HONG KONG, Nov 21 (Reuters Breakingviews) – Chinese electric-vehicle maker Zeekr is charging up for a U.S. initial public offering that will test geopolitical speed limits. The company, owned by Geely Automobile (0175.HK), is growing sales at home. But plans to raise some $500 million, per IFR, by going public in New York and to expand abroad are hard to navigate without a thaw in tensions between Beijing, Washington and Brussels.

The business looks primed to accelerate in China. Although Zeekr has yet to turn a net profit, revenue more than doubled to 21 billion yuan ($2.9 billion) in the six months to the end of June. It is also diversified. Only 13 billion yuan of the top line came from its luxury cars, which vie with the likes of Tesla (TSLA.O) and Nio (9866.HK), ; more than a third came from its Viridi unit’s batteries and other components. Sales of research and development services made up the rest.

Driving overseas promises to be a tougher ride. Although China’s president, Xi Jinping, met his U.S. counterpart Joe Biden last week, a dramatic thaw in the two countries’ frosty relationship has yet to materialise. That means Zeekr’s hopes of developing a stateside robo-taxi venture, a tricky business at the best of times and one that requires vast amounts of potentially sensitive data, could be optimistic. Meanwhile, in China, Zeekr will be classified as an automaker with foreign investors, so it will have to depend on licenced partners to collect, store and process data from vehicles. Expanding into Europe might also prove hard work with the European Union beginning a probe into Chinese carmakers.

At least Zeekr benefits from having a powerful parent, Geely Automobile, which is part of China’s largest privately owned auto group Zhejiang Geely. The prospectus states that “related parties of the Group” were responsible for for nearly half of accounts receivable and amounts due last year, and they are also major suppliers, delivering over 50% of Zeekr’s purchases in 2022. However, that’s a potential risk, too, if ties are ever broken or strained.

Investors seem wary. Fellow Chinese EV makers Xpeng (9868.HK), , Leapmotor (9863.HK) and BYD (002594.SZ), (1211.HK) are appropriate comparisons, since they sell own-brand cars as well as offering services and products to other auto manufacturers. On average, their equity is equivalent to around 3 times last year’s sales; apply that multiple to Zeekr and it would be worth more than $13 billion. But Geely Automobile, which will maintain control of the business after the IPO, has a market capitalisation of only $12.3 billion. That suggests Zeekr’s deal is already testing its limits.

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CONTEXT NEWS

Chinese electric-car maker Zeekr Intelligent on Nov. 9 made public its filing for a stock market listing in New York. The company, owned by Chinese automaker Geely Automobile, hopes to use funds raised to expand its product line.

The company reported a net loss of 3.9 billion yuan ($534 million) for the six months to the end of June 2023, compared with a 3.1 billion yuan loss a year earlier. Revenue grew by 136% to 21 billion yuan, with 13.2 billion yuan of that total coming from vehicle sales. Sales of research services, batteries and other components made up the rest of the top line.

The deal is likely to raise less than $500 million, IFR reported on Nov. 10, citing two sources.

Geely Auto’s Hong Kong-listed shares fell 2.9% on Nov. 10.

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