Two weeks after its shares began trading on the Nasdaq, Lotus Technology shares fell by two-thirds.
However, the collapse does not come as a surprise, and the collapse has a familiar feeling for investors who bought shares of other companies listed on global stock markets by the Chinese company Geely. In recent years, the ambitious Chinese group has listed shares in Volvo Cars, Polestar and iCarx. They all remain deep underwater.
The decline, if it persists, would deal a heavy blow to one of China's most ambitious auto groups, and raise questions about its future ability to tap public markets to raise financing as it moves into the expensive business of developing electric cars.
Sean Ren, managing director of China Market Research Group, a consulting firm in Shanghai, said it was difficult to get a positive view of Geely's prospects in the wake of Lotus' listing.
“They don't have a strong strategy internationally or in China, and they have a lot of overlapping brands that don't make sense,” he said.
The company burst onto the global scene with a 2010 deal to buy Volvo Cars from Ford, kicking off a decade of expansion buying up unloved global car brands including Lotus and taking stakes in Mercedes-Benz, Volvo Trucks and Aston Martin.
Despite its dismal stock market record and growing concern about demand for electric vehicles in Western markets, the Chinese auto group is doggedly seeking mainstream status for its other brands.
Geely has already filed documents to go public on the Nasdaq for its new electric vehicle brand Zeekr. At the same time, it has stock market ambitions for a host of other companies within its auto portfolio, according to people familiar with its plans.
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The stock price performance of Volvo and the Polestar electric vehicle brand has made it difficult to attract potential investors to Lotus, according to people familiar with the deal. Finding investors in Zeekr will be more difficult if Lotus shares stay below the decline for those who bought into Spac.
These listings are more than just bragging rights for ambitious founder Li Shufu, known worldwide as Eric Li. As it grows outside China, the company must shed its historical reliance on domestic financing and raise capital through Western markets that are increasingly suspicious of Chinese companies.
“They will need a lot of money,” admits one current director in the wider company.
This is particularly important as the company faces significant investment requirements in electric vehicles, autonomous driving systems and software in the coming years.
Geely declined to comment for this article, but Daniel Lee, CEO of Geely Holding Group, told the Future of Car Summit last May that “by IPOing for each brand individually, we can…have a good opportunity to provide a return.” For our investors. But he added that a company “doesn't necessarily” need to list every entity it owns.
This was all part of Geely's long-term ambition, he said, to become one of the “top ten” participants in the global automotive sector and sell more than 4 million cars annually, which would make it bigger than Nissan, Mercedes-Benz or Renault. Geely Holdings said it sold about 2.8 million cars across its brands last year.
Choosing to finance companies through public markets “means it doesn't all have to come out of Li Shufu's pockets,” noted Bill Russo, former president of Chrysler China and founder of Automobility, a consulting firm in Shanghai.
Getting Chinese government or development agency money often requires building factories in the country. “When you go global, you don't get the same kind of support,” he added.
However, shares in auto companies, especially electric vehicle startups, have fallen in the past two years, as investors have become less tolerant of unprofitable enthusiasm in an era of high interest rates.
“Hyper-exuberance…and the lists of electric vehicle companies it has.” [led to] “The destruction of capital is now catching up with companies that have chosen this route as their main source of financing,” Russo said.
People familiar with Geely's thinking say the company could easily raise the necessary financing through debt markets. “The reality is that stock markets are more developed and diversified outside of China, which is why they came to New York.”
They point out that the company has also been a responsible sponsor of struggling brands, especially Volvo and Lotus. They said Geely takes a long-term view of its business, something that short-term stock prices did not reflect.
Geely has been “deliberately patient,” according to people familiar with its thinking. “These are not upside down stocks,” one person said.
Lotus entered Geely in 2017, as part of a deal to invest in Malaysian owner Proton. After acquiring a 51 percent stake, Geely pumped three billion pounds into the previously quiet company.
Alexius Lee, Lotus's chief financial officer, said the company's target segment – buyers of electric cars that cost more than $80,000 – was large and growing every year. “Lotus as an early mover will be able to benefit,” he said. “We have a strong strategy, which we believe will deliver results and returns for shareholders and investors.”
Investors have given higher valuations to electric car makers like Tesla and luxury automaker Ferrari than to other traditional manufacturers.
Mike Johnston, Lotus' chief commercial officer, said investors were interested in the company's “history and heritage”, which stems from motor racing. It was believed that this would help the brand stand out in a market increasingly saturated with electric SUVs that all boast sports car-like acceleration.
Lee said the company has raised about $880 million from new investors, and that money, plus $500 million in cash, will help the company become cash-producing next year.
Lotus plans to produce electric SUVs at its new production line in Wuhan, central China, which it believes will help it expand sales from just a few thousand to 150,000 by 2028.
Despite the price performance of listed stocks, people close to my generation dismiss the price movements as short-term fluctuations. “By the end of the decade, the direction of travel will be quite clear,” one person said. “The strength of the Chinese-controlled brand portfolio will strengthen.”
If Geely wants to go global, it needs to move forward with its flotation strategy. But the poor performance of its listed companies' shares does not constitute an incentive for international investors.
Tu Lu, president of consultancy Sino Auto Insights, noted that by listing its global brands, Geely has moved from a fairly complex portfolio to a very complex one.
He added: “The challenges are of their own making.” “They now have all these brands they need to manage – many of which are foreign brands – and this is new.”
