Chinese EV maker Hozon closes $445m Series D3 roundIt is reportedly mulling a Hong Kong IPO that could raise about $1b

Chinese emerging electric vehicle (EV) firm Hozon Auto has closed over 3 billion yuan (about $445 million) to boost the total fundraising scale of its Series D round to nearly 10 billion yuan ($1.5 billion).

The new funding is the third tranche following the completion of Hozon’s Series D1 and D2 rounds in the fourth quarter of 2021. The fresh capital will be used in new product R&D, technological innovation and expansion of manufacturing facilities, the startup announced in a recent statement.

The remaining part will replenish Hozon’s working capital, as it plans to “speed up the revamp of the firm’s shareholding structure”, said the startup in the statement.

Chinese investment companies, such as fund of funds (FOF) Qianhai FOF and its general partner (GP) Shenzhen Capital Group, invested in the new tranche. Insight Capital, consumer industry-focused investment firm Dayone Capital, and Hongtai Aplus, which is backed by private education group New Oriental’s founder Michael Yu, were also among investors in the deal.

Hozon completed the Series D round as it was reportedly mulling a Hong Kong initial public offering (IPO) that could raise about $1 billion, Bloomberg reported in November 2021, citing people familiar with the matter. The people said Hozon’s market debut could potentially happen as soon as this year.

Founded in 2014, Hozon currently sells three EV models under the “Nezha” brand, with a starting price of under $10,000, less than a third of Tesla’s cheapest sedan in China. The firm booked a 199% year-over-year increase in sales, delivering 63,131 EVs in the first six months of 2022. In total, it claims to have produced and sold over 160,000 vehicles.

Its reported Hong Kong listing plan makes Hozon one of China’s many venture-backed EV manufacturers targeting a public share sale in the Asian financial hub.

In March, Leapmotor Technology, whose investors include Sequoia Capital China and Chinese video surveillance company Zhejiang Dahua Technology, filed for an IPO in Hong Kong that could reportedly cross $1 billion.

In June, Chinese search engine giant Baidu-backed WM Motor also applied to list in the city, after Bloomberg reported in November last year about its target of raising approximately $1 billion. Their forerunners Xpeng, Li Auto and NIO are already listed on the Hong Kong stock exchange.

With its headquarters in eastern China’s Jiaxing City, Zhejiang Province, Hozon could ride on its strong sales growth in H1 2022 to move ahead with the listing plan. At 63,131 units, its half-year sales performance has exceeded that of domestic rivals, including Li Auto, Nio and Leapmotor, which delivered 60,403 units, 50,827 units, and 51,994 units during the same period, respectively. Xpeng leads the pack with half-year sales of 68,983 EVs, up 124% YoY.

Rising losses

Despite Hozon’s business traction, 360 Security Technology, one of Hozon’s biggest shareholders, seems to be getting cold feet about the startup’s accumulating losses at a time of global market turmoil.

Against its 2021 revenue of over 5.7 billion yuan ($844.9 million), Hozon suffered losses of 2.9 billion yuan ($429.9 million), more than doubling the 1.3-billion-yuan loss in 2020. Its total liabilities amounted to more than 8.3 billion yuan ($1.2 billion) as of December 31, 2021, according to disclosures made by 360 to the Shanghai stock exchange in June.

The Chinese Internet security giant disclosed Hozon’s 2021 financial results as it gave up its right to invest an additional 1 billion yuan ($148.2 million) in Hozon — part of 360’s conditional commitments to the startup’s Series D1 round.

As the lead investor, 360 had agreed in October 2021 to invest a total of 2.9 billion yuan ($430 million) in Hozon, which could have made it the startup’s second-largest shareholder with a 16.6% stake. It completed the first two transactions totalling 1.9 billion yuan ($281.7 million) in December last year but later decided to transfer the right of investing the remaining 1 billion yuan for a 3.5% stake in Hozon to another two investment platforms.

The recipients of the billion-yuan investment right are parties acting in concert with Hozon’s management team, the company said in its official response on June 27. The startup said the decision will help it “improve corporate governance structure, strengthen the control power of the management team, and ensure long-term, sustainable development of the business”.

In October 2021, Hozon announced the completion of its 4-billion-yuan ($592.3 million) Series D1 round at a post-money valuation of $4 billion.

One month later, Chinese battery giant Contemporary Amperex Technology Co Limited (CATL) participated in Hozon’s Series D2 round as a strategic investor. But more details of the previous deal, including its transaction size and other investors’ information, were not disclosed.

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