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China's two promising electric vehicle firms reportedly planning to list in US

NIO ES8 sports utility vehicle Photo:

Some promising Chinese electric car startups are mulling listing on the stock markets in the United States and Hong Kong, even though the Chinese government has rolled out a series of policies to encourage them to launch initial public offerings on the mainland bourses.

NIO, a Shanghai-headquartered automaker dedicated to building smart, Internet-connected electric vehicles, has hired 10 investment banks in preparation for a planned $2 billion IPO in the United States in late-2018, Caixin reported recently citing a source close to the matter.

With electric vehicles becoming a sought-after investment target for venture capitalists in China, where the government has shown strong interest in developing new energy vehicles in its battle against air pollution, NIO has completed five rounds of fundraising worth about 15 billion yuan since its establishment in 2014.

Over the recent years, the Chinese government has beefed up investment in the development of new energy vehicles, and is considering a timetable for an all-out ban on the production and sales of gasoline-powered cars, which will be replaced by electric cars or plug-in hybrids. All these environmental efforts could come down to China's promises to cap its greenhouse gas emissions at a peak by 2030 and increase the share of non-fossil fuels as part of its primary energy consumption to about 20 percent by 2020.

NIO's plan for an American listing comes amid the electric car startup's aggressive push for expansion and research in the fields of autonomous driving and battery technology, which must be funded by fresh capital. If allowed to go public in the United States, NIO will follow Tesla as the world's second electric car maker listing shares.

In December 2017, NIO released its first mass production car, the ES8 pure-electric, seven-seat sports utility vehicle, with the first deliveries scheduled for April.

Experts said that one reason behind NIO's planned American IPO could be the high profitability requirement set by the Chinese regulator for a listing on the domestic stock market.

Coincidently, another Chinese electric car startup WM Motor was also reported to prepare for a listing in the United States or Hong Kong.

In a recent interview with Bloomberg, WM Motor Chief Executive Officer Freeman Shen revealed that the company was in talks with several financial institutions for a proposed IPO in the United States and Hong Kong. But Shen did not exclude the mainland as a destination for the listing.

Shen explained that the plan of listing shares overseas was primarily based on the consideration of obtaining more opportunities to cooperate with different global partners, though admitting that a domestic IPO could bring the company more benefits because the mainland is where its main target customers stay.

Established in late-2015, WM Motor has raised more than 12 billion yuan from strategic investors including Chengwei Capital, Envision Energy and Baidu, which is betting on autonomous driving. WM Motor launched its Weltmeister EX5 pure-electric, smart sports utility vehicle in December last year, the company's first mass production car equipped with a powerful battery enabling the car to run up to 600 kilometers.

With a goal of taking on Tesla, the influential US electric car producer which is reportedly facing barriers in finalizing a deal that allows it to set up a wholly owned manufacturing facility in Shanghai, NIO and WM Motor, both described as "unicorns" in the country's automobile industry, have found favor with the China Securities Regulatory Commission (CSRC), which just categorized the duo as the "new blue-chip" firms, which are encouraged to seek listings on the domestic A-share market through issuing the Chinese depositary receipt, a type of transferable financial security that is traded on a local stock exchange.

The policy could be seen as a fast-track green passage that makes it easier for valuable startups in the technology-intensive sectors to go public domestically, as China is going out of its way to transform its economy into one driven by scientific and technological innovation.

In response, NIO did not comment on whether it would get listed on the A-share market through issuing the Chinese depositary receipt in the context of candidate companies normally having to wait for a few years to enter the high-threshold A-share market that is extremely demanding in terms of corporate potential and profitability.

At the same time, the favorable policy also offers an olive branch to the powerful overseas-listed technology titans or firms who are planning to list shares overseas. There were domestic media reports saying that the CSRC, together with the Shanghai and Shenzhen bourses, sent invitation letters to Baidu, Alibaba, Tencent and, collectively known as BATJ companies, calling on them to return to the A-share market. Baidu, Alibaba and are listed in the United States while Tencent is listed in Hong Kong.

On the sidelines of the annual session of the National People's Congress which just wrapped up this week, the heads of Baidu, Tencent and unanimously expressed willingness to come back to the A-share market in a sign described as the coherence to the national call.

On this point, Qihoo 360 could be set as a successful precedent. Last year, the leading Chinese cybersecurity software developer got closer to a relisting on the A-share market at a higher evaluation through a back-door listing, after it had delisted from the New York Stock Exchange.

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