Why Chinese Tesla Competitor XPeng Chose Now to IPO: Top Exec Explains

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XPeng, an early-stage Chinese electric vehicle maker, is going public on the New York Stock Exchange Thursday and one of the company's top executives tells TheStreet why the company is choosing now. This comes as the White House says it wants U.S. regulators to audit the records of future Chinese IPOs, something the administration is concerned has not been enough of a theme for recent Chinese IPOs in the U.S. 

Although the company's F-1 filling did not disclose the share price, the number of shares sold or the portion of equity sold, recent news reports have cited people familiar with the matter saying the company is issuing 99.7 million shares at $15 apiece. That's a capital raise of about $1.5 billion, or about 13% of the reported valuation of $11.2 billion. At first, the share price was set at a range between $11 and $13 before strong demanded lifted the price. 

"We are actually at a phase of our growth now that requires us to have better access to capital, so being a public company, especially in the U.S. market, we can find the most sophisticated investors to support us -- it's very critical," said XPeng President and Vice Chairman Brian Gu. 

Several Chinese companies have been coming to the U.S. market to list shares publicly ahead of what could potentially be a more demanding regulatory environment, but :our IPO plan has been preparing for over a year, so this has obviously come to a natural conclusion of our process," Gu said. He acknowledged the potential regulatory headwind, but said "we are fully compliant " with U.S. regulators. 

But in response to a question regarding whether XPeng is showing its audit records to U.S. regulators, Gu said "we are working with a PWC [Pricewaterhouse Coopers, U.S. accounting firm] affiliate in China , so we are doing everything based on U.S. GAAP and they are doing the same rigorous work that is required of us to list here."

Meanwhile, the China-focused company has to compete against Tesla  (TSLA) - Get Report and several other smaller electric vehicle competitors who have strong presences in China. XPeng makes smart EV's, meaning those that are tech-enabled and have autonomous driving features, which Gu says is the type of product that can drive the overall EV market in China. 

He added that while Tesla is the dominant force in smart EV's, "we actually offer something different," as he listed the various tech capabilities of his company's vehicles, which are aimed at the middle-to-upper end of the EV market .This puts in in direct competition with Tesla. 

More on Tesla: Cramer/Maurer: Wedbush $3,500 Bull Case, Growth in China, Tesla Battery Day

XPeng's recent revenue results -- which aren't yet translating to profits -- may cause some level of concern, although the company's IPO investors are clearly looking somewhat past that. Revenue for the first half of 2020, according to the company's filing, was $140 million, implying an annual run-rate of about $280 million. That would represent a 15% decline over 2019's total revenue.

The pandemic caused manufacturing in China to shut down for some period in the first half of the year, even putting Tesla sales at negative growth. But Tesla's first half still showed 11% revenue growth and its full 2020 will post growth as well, as EV demand has remained sturdy. 

But Gu said not only did the pandemic make March an awful month for sales, but that a recent Chinese subsidy cut also pressured early 2020 revenue. Still, in addressing the first half 2020 revenue results, Gu did not mention the strength of EV demand, which is seeing Tesla's sales through. Instead, he mentioned the company's newest car -- G7 -- released this summer. He says that is expected to drive growth for the second half of the year and for coming years. 

Meanwhile, the implied valuation represents a demanding multiple over sales over the next year, a multiple that would be over 30 times 2019's sales result if the company can reach that level. 

See here for more coverage from TheStreet on the U.S. IPO market

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