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Author | Chai Xuchen

Editor | Zhou Zhiyu

Two years ago, Heizhima confidently declared that it would "share the world" with Nvidia in the field of intelligent driving chips in the future. Now, it is about to open the door to IPO and realize this long-cherished wish.

On July 31, Heizhima Smart announced the launch of its IPO, planning to sell 37 million H shares globally, with a price range of HK$28-30.3 per share, raising a maximum of approximately HK$1.121 billion. It is expected to be listed on the Hong Kong Stock Exchange on August 8.

Heizhima can also take this opportunity to win the title of "Hong Kong's No. 1 Intelligent Driving Chip Stock" and, with the help of capital, continue to consolidate its leading position in the industry.

Heizhima Intelligence was founded in 2016, almost at the same time as many new forces, but it has become a global top three supplier of automotive-grade high-computing chips in terms of shipments.

The prospectus shows that from 2021 to 2023, Heizhima's revenue will increase from 60.5 million yuan to 312 million yuan, and the proportion of intelligent driving will increase from 56.6% to 88.5%.

Due to its early entry and sufficient focus, Heizhima has been warmly welcomed in the industry. Well-known automobile companies and Tier 1 companies such as FAW, Dongfeng, JAC, Hycan, Ecarx, Baidu, and Bosch are all its designated customers.

Not only did the clients push Heizhima to the top of the industry, most of them also became investors in Heizhima, forming a deep relationship with it. Car companies including Xiaomi, Tencent, Weilai Capital, and Geely Holding are also its shareholders. Before the IPO, Heizhima had already won 10 rounds of financing, with a valuation of US$2.218 billion (approximately RMB 15.5 billion).

The reason why Heizhima is surrounded by car companies and Tier 1 companies is that it tells the story of "replacing" Nvidia, which is indeed tempting for the former.

With the rise of the automotive intelligence wave, high computing power has become a rigid requirement for building smart driving and smart cabins. What Heizhima needs to do is to provide automakers with automotive-grade high-computing SoC chips, as well as solutions based on SoC and algorithms.

However, in the past few years, Nvidia has been the only dominant player. Relying on its huge business in the AI ​​field, Huang Xiaoming's expensive Orin chip has easily "harvested" domestic and foreign car companies.

The reality is that consumers' interest and expectations for smart cars and intelligent driving are increasing, but their willingness to pay and the amount of money they pay are generally on a downward trend. Li Bin once complained that NIO sold 160,000 cars last year and spent more than $300 million on purchasing Orin chips.

Under the dual pressure of intelligentization and price war, the cost performance of chips has become an important factor for car companies to choose. A supply chain insider revealed that "the market competition is too fierce. Products that sold well one or two years ago are now considered expensive by customers. Everyone is working hard to reduce costs."

For domestic players such as Heizhima, opportunities also come.

"The need for automakers to reduce costs and increase efficiency means that we need to have a certain volume of products installed in vehicles," said Yang Yuxin, CMO of Black Sesame.

In response to this market, Heizhima launched the "Huashan" and "Wudang" series SoCs. The former is a dedicated chip for intelligent driving, and the latter is a cross-domain chip that integrates intelligent driving, intelligent cabin, body control and other computing functions. Heizhima has reduced the cost of urban NOA to 3,000 yuan. It has raised the cost-effectiveness to a higher dimension.

However, in order to attract users, Black Sesame also paid a considerable price.

In the three years from 2021 to 2023, its R&D expenditure increased from 595 million to 1.363 billion yuan, and last year's R&D expenses were more than four times its annual revenue. As a result, the scale of losses continued to expand, from 2.357 billion to 4.855 billion yuan, burning nearly 10 billion yuan in three years.

The prospectus shows that in addition to research and development, the huge sales and general and administrative expenses are the sources of losses. As the sales scale expands, the gross profit margin of black sesame has been "diluted" year by year, from 36.1% in 2021 to 24.7% last year.

This means that Heizhima is trying to attract customers by using the two cards of "trading price for volume" and "focusing on research and development", which indirectly reflects its eagerness to increase volume and grab market share.

Because what it is targeting is a gold mine with huge imagination space.

Frost & Sullivan predicts that by 2028, the global automotive-grade SoC chip market will exceed 200 billion yuan. Among them, intelligent driving will be a rapidly expanding sector. By then, the penetration rate of intelligent driving in passenger cars around the world will reach 94.4%, and China will reach 97.2%. In the Chinese market alone, the scale will reach 35.9 billion yuan, and the global market will reach 71.3 billion yuan.

Beneath the gold mine, there are "a pack of wolves lurking around".

According to Frost & Sullivan data, NVIDIA maintained its leading position in China's high-computing intelligent driving SoC shipment list last year with a share of over 70%.

Although Heizhima ranks third, its share is only 7.2%, which is only 1/12 of Nvidia's size; Horizon Robotics ranks second, which has occupied 14% of the market share, and Huawei HiSilicon and Qualcomm are eyeing it from behind.

What’s more serious is that Black Sesame’s customer loyalty has also declined. The prospectus shows that “Customer A”, which previously contributed nearly half of Black Sesame’s sales, only accounted for 15.2% last year; during the reporting period, the other top five customers also changed frequently. In addition, car companies such as Weilai, which are Black Sesame’s investors, chose to develop their own chips, becoming its indirect “challengers”.

How to maintain the scale and gain more recognition from customers is the most important issue for Heizhima. According to industry insiders, the shipment volume directly determines the upstream costs, and chip companies can only achieve profitability if they achieve sufficient shipment volume.

Yang Yuxin admitted that the cost-performance strategy will indeed cause periodic cost pressure. For intelligent driving chip manufacturers, both opportunities and risks come from this. It is both the "honey" of the times and the "poison pill" that drags down the company's cash flow.

Before achieving self-sustaining growth, Black Sesame must overcome the hurdle ahead and expand its size with the help of capital. However, since 2022, it has not received any new financing in the primary market.

As of the end of last year, Heizhima had 1.298 billion yuan in cash on hand. The prospectus stated that assuming the average cash consumption rate remains at 87.9 million yuan in the future, this amount of funds will only be enough to sustain the company for 15 months.

In the midst of the industry's "money-burning competition", IPO has become a key channel for Heizhima to replenish its ammunition. Heizhima said that 80% of the funds raised from the IPO will be used for research and development in the next five years.

However, going public can only solve the problem temporarily. The key to Black Sesame's comeback is to fully improve its product strength and commercialization capabilities. In the process from 1 to N, Black Sesame needs to stand out in terms of technology, market and model in order to truly share the world with giants such as Nvidia.