This article is reproduced from the Autocarweekly WeChat public account.
Author: Financial Street Lao Li
Within three years, the intelligent electric vehicle industry will usher in its second wave of IPO boom, with WM Motor leading the way.
During the long holiday, a financing announcement had an impact on the automotive industry. WM Motor announced that it would receive over $300 million in financing from Hong Kong-listed companies PCCW and Shimao Group for its Series D1 round. It will also sign a Series D2 financing agreement with several other internationally renowned investment institutions. The total amount of this round of financing is expected to reach about $500 million. This news has given some encouragement to the secondary market, primarily because $500 million is not a small amount, and WM Motor is highly likely to land on the Hong Kong Stock Exchange soon.
The market has also given a high degree of attention, not for the size of the financing, but because the D1 round of investors are superstar giants —— the Li Ka-shing and Ho Hung-sing families, with PCCW (00008.HK) being managed by Li Ka-shing’s son Li Zekai, and Shimao Group (00242.HK) being managed by Ho Hung-sing’s daughter, Ho Chiu King.
Lao Li has always said that he wants to focus on the investment opportunities in the market after “Wei Xiaoli,” and now the opportunity seems to be right in front of everyone. Today, Lao Li will talk to everyone about why Mingxing Capital invested in WM Motor, why it did not enter the Science and Technology Innovation Board (STAR Market), and will it become a mid-level player in the secondary market in the future?
Why did superstar families invest in WM Motor?
The superstar families’ investment in WM Motor seems to be unexpected, but it is actually reasonable.
In the field of new energy vehicles, what people hear most about is overseas dollar financing or mainland RMB funds, and rarely do they hear about Hong Kong capital. One reason is that Hong Kong capital is scarce and publicity is also scarce, and the second reason is that Hong Kong capital has indeed missed many high-quality investment opportunities. When the domestic new car-making forces held roadshows in Hong Kong, they also encountered many situations where investors ignored them. But everything is different now.
Lao Li has been insisting that the capital market is ruthless and realistic. When an enterprise develops well, the fund will be all over you. When the enterprise does not develop well, the fund manager can be considered as a buddy if he can meet with the enterprise manager. Let’s take a look at the details disclosed by Shimao Group’s investment in WM Motor:
SAIL, an affiliate of Shimao Group, acquired approximately 89.3342 million shares of WM Motor’s Series D preferred stock from WMMH for $70 million. At the same time, SAIL sold approximately 1.7% of its equity interest in Lightning Century, which was subject to a stock swap with WMMH, and WM Motor agreed to issue and sell WMMH’s shares in exchange for WM Motor’s shares. After the collaboration is completed, Shimao Group will own about 2% of WM Motor’s equity interest.Both Sunac and PCCW are listed companies in Hong Kong with considerable influence. It is worth mentioning that both PCCW and Sunac have missed out on the new energy vehicle market in recent years. PCCW’s business and technology are highly relevant, whilst Sunac has no connection to new energy vehicles.
According to Mr. Li’s friend, ever since “Wei Xiaoli,” although the valuation of the Hong Kong market has not been good, these Hong Kong-funded companies have been seeking investment targets in the smart electric vehicle sector. For families who hold investment funds of up to tens of billions of yuan, investing in car companies is an excellent choice, and WM Motor is a good company among them.
Li has been saying that he has an outstanding CFO, Li Tie. Interestingly, WM Motor also has a good financing consultant, Guangyuan Capital. In WM Motor’s seven rounds of financing, the vast majority of financial consultants were from Guangyuan Capital. The main reason for this round of financing was that the track is good, the target is good, and the returns are high.
It is unquestionable that the track is good and the target is good; the high returns are because WM Motor is very, very close to its IPO date. In the process of corporate financing, D-round financing is usually carried out before the IPO, and companies are relatively mature at this stage, with visible and tangible returns.
In the first half of 2020, WM Motor began substantial progress towards IPO. As a counseling organization, China CITIC Securities assisted WM Motor in its six rounds of financing, with an estimated valuation of around 30 billion yuan.
After the D-round financing began, WM Motor received a lot of attention from funds. On the one hand, it was because the market environment was excellent at the time, and on the other hand, WM Motor’s target was good. With multiple factors in play, WM Motor completed a single round of financing of 10 billion yuan, and its main investors were state-owned Shanghai assets. At that time, the Shanghai government wanted to have more association with WM Motor, which led to this financing.
Everyone knows the rest of the story. Due to a variety of reasons, WM Motor was unable to list on the Science and Technology Innovation Board; as a “born and bred” enterprise, it made sense to choose to list in Hong Kong.
Earlier, CITIC Securities revealed to the China Securities Regulatory Commission the shareholder structure of WM Motor, which included industrial capital, internet giants, state-owned capital, and top investment risk management institutions. From the equity structure and external environment, Hong Kong-funded investment in WM Motor does not see much unexpected risk.This round of financing brought significant amounts of US dollars and Hong Kong funds to WM Motor along with interviews of several experts by Mr. Li. Although specific numbers cannot be disclosed, the company’s valuation of WM Motor exceeds Mr. Li’s expectations and is expected to exceed everyone’s expectations, barring any unforeseen circumstances.
Why is the Science and Technology Innovation Board Not Suitable for Automotive Companies?
Before, when talking with friends about the relationship between automotive companies and the Science and Technology Innovation Board, many people believed that due to the unsuccessful listing on the board, automotive companies did not seem to have the “technology” attribute. This statement is certainly not comprehensive. Mr. Li thinks that intelligent electric vehicle companies have technology attributes, while traditional vehicle companies do not.
Since intelligent electric vehicle companies have large scale, it is difficult to be classified as “specialized and new” which is an inherent disadvantage. After all, the estimated value of leading electric vehicle companies that are about to go public has reached 10 billion yuan.
In 2020, the entire industry paid close attention to WM Motor’s listing on the Science and Technology Innovation Board, but the process was really full of twists and turns:
In the first half of 2020, the Shanghai Stock Exchange proposed that WM Motor’s IPO financing scale should reach 10 billion yuan, and the issuance ratio should be 25%, corresponding to a post-IPO valuation of 40 billion yuan. At that time, the smart electric vehicle company had just passed the capital winter of 2019 and had made good progress. The market unanimously believed that WM Motor’s valuation would be higher after listing, primarily because the target is scarce, being the first domestic listed company among new car-building forces. Secondly, earnings expectations are clear. WM Motor’s development process is relatively stable. While building its own factory, the upstream cost control ability of the industrial chain is better than NIO and XPeng Motors.
According to the plan at the time, June 30, 2020 was used as the stock reform benchmark day, and the application materials would be submitted to the Shanghai Stock Exchange by the end of 2020, and the listing would be completed in Q1 2021. However, the situation went contrary to wishful thinking. On the one hand, traditional companies came in to “stir up trouble,” and on the other hand, the Science and Technology Innovation Board review became more stringent. The new rules were not friendly to automotive companies. At the beginning of 2021, a batch of companies that were waiting for the Science and Technology Innovation Board review, including Hesai Technology, terminated the audit, and WM Motor’s listing plan was also affected.
If we only look at the industry and capital level, the Science and Technology Innovation Board is very advantageous for WM Motor. However, due to the fact that a small number of companies lack core technology, lack innovation in technology, and have insufficient market recognition, which “stir up trouble” in the Science and Technology Innovation Board, WM Motor, or intelligent electric vehicle companies, were inadvertently affected.In March 2020, based on the actual situation of reviewing registration and application, the China Securities Regulatory Commission (CSRC) introduced the “Guidelines for Evaluation of Sci-Tech Innovation Enterprises (Trial)” to support enterprises in six major areas, including new generation information technology, high-end equipment, new materials, new energy, energy conservation and environmental protection, and biomedicine, which meet the following three conditions to list on the Sci-Tech Innovation Board:
(1) R&D investment in the past three years accounted for more than 5% of the operating income or cumulatively invested more than RMB 60 million in R&D in the past three years;
(2) Five or more invention patents generating main revenue;
(3) Composite growth rate of operating income in the past three years reached 20%, or the operating income in the past year reached RMB 300 million.
To be frank, these conditions are not very friendly to automotive companies with large investments and long payback periods, especially the first and third ones, which basically mean that auto companies say goodbye to the Sci-Tech Innovation Board.
The CSRC’s design is also reasonable as the vast majority of listed companies in China are small and medium-sized enterprises, and there are not many companies with a market value above RMB 50 billion. The new rules mainly screen for this type of small and medium-sized enterprises. In terms of technology attributes, smart electric vehicle companies naturally have “technology” and have even supported a large number of upstream enterprises. In the field of new energy, many companies have also landed on the Sci-Tech Innovation Board.
Why does Lao Li think that WM Motor is more suitable for the Sci-Tech Innovation Board than NIO? It is essentially because of its technological attributes. When it comes to NIO, people think of “brand”, when it comes to Li Auto, people think of “extended range”, when it comes to XPeng Motors, people think of “autonomous driving”. Before 2019, it was difficult to think of a word for WM Motor. But since 2020, WM Motor has had a “technology” attribute.
Lao Li believes that this is thanks to WM Motor’s marketing in the past one or two years. In the industry, WM Motor has established a “technology attribute” with its intelligent cockpit and intelligent driving. Starting with the WM W6, WM Motor is also the first and only whole vehicle with L4 level automatic parking function in the industry. Recently, many fund managers frequently mentioned WM Motor’s “technology” during Lao Li’s roadshows, which was surprising to him.
Where is the destination of the new forces? In the first half of this year, Lao Li’s partner has been following new forces such as WM Motor and XPeng Motors, which have not yet been listed domestically. He thinks that this is a new round of investment opportunities following the success of NIO in the US stock market in 2019. Lao Li was very puzzled at the time, although these companies are excellent targets, the capital environment was not suitable for them to go public at that time. Half a year later, Lao Li realized that his partner was planning ahead. His partner’s original words were: “We need to view the valuation dynamically. Enterprises will continue to develop well, and the market will always give them opportunities.”“`
In the first half of this year, the capital market was mixed. In the mainland market, car companies had no chance to be listed on the Sci-Tech Innovation Board and the door was closed. In the Hong Kong market, various sectors were in a long-term slump, and many star companies suffered from excessive decline. And there were various problems in the overseas market. If electric vehicle companies want to be listed, they are likely to go to Hong Kong.
It is not easy to obtain a reasonable valuation in Hong Kong. Even in good market conditions, Hong Kong’s valuations do not have much premium. Three years ago, when NIO came to Hong Kong, investors did not recognize new energy vehicles. Over the past three years, the US and Chinese markets have truly educated a large number of investors.
From this perspective, WM Motor’s investment by star companies in Hong Kong is the wisdom of WM Motor, and in-depth analysis shows that WM Motor’s wisdom comes from its industrial competitiveness.
Hong Kong investors are very clever. The so-called “northbound capital” that is often mentioned is external capital flowing into China through Hong Kong. “Northbound capital” is known as the smartest capital in the market and has a significant impact on A-shares. In the face of such smart investors, relying on a small smartness is impossible, and is definitely based on industrial influence.
Smart people’s thinking is often different from others. For example, regardless of the industry or capital side, domestic retail investors applaud “Wei Xiaoli,” but XPeng’s IPO in Hong Kong only received an average valuation. NIO’s listing on the Hong Kong Stock Exchange may also take a long time, and it is also because of valuation issues. It is conceivable that it is not easy for a group of smart electric vehicle companies in China to be listed in Hong Kong, because Hong Kong also loves “industry leaders.”
Where can other electric vehicle companies go for IPOs if they cannot go to the Sci-Tech Innovation Board, US stock exchange or the Hong Kong stock exchange? In the US stock market, it is very popular for start-ups to go public through SPAC (Special Purpose Acquisition Company) with fast approval and low cost. Many familiar intelligent and electrification industry chain companies are listed in this way, but currently there is no such special mechanism in China.
“`The Li’s team has also been thinking about this issue recently. Many people have given the answer of “shell listing”. Currently, there are many car-related listed companies in the A-share market, such as Zotye Auto, Haima Auto, and so on. These enterprises may become the listing path for electric vehicle companies like the “qualification” for carmakers two or three years ago. According to Li’s statistics, including state-owned and private enterprises, there are nearly ten electric vehicle companies that are currently IPO or considering IPO.
The partner was very fond of a sentence spoken by Shen Hui during this financing round: “This round of investment is the largest private equity investment in China’s local new energy pure electric vehicle companies in the past 12 months by international capital market. It is not only highly symbolic in the market, but also provides a key support for WM Motor’s continuous research and development in autonomous driving, further establishing WM Motor’s advantages in intelligent technology and industrial layout.”
In his view, Tesla and Nio in 2019 were pioneers in the development of the secondary market for new energy vehicles. The financing of WM Motor and the new rounds of financing and IPOs of other companies in the future will become the middle army of the secondary market. Although this may be mentioned a little earlier, it will come faster than we think.
This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.