On June 12th, 2023, Hezhima Intelligent International Holdings Limited, commonly referred to as "Hezhima Intelligent," took a significant step toward entering the stock market by passing its listing hearing on the main board of the Hong Kong Stock ExchangeThis event has placed the company on a promising trajectory towards an initial public offering (IPO), highlighting its growing relevance in the rapidly evolving intelligent automotive sector.
Hezhima Intelligent specializes in automotive-grade System on Chip (SoC) design and provision of intelligent automotive solutions anchored on SoC technologyNotably, its shareholders include high-profile names such as Xiaomi and NIO, which indicates strong backing in a highly competitive industry.
The term "SoC" stands for system-on-a-chip, which integrates various electronic circuits onto a single chipHezhima Intelligent is reportedly at the forefront of developing applications enabling critical functions in smart vehicles through its Huashan and Wudang series of high-performance SoCsDespite its innovative offerings, the company has accumulated significant financial losses—nearly one billion yuan—over the past three years, grappling with negative cash flow in its operations.
As part of its desperation to secure funding via the public markets, Hezhima Intelligent is racing to become the first domestically produced autonomous driving chip company to go publicTheir listing application was submitted in June 2023, followed by an update of its application materials in March, which ultimately led to this pivotal moment in June.
Since its inception, Hezhima has gone through multiple investment rounds, totaling tenIn December 2021, the company raised an impressive $218 million in Series C+ funding, achieving a valuation of approximately $2.218 billion and converting to about 16.09 billion yuan at the current exchange rate.
However, challenges began to emerge when, beginning in 2022, Hezhima Intelligent faced a dry spell in acquiring new financing in the primary market
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The necessity for cash inflow grows more acute as the company enters a heavy stage of investment in technology development and researchMeanwhile, three years of financial reports reveal that the company's revenue surged from 61 million yuan in 2021 to 312 million yuan in 2023, a positive trajectory overshadowed by net losses reported at 2.357 billion yuan, 2.754 billion yuan, and 4.855 billion yuan, respectively.
The core issue leading to continuous losses can largely be attributed to elevated research and development (R&D) costsBetween 2021 and 2023, Hezhima's R&D expenditures escalated significantly, amounting to 595 million yuan, 764 million yuan, and 1.363 billion yuan, respectively, which consumed an alarming 984%, 461.8%, and 436.2% of the revenue during the same periodsAs part of the planned IPO, Hezhima aims to allocate roughly 80% of the funds raised towards R&D, underscoring its relentless commitment to innovation.
Despite these ambitions, Hezhima Intelligent acknowledges that it has incurred losses since its inception and anticipates further losses extending into 2024 and 2025. Their profit margins also indicate a declining trend, with gross margins plummeting from 36.1% in 2021 down to 24.7% by 2023. An increasing proportion of revenue from autonomous driving products and solutions has primarily driven this decline in gross profitability.
Moreover, examining cash flow further reveals a troubling patternFrom 2021 through 2023, the net cash flow generated from the company's operational activities has consistently been negative: -639 million yuan, -755 million yuan, and -1.058 billion yuanBy the end of 2023, the value of Hezhima's cash and cash equivalents stood at 1.298 billion yuan, indicating some liquidity yet coupled with caution that an average monthly cash burn rate of 87.9 million yuan would allow them to sustain operations for only up to 15 months at the current pace.
This overall financial landscape characterizes Hezhima Intelligent’s IPO as an urgent quest for vital "blood supply" into its finances
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However, while the global automotive-grade SoC market is predicted to soar beyond 200 billion yuan by 2028, the company must navigate intense competition within a landscape filled with established players like Horizon Robotics and Hisilicon, as well as global leaders like NVIDIA.
In terms of market position, Hezhima ranks third globally in terms of shipment volume of automotive-grade high-performance SoCs, securing 7.2% of market shareIn stark contrast, its two primary competitors dominate the market with shares of 72.5% and 14%, respectively.
Despite entering a promising industry, concerns plague Hezhima Intelligent, particularly regarding its declining customer retention ratesData gathered from 2021 to 2023 indicates that Hezhima’s retention rate for SoC-based solutions plummeted from 0% to 60% and then down to 37%, displaying a troubling downward trendIn terms of algorithm-based solutions, retention rates consistently dwindled from 50% to 29% during the same time span, raising significant alarms as customer retention directly influences revenue generation and overall financial health.
Hezhima's products are primarily aimed at the automotive market, but several automakers now prefer to develop their proprietary chips, further intensifying competitive dynamics within the intelligent driving chip segmentA striking example of this trend is NIO, which recently introduced its self-developed autonomous driving chip, the Shenqi NX9031, aimed at equipping NIO vehicles with capabilities parallel to those enabled by four flagship chips from other manufacturers.
Potential challenges loom not only from competitors but also from partners; shareholders like Xiaomi and NIO are pivoting towards self-developed chip solutions and employing chip designs from other suppliers like NVIDIA's Orin chipThis kind of shift raises questions about Hezhima's future customer relationships, emphasizing the need for the company to both sustain its competitive edge and recover its declining client loyalty.
With its noteworthy technology and presence among the top three players in China's autonomous driving SoC market, Hezhima Intelligent faces an uphill battle
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