Ali (09988) trades the truth about "Xiaopeng Motors"

Hong Kong Reuters reported on November 15 that "Alibaba (09988) increased its holdings of nearly 24.66 million shares of Xiaopeng Motors ADS" has been widely circulated. However, this may be a false news! In fact, the truth is in the opposite direction - Alibaba not only did not increase its holdings of Xiaopeng in the third quarter! Instead, after converting common stock to ADS, Alibaba can easily reduce its holdings of Xiaopeng Motors at any time! And, this reduction is very likely to happen! Buying more is a mistake On November 14, local time, Alibaba's 13F filing with the U.S. Securities and Exchange Commission showed that as of September 30, Alibaba's holdings of Xiaopeng Motors ADS had increased to 31.309 million shares. As of June 30, Alibaba held 6.65 million shares of Xiaopeng Motors ADS. In the third quarter, Alibaba's holdings of Xiaopeng Motors ADS increased by nearly 24.66 million shares. Some media have speculated based on this news that Alibaba has significantly increased its holdings of Xiaopeng Motors in the third quarter. In fact, this speculation may have caused a misunderstanding. Alibaba, which is in the process of shrinking its business and disposing of non-core assets, why would it go back on its heels? This is not a logical trading behavior! As a strategic investor, Alibaba owns Xiaopeng's common stock itself. The source of ADS may also come from the conversion of common stock, and it does not necessarily have to be bought with real money on the market. In the afternoon, informed sources also pointed out that Alibaba converted its holdings of Xiaopeng's common stock into ADS, which is a conversion process. 13F requires disclosure of U.S. stock holdings, so it will show an increase in holdings, but in fact, it is a change of position, not an increase. Table: By the end of 2023, Alibaba's continuous holding of Xiaopeng Motors has dropped to 7.52% Chart source: Wind Why convert to ADS? ADS is a financial instrument traded on the American Stock Exchange, denominated in dollars for the convenience of international investors. Xiaopeng Motors is listed on the US stock market as ADS, not common stock. By converting Xiaopeng's common stock to ADS, Alibaba can easily sell Xiaopeng common stock in the US market. Combining Alibaba's recent trading behavior towards Xiaopeng, one should have a rough judgment on this conversion of ADS. In December 2023, Alibaba sold 25 million shares of Xiaopeng Motors ADS for a total transaction value of approximately 391 million US dollars (about 2.7 billion yuan). This reduction reduced Alibaba's stake in Xiaopeng Motors from 10.2% to 7.5%. Subsequently, Alibaba made another reduction of 33 million shares of Xiaopeng Motors ADS in March 2024, equivalent to about 2.2 billion yuan. After this reduction, Alibaba's stake in Xiaopeng Motors has fallen below 5%. In other words, over the past year, Alibaba's trading direction towards Xiaopeng Motors has been consistent - selling; the two transaction sizes are also similar, one is 25 million shares, the other is 33 million shares. Before this transfer, i.e., at the end of the second quarter, Alibaba only held 6.65 million ADS of Xiaopeng Motors. This size was already significantly smaller than the previous two reductions. After adding 24.66 million ADS, it reached 31.3 million shares. Please note this size, which is already roughly equivalent to the sizes of the previous two reductions! Alibaba's Xiaopeng investment process and recent trading background Alibaba first invested in Xiaopeng Motors in 2018, participating in its Series B financing. Before Xiaopeng Motors' IPO on the Nasdaq in 2020, Alibaba increased its investment in Xiaopeng once again. In this round of investment, Alibaba, as one of the main investors, further deepened the cooperation between the two parties. This investment helped Xiaopeng achieve a higher valuation and market recognition before its IPO. As a strategic investor, Alibaba not only provides capital to Xiaopeng but also provides technical support. The two parties have cooperated in the field of smart cars, using Alibaba Cloud's cloud computing and data processing capabilities to enhance Xiaopeng Motors' intelligent connectivity experience. In addition, Xiaopeng Motors has also introduced Alibaba's smart voice assistant, AliGenie, to provide users with a more intelligent in-car experience. In 2023, Alibaba further increased its stake in Xiaopeng Motors. With the rapid growth of the smart car market, Alibaba is optimistic about Xiaopeng's technological innovation and market potential. However, in 2023, Alibaba began a major strategic adjustment. Not only did it undergo a "1+6+N" organizational restructuring, but senior executives also underwent major changes. Daniel Zhang succeeded Jack Ma as Chairman of Alibaba Group, and Zhang Yong, former Chairman and CEO of Alibaba Group and Chairman and CEO of Alibaba Cloud Intelligence Group, stepped down. In terms of business adjustments, the distinction between core and non-core businesses was clarified. That is, after Alibaba's strategic adjustment, the market saw Alibaba's continuous reduction in Xiaopeng Motors. Furthermore! On October 25, local time in the United States, Alibaba Group announced that it had agreed to pay $435 million to settle a class action lawsuit filed by investors in the United States. According to Xiaopeng Motors' stock price during this period, Alibaba's total market value after converting common stock to ADS is about $400 million. Hopefully, there is no connection between these two events.