Geely's $7 bln Lotus deal breaks speed limit

Lotus Technology

28/02/2024 04:02

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are her own.)
    By Katrina Hamlin
       HONG KONG, Feb 28 (Reuters Breakingviews) - Lotus Tech
 LOT.O  is pushing too hard on the accelerator. The storied
marque's new offshoot, which is focused on electric cars, has
listed in New York via a deal with a blank-cheque group. But
it's hard to justify its racy valuation.
    Granted, since the merger with special-purpose acquisition
company L Catterton Asia Acquisition Corp closed on Friday,
shares have fallen by almost a fifth. That gives the company a
market capitalisation of nearly $8 billion, 12% above the
initial value ascribed to the deal in December. Factor in debt
and cash as reported for the end of September, and the
enterprise is worth $6.9 billion, or roughly 1.4 times Lotus'
sales forecast for 2024. The companies argue that comparisons
with fellow high-end brands make Lotus relatively good value.
The figure for Aston Martin  AML.L  is similar, while Ferrari'S
 RACE.MI  business clocks in at more than 10 times this year's
revenue forecast, per Visible Alpha.
    But it's not an apples-to-apples comparison. Lotus Tech
intends to be the first of the traditional luxury automakers to
turn fully electric. Fueled by $880 million of new investment
raised as part of the merger, it is phasing out gas guzzlers by
2027 and introducing electric models like the Eletre
sports-utility vehicle, which are less expensive than its famous
sports cars.  
    So it makes more sense to factor in how other
battery-powered brands are performing. Slower sales growth is
dragging on EV specialists including Nio  9866.HK , Xpeng
 9868.HK  and Polestar  PSNY.O , whose ventures are all worth
less than forecast revenue for 2024, according to Visible Alpha.
    
    True, the relationship with Geely could give the group an
edge. Lotus is outsourcing the bulk of production to the Chinese
auto giant, which bought a 51% stake in 2017. Making new
electric sedans and SUVs at their parent's plant in Wuhan
promises to be much less costly than the legacy production base
in the UK, where Lotus sports cars are crafted.  
    But angst over China's rocketing auto exports has grown
since the deal was first announced last year. The EU is
investigating a "flood" of Chinese cars and considering tariffs,
while the U.S. is making it harder for any Chinese-produced
goods and components to enter the electric-vehicle supply chain.
    Shares in Polestar, another premium electric-car badge in
the Geely garage that went public through a deal with a SPAC,
have lost more than 90% of their value since peaking in 2021.
Lotus' investors might also find they need to reduce their
speed.
    Follow @KatrinaHamlin on X
    
    CONTEXT NEWS
    Special-purpose acquisition company L Catterton Asia
Acquisition Corp completed a deal to purchase carmaker Lotus
Technology on Feb. 23, according to a statement released by
Lotus. 
    Lotus Tech's shares closed at $11.3 on Feb. 27, giving the
company a market capitalisation of $7.86 billion. 
    The company had debt of $566 million, cash and cash
equivalents of $1 billion and an existing cash balance of $470
million as of Sept. 31, according to a presentation published in
December. 
     

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Shares in electric-car makers struggle to keep up with Ferrari  
 https://reut.rs/4bNI0C6
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 (Editing by Antony Currie and Nivedita Bhattacharjee)
 ((For previous columns by the author, Reuters customers can
click on  HAMLIN/ 
katrina.hamlin@thomsonreuters.com; Reuters Messaging:
katrina.hamlin.thomsonreuters.com@reuters.net))