an edge.
Tesla and Xpeng have an additional, albeit odd, connection. A Xpeng employee was sued by Tesla in 2019 for trade secret misappropriation while that employee worked at Tesla. Xpeng, in its filings, says it is cooperated with Tesla, producing documents about the employee. Some issues are still being investigated. “Xpeng is not a party to the case,” added a company spokesperson. Filings don’t state what trade secrets are being discussed and Tesla didn’t respond to a request for comment.
The Chinese EV Market
Being a smart EV player is important for branding as well. He believes NIO, Li, Xpeng and Tesla are doing better than other car companies in China because, in part, they only do EVs. Companies such as Xpeng spend all their time developing EV technology and new mobility solutions. There is no gas-powered legacy to maintain.
Time will tell if traditional auto makers can catch up, but that sentiment is echoed by other EV-only producers.
EVs have had another advantage over gas-powered cars in recent years as well: subsidies. But the boost is becoming less meaningful in China. The average subsidy is now about 8% to 10% of the retail price of a Xpeng vehicle, down substantially versus recent years. That hasn’t hurt sales, though.
“Subsidies are a nice to have,” said Gu. But he isn’t a fan of direct subsidies. He would prefer the government to focus on things such as charging infrastructure.
The IPO priced at $15 a share. Shares opened up 54%, at $23.10. The stock has settled around $24 for a while, then closed at $21.22, up 41% on its first day of trading.
The $15 IPO price valued the company at about $10 to $11 billion. The $21 price values the company closer to $15 billion. It’s very hard to say if $15 billion is a good deal or not. There are no analysts that cover the company yet—typical for a new IPO. That leaves investors to compare Xpeng to NIO, Li, and Tesla.
Xpeng, for its part, was founded in 2015. To go from nothing to $11 billion in just five years is impressive. It took Tesla about 10 years to accomplish that.
Tesla, of course, was founded in 2003, when battery costs and the automotive market were very different. And all EV startups owe some of their recent success to Tesla, which is up more than 400% year to date, far in excess of comparable gains of the
Dow Jones Industrial Average
making Tesla the most valuable car maker in the world.
Write to Al Root at [email protected]