NVIDIA's "Plan B" is going to IPO

Author | Chai Xuchen

Editor | Zhou Zhiyu

Two years ago, Heizhima confidently declared that it aimed to "share the world" with NVIDIA in the smart driving chip field. Now, it is about to open the door to IPO to fulfill this long-cherished wish.

On July 31st, Heizhima Intelligence announced the start of its IPO, planning to globally issue 37 million H shares priced at HKD 28-30.3 per share, raising up to approximately HKD 1.121 billion. It is expected to be listed on the Hong Kong Stock Exchange on August 8th.

With the help of capital, Heizhima can also claim the title of "the first Hong Kong-listed smart driving chip stock", continuing to solidify its leading position in the industry.

Established in 2016, Heizhima Intelligence has become one of the top three global suppliers of automotive-grade high-performance computing chips, almost at the same time as many new forces.

According to the prospectus, from 2021 to 2023, Heizhima's revenue is expected to grow from 60.5 million yuan to 312 million yuan, with the smart driving segment's proportion increasing from 56.6% to 88.5%.

Entering the market early and with sufficient focus, Heizhima has been highly sought after in the industry, with well-known automakers and Tier1 companies such as FAW, Dongfeng, JAC, Hechuang, Yikatong, Baidu, and Bosch being its designated customers.

These customers not only elevate Heizhima to the industry's forefront but also become its investors, forming deep partnerships. Companies like Xiaomi, Tencent, Nio Capital, and Geely Holdings are also its shareholders. Prior to the IPO, Heizhima had already completed 10 rounds of financing, with a valuation reaching 2.218 billion US dollars (approximately 15.5 billion yuan).

Surrounded by automakers and Tier1 companies, Heizhima's story of "replacing" NVIDIA is indeed attractive to the former.

With the rise of the trend of automotive intelligence, high computing power has become a necessity for building smart driving and smart cabins. Heizhima's goal is to provide automakers with automotive-grade high-performance SoC chips and solutions based on SoC and algorithms.

However, in recent years, NVIDIA has dominated the market, effortlessly "harvesting" domestic and foreign automakers with its expensive Orin chips and vast AI business.

The reality is that while consumer interest and expectations for automotive intelligence and smart driving are increasing, their willingness to pay and the amount they are willing to pay are generally decreasing. Li Bin once complained that Nio sold 160,000 cars last year, spending over 300 million US dollars on purchasing Orin chips.

Amidst the dual pressures of the popularization of intelligence and price wars, the cost-effectiveness of chips has become an important factor for automakers in their decision-making process. An insider from the supply chain revealed, "The market competition is too fierce. Products that sold well a year or two ago are now considered expensive by customers, and everyone is working hard to reduce costs."

For domestic players like Heizhima, opportunities have also arrived.

"The demand for automakers to reduce costs and increase efficiency means that our products need to be more cost-effective," said Yang Yuxin, CMO of Heizhima.

In response to this market, Heizhima has launched the "Huashan" and "Wudang" series of SoCs. The former is a chip dedicated to smart driving, while the latter is a cross-domain chip that integrates smart driving, smart cabins, vehicle control, and other computing functions By doing this, Heizhima has reduced the urban NOA cost to the 3,000 yuan level. Its cost-effectiveness has been raised to a higher level.

However, in order to attract users, Heizhima has also paid a considerable price.

Over the three years from 2021 to 2023, its R&D expenditure increased from 595 million to 1.363 billion yuan, with last year's R&D expenses exceeding 4 times its annual income. As a result, the scale of losses has continued to expand, rising from 2.357 billion to 4.855 billion yuan, burning nearly 10 billion yuan over three years.

The prospectus shows that in addition to R&D, huge sales and general and administrative expenses are gradually increasing pressures contributing to the losses. As the scale of sales expands, Heizhima's gross profit margin has been "diluted" year by year, dropping from 36.1% in 2021 to 24.7% last year.

This means that Heizhima is trying to attract customers through a combination of "price for quantity" and "full-scale R&D", reflecting its urgency to increase volume and expand its market share.

Because what it is targeting is a huge imaginary gold mine.

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 growing sector, with the global penetration rate of intelligent driving in passenger cars reaching 94.4%, and in China reaching 97.2%. In the Chinese market alone, the scale will reach 35.9 billion yuan, and globally it will reach 71.3 billion yuan.

Beneath the gold mine, however, are "wolves lurking".

According to Frost & Sullivan data, in last year's list of high-computing power intelligent driving SoC shipments in China, NVIDIA maintained a dominant position 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; the second is Horizon Robotics, which already has a 14% market share, followed by Huawei HiSilicon and Qualcomm watching closely.

Even more serious is that Heizhima's customer loyalty for intelligent driving has also declined. The prospectus shows that "Customer A", which used to contribute nearly half of Heizhima's sales for many years, 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 Nio, which are investors in Heizhima, have chosen to develop their own chips, becoming its indirect "challengers".

How to stabilize its scale and gain more customer recognition is the most important issue for Heizhima at present. In the eyes of industry insiders, shipment volume directly determines upstream costs, and only by achieving sufficient shipment volume can chip companies possibly achieve profitability.

Yang Yuxin admitted that the cost-effectiveness strategy does indeed create temporary cost pressures. For intelligent driving chip manufacturers, opportunities and risks both stem from this, which is both the "honey" of the era's opportunities and the "poison pill" that could drain the company's cash flow.

Before achieving self-sufficiency, Heizhima must overcome the major obstacle in front of it and expand its scale with the help of capital. However, starting from 2022, it has not received any new financing in the primary market.

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

In the midst of the industry's "burning money competition" stage, IPO has become a key channel for Heizhima to replenish its ammunition. Heizhima stated that 80% of the funds raised from the IPO will be used for R&D over the next five years However, going public can only solve short-term problems. The key to Black Sesame turning the tide in this wave of intelligent driving lies in rapidly improving product strength and commercial capabilities. In the process from 1 to N, Black Sesame needs to stand out in terms of technology, market, and business model in order to truly compete with giants like NVIDIA and share the market equally