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Author | Wang San, TideSight (ID: TideSight) Editor | Eucommia ulmoides

This company, which is ranked third in the general industry, has won the title of "the first domestically produced autonomous driving chip stock" on the Hong Kong stock market.

On August 8, 2024, Black Sesame Smart International Holdings Co., Ltd. was listed on the Hong Kong Stock Exchange. The IPO issue price was set at HK$28 per share. 37 million shares were sold globally, raising HK$1.036 billion. The current market value exceeds HK$12 billion.

In the increasingly popular and competitive smart driving market, many companies that are losing money are queuing up outside the Hong Kong Stock Exchange. The commercialization process of autonomous driving has exceeded many people's expectations, and the localization of its key technologies has also arrived at the eve of an explosion ahead of schedule.

It turns out that developing a tiny chip is so expensive.

Huge losses and loss of customers

Black Sesame Intelligence was founded in 2016. The company's business covers two major areas: autonomous driving chips and solutions, and intelligent imaging solutions. Among them, autonomous driving chips and solutions are the mainstay of Black Sesame Intelligence's revenue, currently accounting for 88.5%.

In terms of products, since the first launch of Huashan A1000 in 2019, Heizhima Intelligence has formed two major product line systems: Huashan series and Wudang series.

Among them, the Huashan series mainly includes: A1000L for L2 and L2+ markets, A1000 for L2+ and L3 markets, A1000 Pro for L3 market, and A2000 which is under development to meet the market demand of L3 and above; the Wudang series is a cross-domain intelligent driving chip that integrates cabin and driver, and the C1200 product line has been launched.

In addition, Heizhima Intelligence also sells supporting software for autonomous driving. In its prospectus, it cited information from Frost & Sullivan, saying that it is one of the first companies in China to generate revenue by selling autonomous driving solutions.

(Source: Black Sesame Intelligence Post-Hearing Information Package)

After the software and hardware products entered the market, the revenue structure of Heizhima Intelligent changed rapidly, and the revenue share of autonomous driving products and solutions soared from 56.6% in 2021 to 86.0% in 2022. In 2022, Heizhima Intelligent's Huashan A1000 and A1000L were officially mass-produced.

After achieving mass production, Heizhima Intelligent's customer base will expand simultaneously, from 45 in 2021 to 85 in 2023, and it will cooperate with 49 automotive OEMs and Tier 1 suppliers, including FAW, Dongfeng, Geely, JAC, Hycan, Ecarx, Baidu, Bosch, ZF, Magneti Marelli, etc.

As the customer base grows, Heizhima Smart's revenue structure also changes. From 2021 to 2023, the revenue from the largest customer will account for 40.7%, 43.5% and 15.2% respectively, and the revenue from the top five customers will account for 77.7%, 75.4% and 47.7% respectively.

Another set of data is even more noteworthy. From 2021 to 2023, the customer retention rates of SoC-based solutions in Heizhima's intelligent autonomous driving products and solutions were 0%, 60%, and 37% respectively; the customer retention rates of algorithm-based solutions were 50%, 33%, and 29% respectively, all showing a downward trend.

(Source: Black Sesame Smart IPO prospectus)

Judging from the changes in the top five customers, in 2021, the top five customers of Heizhima Intelligence were Customer A, Wingtech Technology Group, Customer B, Customer C, and Customer D. But by 2023, its top five customers were Customer F, Customer D, Customer G, Customer H, and Customer I, with only Customer D being an old customer in 2021.

In 2021 and 2022, Customer A accounted for more than 40% of Black Sesame Smart's total revenue, but it was no longer on the list of top customers in 2023. In 2023, the top five customers accounted for a combined 47.7%, which, although the structure was more balanced, also reflected the speed of customer churn.

Another important reason for the change in customer share is the growth in overall revenue scale.

From 2021 to 2023, Heizhima Intelligent's revenue will be RMB 60.5 million, RMB 165 million and RMB 312 million respectively, with a compound annual growth rate of 127.2%.

(Source: Black Sesame Intelligence Post-Hearing Information Package)

The revenue scale may seem small, but according to Frost & Sullivan data, in 2023, based on shipments, Heizhima Intelligence will be the world's third largest automotive-grade high-computing power SoC supplier, second only to NVIDIA and Horizon.

(Source: Black Sesame Intelligence Post-Hearing Information Package)

In terms of revenue, Black Sesame Intelligence ranks fifth among the suppliers of autonomous driving chips and solutions in the Chinese market in 2023. Judging from the information in the notes, the top seven in the table should be Mobileye, NVIDIA, Texas Instruments, Horizon Robotics, Black Sesame Intelligence, HiSilicon, and Renesas Electronics.

The chip competition is a money-burning war. From 2021 to 2023, its net losses will be 2.357 billion yuan, 2.754 billion yuan and 4.855 billion yuan respectively. Heizhima Intelligence also mentioned in its prospectus that the losses are likely to continue to expand.

Regarding these financial data, Heizhima Intelligence explained that the rapid growth in revenue and gross profit was mainly due to the mass production of its own SoC at the end of 2022; the gross profit margin has declined for three consecutive years due to the increase in the proportion of revenue from autonomous driving products and solutions, many of which have low gross profit margins; the main reason for the loss was the expansion of the R&D team in 2023 and the one-time purchase of wafer processing services, which led to an increase in product design and development costs.

Corresponding to the continuous expansion of losses is the company's R&D investment. From 2021 to 2023, Heizhima Smart's R&D investment was 595 million yuan, 764 million yuan, and 1.363 billion yuan, respectively, accounting for 984.0%, 461.8%, and 436.2% of the revenue in the same period.

In comparison, Heizhima Smart's sales expenses in the same period were RMB 50.8 million, RMB 120 million, and RMB 100 million, respectively, accounting for 84.0%, 72.4%, and 32.6% of the revenue in the same period, respectively. The proportion is relatively low and shows a clear downward trend.

As of the end of 2023, Heizhima Intelligence had a total of 1,096 employees, including 950 R&D personnel, accounting for 86.7%.

Even more serious than the loss is the tight cash flow. As of the end of 2023, Black Sesame Smart's accounts receivable were 165 million yuan, current liabilities were 334 million yuan, cash on hand was 1.298 billion yuan, and cash flow from operating activities was -1.058 billion yuan. Black Sesame Smart said that the current cash on hand can sustain the company's operations for 15 months, which is 5 months shorter than the 20 months when it first submitted materials to the Hong Kong Stock Exchange last year.

High R&D investment is the main source of losses. Heizhima Intelligence has not concealed its current situation of "lack of money", but instead used it as a motivation for listing.

Heizhima Intelligence revealed the company's strategic direction in its IPO fundraising plan: 80% of the funds raised from the IPO will be invested in the research and development of automotive-grade SoCs, supporting software, and autonomous driving solutions for smart cars in the next three years; 10% will be used for the construction of sales, marketing, and business teams; and the remaining 10% will be used for working capital and general corporate purposes, especially purchasing inventory for mass production of SoCs.

Tsinghua alumni join hands to start a business

In 1997, after obtaining a master's degree in microelectronics from the Department of Radio Electronics at Tsinghua University, Shan Jizhan, a top student from Huanggang, Hubei, went to Silicon Valley, USA, and joined an image sensor startup company founded by a senior from Tsinghua University.

This startup is OmniVision, which is now replacing Sony and Samsung in the industry. TideSight (ID: TideSight) has already recorded the development history of this company in the article "Invisible Giant | Mobile Phone Roll Camera, It Puts Sony Behind".

This Tsinghua senior is named Chen Datong. He "passively joined" OmniVision Technologies and served as co-founder and COO. He brought not only technical capabilities to this startup company, but also a group of Tsinghua juniors, and Shan Jizhan was one of them.

During his 20 years at OmniVision Technologies, he witnessed the company's growth from a team of a few people to a NASDAQ-listed company in 2000. From an engineer to vice president of R&D, his experience at OmniVision Technologies is the only career experience that Dan Jizhang can put on his resume.

During his time at OmniVision, Shan Jizhang focused on the development of technologies and products related to visual algorithms. The automotive-grade HDR algorithms and software he developed were used in automotive ADAS (Advanced Driver Assistance Systems). Therefore, autonomous driving chips have become a promising entrepreneurial direction for Shan Jizhang.

In 2016, Shan Jizhan left his old employer and returned to China with a passion for entrepreneurship. Now that he was financially independent, he no longer needed to write a resume.

Shan Jizhang believes that the reason for choosing autonomous driving is to let nature take its course. "Artificial intelligence will surely become an important force that influences and empowers all walks of life, creating greater value and even changing the way people live and work. At that time, (industry) predicted that the GDP of the AI ​​industry would exceed the sum of the GDP of all industries in 2035, and we had the motivation."

At that time, the domestic autonomous driving industry was still in its infancy, and L3 and above autonomous driving chips were almost monopolized by foreign manufacturers.

Shan Jizhang also mentioned: "At that time, traditional cars had a history of hundreds of years, but had never achieved a leapfrog change. But autonomous driving gave us opportunities, which will undoubtedly have a huge impact on the industry and completely change people's travel methods and work habits. I work on vision and sensors, and cars are an application scenario for artificial intelligence and vision."

(Shan Jizhang; Source: Black Sesame Smart Official Website)

After personally experiencing a startup company going to the Nasdaq market, Shan Jizhang believes that the core competitiveness of a company is people. The first step for Shan Jizhang to start a business was to invite his partner Liu Weihong to join.

Liu Weihong studied applied chemistry at Shanghai Jiaotong University for undergraduate and chemical engineering at Tsinghua University for graduate. He is not only a college alumnus of Shan Jizhang, but also a classmate and friend of Huanggang Middle School. Liu Weihong once worked for Bosch and was promoted to the president of the Asia Pacific region of the chassis and brake business unit. He is an expert in sales and management in the automotive field. Under Shan Jizhang's persuasion, Liu Weihong joined the wave of autonomous driving entrepreneurship, and Black Sesame Intelligence was born.

"Open Sesame" comes from "Ali Baba and the Forty Thieves", which means to open the door to a magical treasure world with a spell, and "black" represents "black technology". At the same time, Sesame and Sensing have similar pronunciations. In Shan Jizhang's opinion, combining "black technology" with "Open Sesame" not only implies that sesame flowers will bloom higher and higher, but also expresses the corporate vision of "opening a new era of intelligent driving."

Shan Jizhang serves as chairman, executive director and CEO, and Liu Weihong serves as executive director and president. In addition, the core team of Heizhima Intelligence comes from companies in the industry such as Bosch, OV, NVIDIA, Ambarella, Microsoft, Qualcomm, and Huawei, with an average of more than 15 years of industry experience.

(Source: Black Sesame Smart Official Website)

In the same year it was founded, Heizhima Intelligence received a round A financing from Northern Light Venture Capital, but the amount was not disclosed.

Due to the high initial R&D costs, in order to replenish cash flow as quickly as possible, Dan Jizhang set a "one fast and one slow" development path. "One fast" is aimed at consumer electronics, providing AI vision intelligent imaging technology, which is his old business at OmniVision; "one slow" is aimed at the autonomous driving market with a longer production cycle, self-developed chips, and automotive-grade products.

Among them, intelligent imaging solutions generated revenue in 2018, and ADAS and autonomous driving solutions began to generate revenue at the end of 2020.

2019 was a critical year for Heizhima Intelligence. It first obtained approximately US$100 million in Series B financing and received support from Legend Capital, SK China, SAIC Investment, China Merchants Venture Capital, and Delta Capital. It then released its first automotive-grade smart driving chip, Huashan No. 1 A500, and reached a cooperation with FAW.

In 2020, Heizhima Intelligent released the Huashan No. 2 A1000 chip; in 2021, its Huashan A1000 passed all automotive certifications, and started the research and development of a new product line, and released the Huashan No. 2 A1000 Pro; in 2022, the Huashan No. 2 A1000 series chips were officially mass-produced.

In April 2023, Heizhima Intelligent launched the Wudang series of cross-domain SoCs and released the first chip in the series, C1200. This series focuses on cross-domain computing and is the industry's first cross-domain computing chip platform for smart cars, covering different fields such as cockpit, smart driving, gateway, etc., targeting the L2+ level smart driving and fusion computing application market. After launching the Wudang series, Heizhima Intelligent has established a product line covering the two major fields of autonomous driving and cross-domain computing.

As of Q1 2024, the cumulative shipments of Black Sesame Intelligent SoC products exceeded 156,000 units, with the Huashan II A1000 series being the main sales force, pushing Black Sesame Intelligent into the track of self-transfusion.

However, as the cost of R&D is still much higher than the revenue, the development of Heizhima Smart is inseparable from the ability to raise funds. According to the prospectus, Heizhima Smart has completed 10 rounds of investment, with a total financing amount of US$695 million.

(Source: Black Sesame Intelligence Post-Hearing Information Package)

Interestingly, Heizhima Intelligence has assembled a strong investment team, including Bosch, Xiaomi, Dongfeng Motor, SAIC Group, NIO, Geely and many other automobile industry-related companies. However, NIO, which led the investment as early as the A+ round, has never used Heizhima Intelligence's chips. Dan Jizhan's fellow villager Lei Jun led Xiaomi Changjiang Industrial Fund to lead the C round of financing in 2021, but Xiaomi SU7 did not use Heizhima Intelligence's chips, but instead used Nvidia's Orin chip.

In addition to the customer retention rate mentioned above, Heizhima Intelligence also faces the problem of difficulty in turning car company investors into customers. It has missed the opportunity to appear together with star car companies, and has also brought certain pressure to expanding new customers.

Autonomous driving SoC suppliers are mainly divided into three categories, namely, specific autonomous driving SoC suppliers, general chip suppliers, and automotive OEM self-developed companies. As competition in the smart car chip industry intensifies, a major pressure faced by autonomous driving chip and software service providers is the car companies that develop their own chips. They are shareholders, customers, and opponents.

After the IPO, Shan Jizhang is the single largest shareholder of Heizhima Intelligence, holding 23.18% of the shares and is the actual controller of the company.

(Source: Black Sesame Intelligence Post-Hearing Information Package)

In addition, Heizhima Intelligence has 9 senior independent investors, including Northern Lights, Haisong, Wu Yuefeng, Xiaomi, Tencent, BOC Investment, Advanced Manufacturing Industry Investment Fund II (Limited Partnership), Geely Group, and Shanghai Automotive.

The industry takes off and competition intensifies

Although Heizhima Intelligence is still in a loss-making stage due to limitations in high investment and R&D progress, the autonomous driving track it belongs to is a sunrise industry with huge potential.

According to Frost & Sullivan data, global sales of autonomous driving vehicles (covering L1-L5 levels) will increase from 50.5 million in 2023 to 68.8 million in 2028, and the penetration rate will increase from 69.8% in 2023 to 87.9% in 2028. Among them, sales in the Chinese market will increase from 19.5 million in 2023 to 27.2 million in 2028, and the penetration rate will reach 93.5%, which will continue to be higher than the global average.

(Source: Black Sesame Intelligence Post-Hearing Information Package)

Among them, L2 and L3-L5 will become the main growth space in the next five years, and the global market penetration rate is expected to increase from 31% and 0.01% in 2023 to 54.3% and 8.6% in 2028 respectively; the penetration rate in the Chinese market is also expected to increase from 42.1% and 0.01% in 2023 to 69.9% and 12.5% ​​in 2028 respectively.

The increase in the penetration rate of autonomous vehicles will drive the growth of the autonomous driving chip market. According to Frost & Sullivan data, the global automotive-grade SoC market is expected to grow from 57.9 billion yuan in 2023 to 205.3 billion yuan in 2028, with a compound annual growth rate of 28.8%; the Chinese market is expected to grow from 26.7 billion yuan in 2023 to 102 billion yuan in 2028, accounting for only half of the global market.

(Source: Black Sesame Intelligence Post-Hearing Information Package)

China is a world leader in the application of ADAS and autonomous driving technologies. Driven by the increase in sales of autonomous vehicles, the increase in the value of SoCs for a single vehicle, and favorable policies, China's shipments of high-computing-power automotive-grade SoCs will reach 1.5 million units in 2023, accounting for about 90% of global shipments.

According to Frost & Sullivan data, from 2023 to 2028, China's sales of autonomous vehicles will account for about one-third of the global market, and China's automotive-grade SoC market will account for about 40% of the world during the same period.

The continuous growth of the market size has nurtured a number of innovative companies focusing on autonomous driving chips. In addition to Black Sesame Smart, there are also mature companies such as Horizon Robotics, Cambrian, Zongmu Technology, and Xinwangwei. Among them, Horizon Robotics has also submitted an application to the Hong Kong Stock Exchange. The post-investment valuation of the C round of financing before listing exceeded 60 billion yuan, which is much higher than the 12 billion yuan of Black Sesame Smart's C+ round of financing.

Hong Kong stocks are not the preferred listing platform for Heizhima Smart. After Xiaomi acquired a stake in the company, Heizhima Smart tried to list on the Science and Technology Innovation Board, but as the A-share review became stricter and the Hong Kong stock market lowered the threshold, Heizhima Smart switched to the Hong Kong stock market. In June 2023, Heizhima Smart submitted its prospectus to the Hong Kong Stock Exchange for the first time, but because it failed to pass the hearing within 6 months, the listing application materials expired in early January 2024.

On March 22, 2024, Heizhima Intelligence once again submitted an application for listing on the main board of the Hong Kong Stock Exchange. In less than half a year, Heizhima Intelligence successfully completed its IPO and became the second technology company in China to successfully list on the Hong Kong Stock Exchange in accordance with the 18C rules after Jingtai Technology.

The Hong Kong Stock Exchange's 18C Rules will come into effect on March 31, 2023. They are mainly aimed at technology startups that have not yet started commercialization or are in the early stages of commercialization, involving industries such as new generation information technology, advanced hardware and software, advanced materials, new energy and energy conservation and environmental protection, new food and agricultural technology, etc., allowing technology companies with no revenue and no profits to go public in Hong Kong.

According to Hong Kong Exchanges and Clearing Limited Group Chief Executive Officer, Chan Yik Ting, "The new listing rules under Chapter 18C are tailor-made for hard technology companies."

This is a huge benefit for companies that invest heavily in autonomous driving research and development.

Horizon Robotics, which ranks second in terms of shipments of autonomous driving SoCs, is also in a loss-making state. The prospectus shows that from 2021 to 2023, Horizon Robotics' losses were 2.064 billion yuan, 8.72 billion yuan and 6.739 billion yuan, respectively, with a cumulative loss of 17.523 billion yuan in three years. The high R&D expenses are also the main reason for the losses.

However, Horizon Robotics' hematopoietic ability is also stronger than that of Black Sesame Intelligence. From 2021 to 2023, Horizon Robotics' revenue will be 467 million yuan, 906 million yuan, and 1.552 billion yuan respectively. Its customers include 24 OEMs (31 OEM brands) including BYD, Ideal, NIO, GAC, SAIC, Geely, and Nezha. The momentum of these customers in the market is also higher than that of Black Sesame Intelligence's customer base.

The official website of Heizhima Smart shows that its Huashan II A1000 chip is used not only in Lynk & Co 08, but also in Dongfeng Yipai eπ008 and Hechuang V09. Currently, Lynk & Co 08 sells about 6,000 units per month, Yipai eπ008 sells about 4,000 units per month, and Hechuang V09 sells about 300 units per month.

Heizhima Intelligence faces greater pressure in developing markets and expanding its customer base than in terms of funds. Perhaps this is also a shortcoming caused by the high proportion of the R&D team, which is another form of "biasedness".

Similar to Heizhima Intelligence, Horizon Robotics' development also depends on its ability to raise funds. Since its establishment in July 2015, Horizon Robotics has completed 11 rounds of financing, with a total financing amount of approximately US$2.36 billion.

If autonomous driving R&D companies want to embrace the upcoming trillion-dollar market, they still need a lot of R&D funds as support. Against the backdrop of declining equity investment market activity, going public is a common choice.

But this also means that the company's development path will be subject to more stringent scrutiny and industry competition will become more intense. With competitors about to go public, the title of "the first domestic autonomous driving chip stock" has lost its meaning.

According to the 18C rules, Black Sesame Intelligence classifies itself as a non-commercialized company. But as Yang Yuxin, Chief Marketing Officer of Black Sesame Intelligence, said in an interview, "If you haven't come to the table before 2025, and the customer hasn't given you a large-scale mass production project, and there's no fixed point, it will be very difficult."

Conclusion

Amid the battle among new car-making forces to open cities, Robotaxi leading the way in Wuhan, and autonomous driving companies lining up for IPOs, the second half of automotive intelligence has arrived ahead of schedule. Autonomous driving startups represented by Black Sesame Intelligence have felt the rising tide in advance. A group of highly educated and capable entrepreneurs are becoming the backbone of China's intelligent driving industry.

Behind the rush of smart electric vehicles onto the road is the push from my country, which leads the world in penetration of new energy vehicles and self-driving cars. This vast blue ocean leaves ample room for growth and imagination for R&D companies that are continuously losing money.

For any industry, only with change can new opportunities emerge. The transformation of the automotive industry is fierce enough to break through the bottleneck of consumption growth and free China's supply chain from the quagmire of low added value. Although the domestic substitution of the chip industry has a long way to go, the era of being blocked by foreign technology is gone forever.