This year's first car manufacturing IPO comes from Geely.
On February 23rd, Lotus Technology, a subsidiary of Geely Automobile, officially hit the NASDAQ with the ticker symbol "LOT". This marks the first automotive company IPO on the US stock market this year, as well as the largest IPO for Chinese concept stocks in the past 32 months.
As of the time of writing, the stock price of Lotus stands at $13.8, with a total market capitalization exceeding $9 billion. This places it above Xiaopeng Motors ($8.142 billion) but below NIO ($11.2 billion) and Li Auto ($36.9 billion).
This figure also significantly surpasses its pre-listing valuation, marking a threefold increase compared to its fellow industry peer, "Polestar."
In a broader perspective, this development boosts confidence in the capital market's outlook on the automotive industry. Currently, newly-emerging automotive companies in the U.S. stock market face challenges, as evidenced by the sharp decline in stock prices for companies like Rivian and Lucid after their recent financial reports on Thursday. Lotus' successful debut generates optimism for the transformation of high-end sports cars.
Of course, the happiest person in this scenario is Li Shufu. Not only has he fulfilled the dream of entering the supercar market, but it has also further enriched his capital portfolio.
Li Shufu's 8th IPO
The path to Lotus' IPO has been familiar yet convoluted.
In early last year, Lotus and the Special Purpose Acquisition Company (SPAC) LCAA announced the finalization of their merger agreement, expecting to complete the merger in the latter half of the year. However, Lotus Technology did not go public as scheduled.
In early February of this year, LCAA's shareholder meeting approved the proposed SPAC merger with Lotus Technology. The post-merger entity was valued at $5.4 billion. After the SPAC merger, it is anticipated that Geely and other existing owners will retain 89.7% of Lotus Technology's equity.
Lotus Technology stated that since the announcement of the transaction, it has secured financing commitments exceeding $880 million through public equity private placements (PIPE) and convertible bonds from global investors, existing shareholders, and strategic partners. This represents one of the largest funding commitments for SPAC-related transactions since 2023.
The LCAA participating in this is a Special Purpose Acquisition Company (SPAC) listed on Nasdaq, established in January 2016, and affiliated with the consumer-focused private equity firm L Catterton.
L Catterton is the world's largest private equity investment firm dedicated to the consumer industry, currently managing assets totaling $33 billion, approximately ¥240 billion RMB. It was founded through a collaboration between the private equity firm Catterton, luxury brand group LVMH, and Bernard Arnault's family holding company, Groupe Arnault.
SPACs have gained popularity in the U.S. market in recent years, distinguishing themselves from the conventional practice of shell listings in domestic capital markets. Unlike the traditional IPO approach of "seeking funds for a project," SPACs operate on the principle of "raising funds for a project."
The SPAC process involves the sponsor creating a shell, raising funds from investors to form a cash-only "shell," and then taking this shell, the SPAC, public. Due to its all-cash nature, the IPO approval process is relatively straightforward.
Subsequently, the SPAC identifies and acquires a target company, injecting high-quality assets within a specified timeframe. This results in the combination of a "cash-holding shell company" and an "operational target company," forming a new publicly traded entity with a consolidated financial statement of 1+1=2.
The process is fast, the IPO review is easy, and the success rate is high, which has sweetened the deal for many capital-hungry enterprises about to go public. Li Shufu's previous IPOs are also related to SPACs.
In June last year, Geely Holding's ECARX Technology merged with the Special Purpose Acquisition Company (SPAC) COVA Acquisition Corp. and was listed on NASDAQ.
In June 2022, Polestar announced the completion of a business merger with the SPAC Gores Guggenheim and debuted on NASDAQ. This adds to the list of already public companies under Li Shufu, including Geely Automobile, Volvo, Qianjiang Motorcycle, Hema Technology, and Lifan Technology.
In recent years, Li Shufu seems to have developed an "addiction" to spinning off and listing subsidiaries. From the perspective of completed IPO processes, Lotus has become the "comfortable brother's" eighth IPO.
Notably, three months ago, Zeekr Automotive formally submitted its F-1 (non-U.S. domicile company prospectus) document to the U.S. Securities and Exchange Commission, planning to list on the New York Stock Exchange under the ticker symbol "ZK." Zeekr also announced the completion of its Series A funding, reaching a valuation of about $13 billion.
Now that Tesla has successfully entered the capital market, Zeekr is not far behind.
From Legend to Legacy
Lotus holds a polarizing status in the history of British automotive industry. As a legendary brand that has won the Formula 1 championship seven times, it started in a small workshop but boasts a racing history as glorious as Ferrari's.
Lotus has its roots tracing back to 1948, located in Hethel, Norfolk, England. Back then, a 20-year-old British university student named Colin Chapman decided to modify an old Austin 7. His only tool was a drill, and his workshop was his girlfriend's backyard.
And so, the very first "Lotus" - the Lotus Mark 1 - was born from a modified old Austin 7.
In 1952, Chapman officially founded a racing car manufacturing company - Lotus Engineering Company. Lotus continued to improve and update their race car designs, eventually forming a team that made its debut in the F1 races in 1958.
Chapman's passion for racing led Lotus to achieve remarkable success, securing seven F1 Constructors' Championships between 1963 and 1978, standing shoulder to shoulder with giants like Ferrari and Porsche.
But relying solely on racing is not enough for a company to survive; to make profits, it's crucial to produce mass-market civilian vehicles.
While Lotus has introduced several civilian models over the years, including classics like the Elite, Elen, Europa, and Esprit, they have stayed true to their racing spirit—offering an exceptional driving experience but lacking in reliability. This has resulted in limited sales, compounded by the high production costs, placing Lotus under significant financial pressure.
In 1978, Lotus faced a financial crisis, prompting Colin Chapman to sell the company for restructuring to the British automotive giant, Hethel Engineering. Unfortunately, in 1982, Colin Chapman's untimely death dealt a devastating blow to Lotus, marking the beginning of over 40 years of financial losses.
During this period of losses, Lotus changed hands multiple times, being acquired by Toyota, General Motors, Italian businessman Romano Artioli, who also acquired Bugatti, and later, Proton Holdings.
It wasn't until 2017 when Geely Holdings Group acquired a 49.9% stake in Proton Holdings and, in a strategic move, acquired a 51% stake in the luxury sports car brand Lotus for £51 million (approximately ¥450 million RMB). After changing ownership several times, Lotus finally found stability under the umbrella of Geely.
In August 2021, Lotus Group announced the establishment of Lotus Technology, relocating its global headquarters to the Wuhan Economic and Technological Development Zone, marking a comprehensive shift towards electrification.
The iconic luxury brand with a history of 76 years has unfortunately not been able to escape the fate of losses. In the past two years, as it entered the fiercely competitive smart car market in China, Lotus has failed to deliver a satisfactory performance.
According to the previously submitted IPO prospectus, Lotus Technology reported a net loss of $111 million, $725 million, and $353 million in 2021, 2022, and the first half of 2023, respectively. The cumulative loss amounted to $1.188 billion, approximately ¥8.542 billion.
For the current status of Lotus, landing on the U.S. stock market is undoubtedly a positive development. Given the well-known capital-intensive nature of the automotive industry, and considering Lotus is still a "new force" struggling with self-sufficiency, the move to list on the U.S. stock market is beneficial.
This strategic move into the capital market aligns with Lotus' proactive approach to secure external funding. It aims to accumulate sufficient capital to navigate the intense competition in the automotive industry, providing a financial buffer for the brand's transformation and ambitious initiatives. The IPO represents a rare opportunity for Lotus at this stage, facilitating its transition and strengthening its position in the highly competitive automotive landscape.
