Zeekr’s buyout stalls, and Chagee’s returns cool

By Doug Young & Johnny Zou

The automotive and beverage sectors in China are offering textbook cases of strategic corporate maneuvering that deserve closer attention. Geely (0175.HK) is trying to privatize its Zeekr (ZK.US) electric vehicle arm just one year after Zeekr’s New York IPO. Meanwhile, Chagee’s (CHA.US) disappointing inaugural earnings report demonstrates the brutal economics of scale in highly competitive consumer markets. Both developments signal broader trends that will reshape China’s corporate landscape.

Geely’s privatization offer for Zeekr has sparked an unusual backlash from pre-IPO investors that reveals deeper tensions in Chinese corporate governance. When electric vehicle maker Zeekr listed in New York last May, it represented a rare major IPO by a Chinese company in the U.S. Now, barely a year later, parent company Geely has shifted gears, offering to take Zeekr private at a 20% premium to its IPO price. Yet this move has encountered resistance from heavyweight pre-IPO investors including battery giant CATL, Boyu Capital, and online video company Bilibili, who have complained the offer undervalues Zeekr.

This standoff is particularly intriguing because Geely already owns two-thirds of Zeekr’s shares, giving it more than enough voting power to approve any privatization bid at whatever price it chooses. The investors’ pushback, while lacking voting leverage, appears to be a calculated relationship play. These are influential potential partners for Geely’s future endeavors, and mismanaging these relationships could prove costly in China’s relationship-driven business environment.

The valuation discrepancy itself is revealing. Zeekr trades at a remarkably low price-to-sales (P/S) ratio of just 0.63, compared to Li Auto’s 1.5 and XPeng’s ratio of more than 2. This significant “conglomerate discount” reflects market skepticism about Zeekr’s independence under Geely’s umbrella. Investors recognize that Zeekr lacks autonomous decision-making power, as evidenced by this very privatization attempt. Additionally, Zeekr’s lower price points relative to premium EV competitors like Nio and Li Auto expose it to fiercer competition in China’s increasingly crowded electric vehicle market.

From a strategic perspective, Geely founder Li Shufu appears to be rationalizing his company’s sprawling portfolio, which includes British car brand Lotus and Sweden’s Volvo and Polestar, all separately listed. This consolidation echoes Alibaba’s reversal of its plans to separately list various business units — a recognition that sometimes the sum of the parts doesn’t yield a better outcome than a unified entity. We believe Geely has calculated that bringing these operations under one umbrella will ultimately fetch higher valuations than maintaining them as standalone entities.

While politics clearly influences decisions about U.S. listings for Chinese companies like Zeekr’s, we view Geely’s move as primarily business-driven. Though Chinese IPOs in New York have nearly halted while Hong Kong listings continue, this reflects improved liquidity in Hong Kong’s markets as much as geopolitical concerns. Hong Kong’s average daily trading volume has approximately doubled year-over-year, making it an increasingly viable alternative for Chinese companies seeking public capital.

Milk tea’s bitter economics: Chagee’s returns cool down

In a starkly different sector but facing similar strategic challenges, milk tea chain Chagee’s first post-IPO earnings report reveals the harsh realities of China’s hyper-competitive consumer landscape. Despite raising an impressive $400 million in its Nasdaq debut — making it the largest Chinese listing in New York this year — Chagee’s maiden quarterly results tell a sobering story of diminishing returns. While its store count surged 63% year-over-year to 6,681 locations, revenue grew at just 35%, reflecting declining performance per outlet. Investors responded by sending Chagee’s shares down 10%, erasing all post-IPO gains.

This performance illustrates the “fashion risk” inherent in China’s fickle consumer market, where consumer preferences shift rapidly. Just two years ago, HeyTea dominated the premium segment; today, the competitive landscape looks entirely different. We recognize Chagee’s early success in digital marketing and brand-building. But at over 5,000 stores, their challenges have fundamentally changed. The company now essentially manages a portfolio mirroring the broader Chinese retail economy, complete with its current headwinds.

The steep decline in same-store sales growth presents a particularly troubling indicator. This common affliction among Chinese retailers has pushed Chagee to pursue aggressive overseas expansion, particularly in markets with significant Chinese populations. When visiting London, we observed queues at a local outlet for Chagee rival HeyTea, with approximately 80% Chinese customers and 20% local patrons. While international locations can command higher prices and margins, they also face higher startup costs and eventually encounter the same competitive pressures as domestic stores.

The fundamental challenge for Chagee and its competitors is the absence of a sustainable moat to keep competitors at bay. Unlike technology businesses with proprietary advantages, milk tea chains rely primarily on marketing, concepts, and catering to youth preferences — all easily replicable advantages. For Chinese consumers, milk tea remains a discretionary spending item rather than a staple, making these businesses particularly vulnerable to economic downturns and changing consumer preferences.

We anticipate significant consolidation ahead in this sector. With same-store sales declining by double digits, operators must either close underperforming locations or pursue acquisitions. The winners will likely be those who, like Luckin Coffee in the coffee segment, can maintain quality while aggressively managing costs.

The contrasting yet parallel stories of Zeekr and Chagee demonstrate how Chinese companies are recalibrating their strategies in response to market realities. Whether retreating from U.S. capital markets or battling saturated domestic competition, these moves may reflect a corporate landscape where strategic consolidation and disciplined growth are replacing the aggressive expansion of years past.

Johnny Zou is a veteran venture capital investor. He mainly focuses on investments in AI, medical technology, medical equipment tech, cloud, shared economy, and cross-border areas. Johnny holds a Bachelor of Arts in History from Yale University and a Master of Science in Economic History from the London School of Economics and Political Science.

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China Inc by Bamboo Works discusses the latest developments on Chinese companies listed in Hong Kong and the United States to drive informed decision-making for investors and others interested in this dynamic group of companies.

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