Chip Hoarding Now in China’s Sights Hits EV Upstart Li Auto

(Bloomberg) -- Chinese electric vehicle startup Li Auto Inc. has been affected by the hoarding of semiconductor chips that has become the latest target of a government crackdown.

“We probably only have visibility of the next two or three weeks” of chip supplies, President Kevin Shen said in an interview with Bloomberg TV ahead of the U.S.-listed automaker’s debut on the Hong Kong stock exchange Thursday, which saw the shares fall. “We have to fight each day for the coming weeks supply.”

China’s state media last week warned that regulators will “show no tolerance” in cracking down on speculators in the chip market amid a supply shortage, and urged sellers to refrain from hoarding chips. The move follows tighter restrictions on overseas IPOs, directives for food-delivery firms to pay staff a living wage, escalating curbs on unaffordable housing, and a sweeping overhaul of the tutoring industry as the Communist Party reasserts control over key parts of the economy.

Asked if Li Auto had experienced some distributors holding back supply, Shen replied: “Yes.”

Some small chip distributors are “holding back inventories” which “gives another layer of complexity to the supply chain,” Shen said. “The government did the right thing.”

Still, he said the global chip shortage that has roiled automakers from BMW AG to General Motors Co. should start to ease by the end of this year.

“My outlook is by the end of the year, Q4, the situation will become much better, unless Covid-19 becomes much, much worse,” he said. Chip supplies from Malaysia have been particularly impacted from a fresh outbreak of Covid there driven by the more infectious delta variant.

While Li Auto is paying a “little bit of a premium” for chips, the overall impact on the company’s gross margin is “almost invisible” because chips account for only a small part of the total cost of a car, he said.

The Beijing-based company’s shares fell as trading started in Hong Kong after a $1.5 billion share sale. The stock dropped as much as 2.1% to HK$115.50 in early trading, compared to the offer price of HK$118.

Li Auto becomes the second U.S.-traded Chinese EV maker to list in Hong Kong after larger rival Xpeng Inc. raised $2.1 billion in a dual primary listing in the city in June. Mainland firms listed stateside have been seeking trading footholds in Hong Kong as a way to hedge against the risk of being delisted from American exchanges as well as broadening their investor base.

The company posted a 360 million yuan ($56 million) loss in the three months ended March 31, after a 108 million yuan profit the previous quarter. Its gross margin dipped to 17.3% in the first quarter of 2021 from 17.5% in the fourth quarter last year.

Shen downplayed the prospect of the firm seeking a listing on the mainland.

“That may not necessarily bring a lot more additional investors for us,” he said. “Listing in the Chinese stock market requires a lot of effort. A lot more effort than in Hong Kong or the U.S.”

©2021 Bloomberg L.P.

With assistance from Bloomberg