Chinese electric car and battery firm Build Your Dreams (BYD) has announced that its Initial Public Offering (IPO) on the Shenzhen Stock Exchange raised just $219 million, 65% of what the Warren-Buffet backed firm had hoped to raise.
But was the $177 million delta between the actual money raised and what BYD had hoped to obtain down to an over-inflated evaluation, a lack of confidence in the company, or simply market conditions?
In recent years, investment in green tech firms has been good, with many renewable energy and green transport firms raising significant funds through IPOs
Take Californian electric automaker Tesla, for example. When the firm offered its IPO in June last year, the firm netted more than $226 million for the company, with its share price rising by 41 percent in the first day of trading.
Not so for BYD.
Henri Li, BYD
On the Hong Kong stock market, shares in BYD have dropped nearly 50 percent in just 10 months, along with those of similar Chinese firms. Amidst growing concern about the Chinese economy, that isn’t set to change any time soon.
And in May this year, the Chinese government ended many of its tax incentives and subsidies aimed towards encouraging Chinese consumers to buy Chinese-made automobiles.
With those incentives gone, many of BYD’s prime customers are simply unable to afford a car, while those who can are choosing to by cars made by reputable foreign brands like General Motors, Nissan, Toyota and Volkswagen in the Chinese equivalent of keeping up with the Jones.
BYD e6 at 2011 Geneva Motor Show, photo by Robert Llewellyn
It’s this Chinese middle-class demand for foreign brands which prompted BYD to enter into an electric car partnership with German automaker Daimler, but while the partnership is planning its own electric car to sell in China, that doesn’t help BYD with rollout of its all-electric e6 crossover SUV.
BYD has promised that the e6 will hit U.S. showrooms by the end of this year, but with only a handful of negative reviews to its name, the e6 could be the next big headache for the Chinese firm - unless it can quickly improve on the car's build-quality, ride comfort and sluggish acceleration.
Any money raised by the IPO was due to be spent by BYD on research into new lithium-ion battery packs and to expand its product range, but perhaps it would be better suited to making the e6 truly ready for the U.S. market.