UPower IPO Sparks Skyrocketing Stock Price, Then Crashes Back Down To Earth

Key takeaways

• Chinese EV battery company UPower saw highs of 1100% at one point on its Nasdaq-listed IPO
• Chinese IPOs have become the hottest market, raising $14.5 billion this year so far
• New regulations from China mean we could see more IPOs coming, but the microcap trend is a concerning one for investors

Wall Street witnessed a rollercoaster ride last week as Chinese EV battery company UPower debuted on the market, hitting stratospheric highs of 1100% before crashing back down. The stock is the latest in a series of Chinese IPOs that have burned brightly before fizzling out in a few days, prompting concern from Wall Street.

Offshore Chinese IPOs have had a rocky 18 months after suffering from sustained Covid-19 restrictions, a regulatory freeze and Chinese state scrutiny. While the domestic Chinese IPO market has flourished and new rules from China on offshore IPOs are here, we could see US investors taking a bite from the Chinese IPO pie.

But with these IPOs proving so volatile, could investors be turned off at the prospect? Let’s assess how the UPower IPO went, what the context is for Chinese IPOs of late and whether this is a sustainable trend for investors to look at capitalizing on.

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What happened with the UPower IPO?

For those not in the know, UPower is a Chinese company which describes itself as a ‘EV sourcing services provider’. Little else is known about the company, including its yearly revenue.

UPower listed its shares on the Nasdaq for $6, with WestPark Capital as the single book runner. Trading was halted 22 times as UPower’s share price quickly laddered up. At one point prices hit $75 – 1100% up – before closing the session at $43.

But it’s all come crashing down just as quickly as it began. By Friday the shares were trading at around $28 and in pre-trading on Monday, UPower stock is now looking at a massive 81% loss to just $7.83.

The company expected to raise $14.5 million from the IPO that closed on Friday, which it planned to use for working capital and improving its EV battery-swapping stations.

China’s booming IPO market

To understand why the UPower IPO went the way it did, we need to take a look at the wider picture. There’s been a lot going on behind the scenes with Chinese IPOs in a bid to clean up their image. China first implemented a regulatory freeze in the summer of 2021, also clamping down on Chinese Big Tech businesses at the same time. Covid-19 restrictions in the country have also throttled some businesses.

As a result, Chinese IPO listings in the US raised just $536 million in 2022, down 96% from the highs of 2021. In December 2022 it was announced that over 200 Chinese companies were safe from being kicked off of US stock exchanges after the US accounting watchdog, the Public Company Accounting Oversight Board (PCAOB) was allowed to investigate Chinese companies for the first time ever.

Business behemoths like Alibaba, Baidu and Tencent would all have disappeared from US markets had the deal not been reached.

In February the China Securities Regulatory Commission (CSRC) published new rules on regulating offshore listings, such as in the US, including data security reviews for specific sectors and companies not negatively impacting China’s national interests. The rules end decades of essentially no regulation for Chinese IPOs.

It’s good timing, because the domestic Chinese IPO market has been booming for a while in sharp contrast to the rest of the world. In 2022 the Shanghai and Shenzhen stock exchanges topped the global IPO leaderboard, with 404 businesses raising $78.67 billion. It’s not slowed down this year: Chinese IPOs have raised $14.5 billion in 2023, with Wall Street raising just a quarter of that.

IPOs: A cautionary tale for investors

UPower’s price spiked so high because the company only sold a relatively small amount of shares at the IPO – roughly 3.3 million. Demand quickly outstripped supply, leading to the price climbing higher and higher.

Perhaps it was a clever stunt to guarantee a successful IPO amid an otherwise difficult economic climate – UPower certainly made headlines, with the IPO becoming the best debut to list this year after blowing Multi Ways Holdings Ltd’s 255% rally out of the water.

It’s not the first time a Chinese company floating on the market has pulled this trick: advisory firm Magic Empire Global’s shares surged 5,800% when its IPO launched last year, as did tech firm AMTD Digital which saw an eye-popping 32,000% increase back in July.

Both had low share amounts to trade, driving the price up astronomically. The short-lived surges were so unusual that the Nasdaq briefly halted Chinese IPOs last year to investigate.

IPOs aren’t for the faint-of-heart investor but if this trend continues, there’s even more risk involved. It’s possible we’ll see the PCOAB and US stock exchanges raise a red flag, prompting further reform from China’s securities board, but baby steps are needed, given heightened geopolitical tensions between the two countries.

The bottom line

UPower’s blistering debut on the market shows these Chinese micro-cap stocks are high-risk and high-reward – certainly not stocks anyone should plough their life savings into, despite the allure of the returns the EV market is set to generate.

But Chinese IPOs are set to come back to the US in a major way now regulatory hurdles have been cleared, paving the way for larger and more established companies to try their luck at Wall Street. These may bring better and more sustainable returns for the savvy trader willing to take a risk – let’s see how the year unfolds.

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