LCAA.US
Lotus Technology nears end of SPAC listing

The EV arm of Geely-controlled Lotus raised $870 million as it gets closer to becoming a public company through a SPAC listing

Key Takeways:

  • Lotus Technology has raised $870 million in the run-up to a SPAC listing backed by luxury giant LVMH, owner of the Louis Vuitton brand
  • Geely, which also owns Volvo, is concurrently working on an IPO for its Zeekr EV unit, spotlighting its deal-making prowess

  

By Warren Yang

Homegrown Chinese auto giant Geely Holding Group is continuing to build its credentials as a dealmaker in a new energy vehicle (NEV) space that it sees as a critical part of its future.

Late last month, Lotus Technology Inc., the electric vehicle (EV) arm of British luxury sports car brand Lotus, said it raised $870 million ahead of a listing on the Nasdaq by merging with L Catterton Asia Acquisition (LCAA.US), a special purpose acquisition company (SPAC) backed by luxury giant LVMH. Geely bought 51% of Lotus in 2017, adding it to its stable of global brands that also includes Volvo, Polestar and Proton.

The latest funding for Lotus Technology comes after it secured about $120 million in new financing earlier this year, bringing its total fundraising for the year to about $1 billion. The company plans to use its growing war chest to develop new products and technology and expand its global network.

Investors in the latest fundraising will receive publicly traded Lotus Technology shares after it completes the SPAC listing, which will leave about 19% of the company’s shares publicly traded. Lotus Technology said it aimed to complete the deal by the end of this year when it first announced the plan early in the year, but didn’t provide an update in its latest announcement.

As one of China’s best-known entrepreneurs, Geely founder Li Shufu certainly knows a thing or two about deal-making. He made global headlines in 2010 when his company acquired Volvo from Ford for $1.8 billion in cash and debt – a fraction of the $6.5 billion Ford paid for Volvo back in 1999, but still the largest overseas acquisition by any Chinese carmaker at that time. Geely went on to take Volvo public in 2021 at a market capitalization of $18 billion – earning a nice return for itself in its decade of ownership.

Geely seems to quite enjoy engineering similar deals for its growing portfolio of companies. It acquired Polestar in 2015 through Volvo, and last year took the company public through a SPAC listing. And last December, Geely-backed autonomous driving startup Ecarx (ECX.US) became a publicly traded company through another SPAC deal. Geely is also now working on a New York IPO for its main EV brand, Zeekr Intelligent Technology. Its oldest listed unit, Geely Auto (0175.HK), went public in Hong Kong in back in 2005.

Back to Lotus Technology, whose latest funding values it at $5.5 billion. That represents another big jump from the $235 million Geely paid for its 51% stake in all of Lotus, as well as 49.9% of Malaysian automaker Proton back in 2017. Of course, we should also note that Geely pumped $3 billion of its own funds into Lotus to revive the brand, including $1.3 billion for a new factory in the Central China city of Wuhan. 

Strategically critical

Lotus Technology will play a key role in the British luxury brand’s future growth. Lotus aims to become an EV-only carmaker by 2028, similar to Volvo’s plan to phase out all combustion engine models by 2030. Lotus also wants to go from a niche player to a more mass carmaker with annual sales of 150,000 units by 2028, presumably by picking up share from its peers through its relatively early big bet on EV technology.

Lotus Technology projects its annual revenue will balloon from an estimated $900 million to $1.2 billion this year to as much as $8.6 billion in 2025 as it introduces new models. As its sales rev up, the company also expects its profitability to improve significantly, with a gross profit margin of 21% by 23% in 2025. Such a margin would be comparable to the much larger and profitable Tesla’s (TSLA.US) for last year.

In March, Lotus Technology launched its first model produced at the Wuhan factory — the Electre, which is also the brand’s first sport utility vehicle (SUV). The company plans to roll out three more new models in the next two years, including a fully electric one called the Emeya, which was unveiled in September and will start mass production in Wuhan next year.

Lotus Technology’s SPAC listing gives it a pro-forma enterprise value of about $6.1 billion — $6.3 billion in equity plus $673 million in debt minus cash holdings — according to the company’s latest investor presentation on the deal in October. That’s about 1.2 times its estimated revenue for 2024, far lower than 7.75 for Tesla, based on Tesla’s trailing 12-month revenue.

That means Lotus Technology shares may look cheap when they finally hit the market. But such a discount could be justified due to the company’s lack of a track record. And carrying price tags of $100,000 or more, Lotus cars will be targeting a far smaller segment of the market than Tesla’s more mainstream models. The Chinese EV market is already fiercely competitive, as numerous new ventures and older brands increasingly switch their focus to the environmentally friendlier products.

Only time will tell if Geely’s many bets will pay off, though its past record looks quite strong. Acquisitive Chinese companies like Geely aren’t uncommon. But what sets it apart from others whose empires have later crumbled is its ability to focus on its core car-making, adding pieces that seem to complement its existing businesses and then investing heavily to help them succeed.

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