Black Sesame Intelligence passed the hearing of the Hong Kong Stock Exchange: it has lost money for many years and lost large customers

A number of companies related to autonomous driving have submitted prospectuses, can Black Sesame Intelligence successfully sprint to the "first share of autonomous driving chips"?

"China Science and Technology Investment" Long Min

Recently, Black Sesame Intelligent International Holdings Co., Ltd. (hereinafter referred to as "Black Sesame Intelligence") passed the listing hearing of the Hong Kong Stock Exchange, with CICC and Huatai International as joint sponsors. If the listing is successful, Black Sesame Intelligence may become the "first stock of autonomous driving chips" in China, and will also become the successor to XtalPi (2228. HK) after HK) to be listed under Chapter 18C.

In recent years, the operating income of Black Sesame Intelligence has continued to rise, but it is still in the stage of "burning money" and losing money. From 2021 to 2023, the losses of Black Sesame Intelligence will be 2.357 billion yuan, 2.754 billion yuan, and 4.855 billion yuan respectively, which is about dozens of times the operating income in the same period. At the same time, the top five customers have seen a decline in revenue and a declining customer retention rate.

At this stage, the automotive-grade SOC (i.e., system chip, integrated circuit that integrates most or all of the components of a computer or other electronic system) and solution industry is facing fierce competition, and many companies at home and abroad are participating. From the perspective of the domestic market share of high-computing power autonomous driving SoC shipments in 2023, Nvidia alone occupies more than 70% of the market share, and Black Sesame Intelligence only occupies 7.2% of the market share.

The performance has been losing money for many years, and the loss of large customers

Founded in 2016 and headquartered in Wuhan, Black Sesame Intelligence is a provider of automotive-grade computing SoCs and SoC-based intelligent vehicle solutions, mainly focusing on the design, development and implementation of intelligent vehicle SoC technologies, as well as providing autonomous driving solutions for different levels of autonomous driving.

Since its establishment, Black Sesame Intelligence has completed a total of 10 rounds of financing, including Northern Light Venture Capital, SAIC Group, China Merchants Group, FAW Group, Tencent, Bosch Group, NIO Capital, Geely Holdings, etc., with a total of about 696 million US dollars (about 5.057 billion yuan) in 10 rounds of financing, and the valuation of Black Sesame Intelligence is about 2.2 billion US dollars (about 15.986 billion yuan).

According to the prospectus, from 2021 to 2023, the operating income of Black Sesame Intelligence will be 60.5 million yuan, 165 million yuan, and 312 million yuan respectively; At the same time, the gross profit of Black Sesame Intelligence also continued to grow, with 21.87 million yuan, 48.63 million yuan, and 77.14 million yuan respectively in the same period.

The customer base also increased from 45 at the end of December 2021 to 85 at the end of December 2023. At present, Black Sesame has cooperated with more than 49 automotive OEMs and Tier 1 suppliers, such as FAW Group, Dongfeng Group, JAC Group, Hechuang, ECARX, Baidu, Bosch, ZF and Marelli.

Even so, Black Sesame Intelligence is still in the loss stage. From 2021 to 2023, the losses of Black Sesame Intelligence will be 2.357 billion yuan, 2.754 billion yuan, and 4.855 billion yuan respectively, which is about dozens of times the operating income in the same period. The adjusted net loss for the same period was $614 million, $0.7 billion and $1,254 million respectively, which also far exceeded the current revenue.

Regarding the loss situation, Black Sesame Intelligence explained in the prospectus, "We may continue to generate net losses in the short term, because we are in the stage of expanding our business and operations in the fast-growing automotive-grade SOC and solution market, and are continuing to invest in research and development." At the same time, for the downward trend of gross profit margin, Black Sesame Intelligent said that it was mainly due to the increase in revenue contribution of autonomous driving products and solutions, which involved more hardware components, resulting in lower gross profit margin.

In addition, the prospectus shows that from 2021 to 2023, the company's revenue from the top five customers will be 47.05 million yuan, 125 million yuan and 149 million yuan respectively, accounting for 77.7%, 75.4% and 47.7% of the total revenue, respectively; Among them, the revenue from the largest customer was 24.636 million yuan, 71.988 million yuan and 47.397 million yuan respectively, accounting for 40.7%, 43.5% and 15.2% of the total revenue.

It can be seen that the revenue proportion of the top five customers of Black Sesame Intelligence in 2023 has declined sharply, and the reason is that the largest customer with more than 40% of the revenue in 2021 and 2022 will not appear in the top five customers in 2023.

On the other hand, customer loyalty is also declining. According to the prospectus, from 2021 to 2023, the customer retention rates of SoC-based solutions in Black Sesame Intelligent Autonomous Driving products and solutions will be 0%, 60%, and 37% respectively; The customer retention rates of algorithm-based solutions were 50%, 33%, and 29%, respectively, all of which showed a downward trend.

The industry is highly competitive, and the foundry model is risky

Black Sesame Intelligence has mainly developed two series of automotive-grade SoCs, namely "Huashan series" and "Wudang series". Among them, the "Huashan series" includes A1000, A1000L, and A1000 Pro, and the "Wudang series" includes C1200.

Since 2022, Black Sesame has started mass production of Huashan A1000/A1000L SoCs and delivered more than 25,000 pieces, and as of December 31, 2023, the total shipment of A1000 series SoCs has exceeded 152,000 pieces. According to the shipment volume of automotive-grade high-computing power SoCs in 2023, Black Sesame Intelligence is the third largest supplier in the world.

In addition, for L3 and above, Black Sesame Intelligence is developing the A2000 with a design power of 250+ TOPS, which is one of the world's highest-performing automotive-grade SoCs according to Frost & Sullivan.

The automotive-grade SOC and solution industry where Black Sesame Intelligence is located is facing fierce competition. According to Frost & Sullivan, the global automotive-grade SOC market is expected to grow from $57.9 billion in 2023 to $205.3 billion in 2028, with a compound annual growth rate of 28.8% during the period. The global market size of SOC-based smart road solutions is expected to reach approximately $15.2 billion in 2026 and further reach $39.8 billion in 2030.

At present, the major players in the autonomous driving SOC market in China include Horizon Robotics, HiSilicon and other companies. Major players in the autonomous driving SOC market in other countries include Nvidia, Mobileye, Qualcomm, Texas Instruments, and Renesas.

Autonomous driving technology is evolving from Level 2 to Level 3, and 50+ TOPS is often considered to be the computing power needed to potentially enable Level 3 autonomous driving functions. Therefore, the 50 TOPS SoC is widely regarded as the threshold to distinguish high-computing power autonomous driving chips from common chips. In 2023, the market size of China's high-computing autonomous driving SoC will reach 6 billion yuan, accounting for 42.2% of the total market size of autonomous driving SoC.

From the perspective of the domestic market share of high-computing power autonomous driving SoC shipments in 2023, foreign manufacturers have obvious advantages, with Nvidia alone occupying more than 70% of the market share, and Black Sesame Intelligence only occupying 7.2% of the market share. In addition, in recent years, the price war of new energy vehicles has intensified, and more and more automakers have chosen the road of self-developed chips, such as Volkswagen, Weilai, Xiaopeng, Ideal, Great Wall, Geely and other companies are actively deploying.

It is worth noting that Black Sesame Intelligence relies on TSMC to manufacture all SOCs at this stage, and mainly purchases raw materials and services from TSMC through the import agent Shanghai International Science and Technology Co., Ltd. In this regard, Black Sesame Intelligence stated in the prospectus that due to the complex proprietary nature of the SoC, any transition from TSMC to a new manufacturer, a disaster or other business interruption at any TSMC facility involving the manufacture of the SoC, the introduction of a new facility will take a significant amount of time to complete, and may result in insufficient inventory and adversely affect its business, results of operations and financial condition. In addition, Black Sesame Intelligence is susceptible to the risk that TSMC may not be able to meet demand for its SoCs or cease operations altogether. In addition, it is also susceptible to the risk that TSMC may not be able to meet the cost of demand due to the global shortage of semiconductors.

In this regard, Bai Wenxi, chief economist of IPG China, believes that the foundry model has its obvious advantages and potential risks for autonomous driving chip manufacturers. The advantage is that enterprises can use the production capacity and technical experience of professional foundries such as TSMC to quickly transform product design into actual products, shorten product time-to-market, and reduce their own production costs and fixed asset investment.

However, there are also some drawbacks to the foundry model, such as a high dependence on suppliers, which may affect the quality and delivery time of products. In addition, fluctuations in foundry costs may also have an impact on a company's gross profit margin. Therefore, enterprises need to weigh these pros and cons when choosing an OEM model to ensure the stability of the supply chain and the reliability of product quality. Bai Wenxi said.

The reporter sent a letter to Black Sesame Intelligence on issues such as listing progress, performance, and industry competition, but has not received a reply so far.