June 13, 2024

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Super-car SPAC tests EV hype’s reset expectations

2 min read

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Reuters
Reuters

HONG KONG (Reuters Breakingviews) – A Chinese super-car SPAC will test the reset expectations for electric vehicles. Investors were already beginning to question the rosy production and sales assumptions of upstarts from Nikola to Lordstown Motors before Russia’s invasion of Ukraine further snarled supply chains. Shares in Rivian Automotive, backed by Amazon and Ford Motor, are now 87% below their November high. The agreed $1.7 billion merger of CH-Auto, one of China’s very first battery-powered ventures, with a special-purpose acquisition company looks a prime target for even worse punishment.

CH-Auto and its Qiantu brand have failed to find fans either at home or abroad. The luxury marque squandered a head start in the world’s largest auto market. It was one of the first carmakers to receive a manufacturing licence from China’s National Development and Reform Commission in 2015, but sales of its flagship model, the $100,000 K-50 coupe, never took off. In 2020 CH-Auto logged a post-tax loss of almost 400 million yuan ($60 million), according to a December filing from one of its investors.

It stalled in the United States, too. CH-Auto planned to work with local group Mullen Automotive to assemble and sell the K-50, rebranded DragonFLY. But although Mullen still offers reservations for the car on its website in return for a $1,000 deposit, their relationship fell apart after Nasdaq-listed Mullen failed to pay its partner and the pair have yet to produce a single saleable vehicle, according to Hindenburg Research. The former collaborators are now wrangling over intellectual property, Mullen’s annual report shows.

The listing faces other headwinds. Valuations are not as generous as they once were for Chinese companies listed in the United States, where they face the threat of forced delistings. Moreover, China’s electric-vehicle sector faces trouble from not just the war in Ukraine but also Beijing’s unwavering commitment to its zero-Covid policy forcing local lockdowns that hammer sales. The market value for each of Nio and Xpeng, CH-Auto’s two most successful domestic battery-powered rivals, has halved since the beginning of the year.

The architect of the deal, Liu Suying, loves a comeback story. Last year he used another of his blank-check companies to relist the Playboy https://www.breakingviews.com/considered-view/playboy-slips-into-something-less-comfortable franchise. CH-Auto’s history and the deal’s timing, though, are likely to prove too risky even for electric-car devotees.

Follow @KatrinaHamlin https://twitter.com/KatrinaHamlin on Twitter

CONTEXT NEWS

– Chinese electric vehicle company CH-Auto Technology is to go public by merging with U.S. blank-cheque firm Mountain Crest Acquisition Corp. IV in a deal valued at nearly $1.7 billion, including $460 million of net debt, the two companies said on May 2.

– The transaction is expected to close in the fourth quarter of 2022.

(Editing by Antony Currie and Thomas Shum)

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



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