HONG KONG, Sept 17 (Reuters Breakingviews) – Chery Automobile is about to test whether investors have the stomach for the hazards facing China’s carmakers. The country’s largest autos exporter is about to make its market debut in Hong Kong at an equity value of up to $23 billion, according to a filing, opens new tab on Wednesday. At 11 times its $2 billion earnings last year, that’s richer than the multiples for fellow globetrotting peers such as Geely Automobile (0175.HK), opens new tab and Great Wall Motor (601633.SS), opens new tab, per Visible Alpha. It’s a hairy time for Chery to launch its initial public offering, as the industry faces price wars at home and rising trade barriers overseas.
Chery is rising to the first challenge. Last year, its domestic sales soared by 56% from 2023, compared with 3.1% growth across the industry. That was helped by sales of its electric cars and hybrids, which more than tripled over that period. But deliveries of its gas guzzlers increased, too.
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The second obstacle is trickier. Last week, Mexico, the top importer of Chinese vehicles this year, said it will hike tariffs on automobiles from the People’s Republic and other Asian countries to 50%. Last year, Russia – which at the time was the number one destination – introduced quasi-tariffs in the form of a recycling fee. The EU, Brazil and others have likewise raised duties. Meanwhile, Chery faces increasing competition as more Chinese brands are pushing overseas: exports rose by a fifth last year.
That forces a growing crowd of exporters to scrap over an increasingly fragmented collection of smaller markets, akin to picking meat off chicken ribs, per Yu Zhang, founder of consultancy Automotive Foresight. Chery’s sales are spread over more than 100 countries. But at least it has a first-mover advantage. The group started selling abroad in 2001 and has been China’s biggest autos exporter for more than two decades. It can try to lean on its established sales network and local research and development to keep newer rivals like BYD (002594.SZ), opens new tab at bay.
Dealmakers aren’t leaving too much to chance. The state-backed company is looking to raise as much as $1.2 billion from the listing, which will be marketed by seven Chinese bookrunners, lead by CICC, Huatai Securities and GF Securities. Cornerstone investors, including a posse of state-backed companies, have already committed to buying half of the offering.
Chery’s IPO will be closely watched. The manufacturer is one of multiple state-owned automakers working on Hong Kong listings. At least one, Seres (601127.SS), opens new tab, has also so far eschewed international investment banks, per a preliminary prospectus, opens new tab. If China’s most successful autos exporter can’t pull off a relatively rich valuation, others may need to apply the brakes to their ambitions.
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Editing by Antony Currie; Production by Aditya Srivastav
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Katrina Hamlin is global production editor, based in Hong Kong. She is also a columnist, writing on topics including autos and electric vehicles, as well as the gambling industry in Macau and Asia. Before joining Reuters in 2012, Katrina was deputy managing editor of Shanghai Business Review magazine. She graduated from the University of Oxford with an MA in Classics, and earned a Masters of Journalism with distinction from the University of Hong Kong.