Shares of electric car makers surge

Shares in Chinese electric car makers Nio, Xpeng and Li Auto rose sharply on Friday amid news of details of their IPO in Hong Kong. The companies are attracting major US investment banks as underwriters.

Shares of Chinese electric car makers Nio (NIO), Xpeng (XPEV) and Li Auto (LI) have shown strong gains in 2020 on the back of a recovery in China's car market and above-expected electric car sales.

However, Nio shares fell 20.36% in the last month, while Xpeng (red line in the chart below) and Li Auto (blue line) lost 21% and 16% respectively in the last quarter. This was both on the back of declines in technology stocks as a whole and under the influence of analysts and investors who see their growth last year as overvalued.

On Friday, shares in Nio, Xpeng and Li Auto rose sharply by 4%, 7% and 4.9% respectively as investors received new details about their potential IPO in Hong Kong. XPeng's underwriters are likely to be Bank of America and JP Morgan, while Li Auto plans to attract Goldman Sachs and UBS. It is expected that both deals could be completed as early as the third quarter of 2021 and bring in around $1bn. $2bn. As Li Auto's primary listing on the Nasdaq took place in July and XPeng's IPO on the NYSE last August, both companies cannot have a secondary listing on the Hong Kong exchange as it is required to report and comply with the regulatory requirements of the exchange (on which the primary listing took place) for at least two financial years.

Instead, Xpeng and Li Auto are considering applying for a dual primary listing in Hong Kong, according to the IFR this does not require two years' experience, but involves disclosure of a large amount of internal company information.

Neither company has yet commented.

An IPO or dual primary listing in Hong Kong is a great opportunity for Nio, Xpeng and Li Auto to attract substantial investment without the debt burden. The electric car makers need funding both to expand their car range and production pace, as well as to invest in new battery technology and autopilot features.

Falling shares of Nio, Xpeng and Li Auto well below their 2020 highs today could be a good time to buy.