US Stock IPO Preview | Will the autonomous driving unicorn WeRide, which has been losing 5.1 billion RMB in the past three and a half years, go to the US for a "blood transfusion"?

With the rapid rise of RoboTaxi, the concept of autonomous driving has once again become a hot trend.

According to the ZHUO Insight report, autonomous driving is expected to experience a major outbreak. By 2022, the global and mainland China autonomous driving market sizes are expected to be $10 billion and $2 billion respectively. It is projected that by 2030, the global and mainland China autonomous driving market sizes will reach $1.745 trillion and $639 billion respectively, with a staggering industry growth rate. In addition, the growth rate of the L4 and above level autonomous driving market is expected to far exceed the average growth rate of the overall autonomous driving market during the same period.

At this opportune moment, the autonomous driving unicorn company WeRide has also initiated its IPO journey, aiming to become the "first stock of universal autonomous driving".

On July 27th, WeRide publicly disclosed its prospectus with the U.S. Securities and Exchange Commission (SEC), planning to list on the NASDAQ through an IPO led by Morgan Stanley, J.P. Morgan, and CICC. The company had previously submitted a confidential filing to the SEC on February 23, 2023. Once successfully listed this time, it is expected to be known as the "first stock of universal autonomous driving" globally.

The capital market has always been full of stories of "right timing, favorable location, and good people". The IPO journey of WeRide to the U.S. this time can be said to meet the objective conditions of "right timing and favorable location". However, the company's own conditions in terms of "good people" may still need to be further explored through the prospectus.

Valuation of up to $5.1 billion vs. Loss of $5.1 billion in three and a half years

Founded in 2017, WeRide, headquartered in Guangzhou, is a leading global L4 level autonomous driving technology company.

Perhaps due to catching the wave of autonomous driving, WeRide's development speed has been unexpectedly fast.

As of now, WeRide has conducted autonomous driving research, testing, and operations in 30 cities across 7 countries globally, with over 1600 days of operation. It has formed five major product matrices including autonomous driving taxis, autonomous driving minibuses, autonomous driving freight vehicles, autonomous driving sanitation vehicles, and advanced intelligent driving, offering services such as ride-hailing, on-demand public transportation, intra-city freight intelligent sanitation, advanced intelligent driving solutions, and holds autonomous driving licenses in China, the United States, the United Arab Emirates, and Singapore.

In just a few years of development, WeRide has achieved several "firsts" in the field of autonomous driving, such as:

• The world's first company to provide L4 level paid RoboTaxi services to the public and the company with the longest operating history.
• The world's first to develop L4 level Robobus dedicated to open roads, and the first to launch unmanned Robobus services to the public on open roads.
• The world's first to develop L4 level Robos street sweepers dedicated to open roads, and the first to launch unmanned Robos street sweepers city cleaning services.
• The world's first to accumulate orders exceeding 10,000 units of L4 level autonomous driving vehicles, leading the commercial milestone in various industries...

Being in a booming industry and a newcomer in the industry, WeRide has naturally been favored by capital.

Zhixun Finance App observed that since its establishment, WeRide has completed 10 rounds of financing, with investors including GAC Capital, Bosch, Yutong Group, NVIDIA, as well as individuals like He Xiaopeng, China-Arab Industrial Investment Fund, Carlyle Investment Group, and other well-known institutions In 2022, the company completed its final round of Series D financing, with a post-investment valuation of USD 5.1 billion.

Looking at the equity structure, before the IPO, Han Xu, the founder and CEO of Wenyuan Zhihang, held 7.6% of the shares and had 31% of the voting rights; Co-founder and CTO Li Yan held 6.3% of the shares and enjoyed 10.8% of the voting rights; Duane Ziping Kuang held 8.5% of the shares and had 5.7% of the voting rights.

However, like many high-growth tech companies, "high losses" have also become a common issue for Wenyuan Zhihang in maintaining its core competitive advantage.

According to the prospectus data, from 2021 to 2023, the company achieved revenues of RMB 138 million, RMB 528 million, and RMB 402 million respectively, showing a fluctuating trend of increase followed by decrease. In the first half of 2024, the company's revenue was only RMB 150 million, a 17.8% decrease year-on-year.

In addition to the declining revenue, Wenyuan Zhihang's losses were also significant: from 2021 to the first half of 2024, the company recorded net losses of RMB 1.0073 billion, RMB 1.2985 billion, RMB 1.9491 billion, and RMB 882 million, totaling approximately RMB 5.173 billion over three and a half years.

Due to the perennial losses, Wenyuan Zhihang's asset-liability structure is also in an "unhealthy" state: as of the first half of 2024, the company had cash and cash equivalents of RMB 1.8 billion (USD 251.7 million), total assets of RMB 5.247 billion, total deficits of RMB 3.671 billion, and total liabilities of RMB 8.918 billion.

Under such financial pressure, it is not difficult to understand Wenyuan Zhihang's move to the US for "blood transfusion".

R&D expenses account for 54% of losses, commercialization remains a challenging issue

It is reported that in 2019, Wenyuan Zhihang launched a paid autonomous driving taxi service in China. In 2021, the company commercialized autonomous driving buses in China and started providing services to the public in Guangzhou in 2022. In addition, the company also launched autonomous driving trucks and autonomous cleaning vehicles in September 2021 and April 2022 respectively. In 2022, we began providing key ADAS technology and ecosystem support, and started mass production of the most advanced ADAS solutions in March 2024.

As of now, Wenyuan Zhihang's revenue mainly comes from two parts: selling products including robot buses, robot taxis, robot cleaning vehicles, and related sensor kits; and providing services including autonomous driving operations, technical support services, and advanced driver assistance system (ADAS) development services.

However, it is important to note that as L4 and above autonomous driving is still in the early stages of commercialization, this also means that even though Wenyuan Zhihang has made significant breakthroughs in the field of autonomous driving, the question of "when to become profitable" remains unknown.

According to Zhoushi Consulting, in the next decade, L4 and above autonomous driving technology will be commercialized through machine rental cars, machine guest cars, urban and intercity robot logistics vehicles, robot vehicles, other industrial and urban service vehicles, and other passenger vehicles. By 2030, the commercialization of L4 and above autonomous driving use cases is expected to reach USD 1.535 trillion globally, with a compound annual growth rate of 151% from 2022 to 2030

(Source of image: Wenyuan Zhixing prospectus)

Although the autonomous driving industry is still in the early stages of commercialization, companies in the industry are eager to pursue core competitiveness due to the broad prospects of the industry.

Wenyuan Zhixing is well aware of this point and has invested heavily in developing new products and technologies. The company plans to continue investing significant resources in developing new technologies, tools, features, products, and services, leading to a continuous increase in the company's losses.

According to the prospectus, from 2021 to the first half of 2024, the company's research and development expenses were 443.2 million yuan and 758.6 million yuan, accounting for 320.7%, 143.8%, and 285.5%, 344.1% of the total revenue for each respective year. Calculations show that the accumulated research and development expenses over three and a half years reached 2.778 billion yuan, accounting for 54% of the total losses.

The company also warns of the risks, stating that it is currently and is expected to continue to make significant investments in the future to develop new products and technologies. If the company's development budget is not used for innovative and commercially successful technologies, the company may not achieve the expected investment returns.

It is well known that autonomous driving technology is an emerging technology facing numerous technical and business challenges, including expectations of better driving performance than human drivers, large capital requirements, long vehicle development turnover times, requirements for professional skills and specialized knowledge of personnel, inconsistent and constantly changing regulatory frameworks, the need to establish public trust and brand image, and the actual operation of a completely new technology.

This prompts Wenyuan Zhixing's current commercialization path to still be filled with many "mysteries," such as the company's technology may not perform as expected, or the time required for commercialization may be longer than currently estimated.

In conclusion, as Wenyuan Zhixing embarks on the path to commercialization, the company's IPO journey is also full of challenges and opportunities. On one hand, the accumulated losses of 5.1 billion yuan over three and a half years and the mystery of when true commercialization will be achieved may significantly undermine investor confidence. On the other hand, the company's presence in 30 cities across 7 countries and its achievements in multiple "firsts" in the field of autonomous driving further add weight to its valuation. In comparison, whether the company can shine in the secondary market remains to be further validated