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Horizon Robotics needs to consider 'addition and subtraction'.

Produced by｜Business Show

On October 24, 2024, at the Hong Kong Stock Exchange, Horizon Robotics, a smart driving chip company, finally went public.

Founded in 2015, this smart driving technology enterprise raised a total of HK$5.4 billion, making it the largest technology IPO in Hong Kong this year. Priced at HK$3.99, Horizon Robotics' share price soared after the opening, reaching HK$5.5 per share at one point, up 37.84% from the issue price. Although subsequent gains narrowed, the stock closed at HK$4.24 per share, up 6.27%, with a market value of HK$55.247 billion, equivalent to approximately RMB 50.597 billion.

However, behind this seemingly successful listing lies much uncertainty. Since 2021, Horizon Robotics has been operating at a loss. By the first half of 2024, the company's losses had widened further. According to the prospectus, during the reporting period, the company's net losses amounted to RMB 2.064 billion, RMB 8.72 billion, RMB 6.739 billion, and RMB 5.098 billion, respectively, for a cumulative net loss of RMB 22.621 billion, which was 5.86 times the total revenue for the same period.

Currently, the smart driving chip market is fiercely competitive. A senior securities analyst told "Business Show" that Horizon Robotics faces a difficult decision regarding its business direction: on the one hand, the smart driving chip market is highly competitive, requiring continuous investment in technology upgrades to compete with international giants like NVIDIA in the high-end market, which necessitates significant investment in chip research and development by Horizon Robotics. On the other hand, the evolving demands of the smart car market mean that relying solely on chips may not be sufficient to support long-term growth.

The analyst further suggested that Horizon Robotics needs to consider 'addition and subtraction.' Firstly, while maintaining its chip advantage, the company could expand into other areas of smart driving solutions, such as partnering with software companies to provide more comprehensive smart driving systems. Secondly, since its current revenue is highly dependent on a small number of major customers, increasing the company's operational risks, Horizon Robotics needs to reduce its reliance on any single customer.

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It must be said that the fierce competition in the smart driving market has never abated.

In August 2024, Black Sesame Technology went public in Hong Kong, becoming the "first domestic smart driving chip company" and putting significant pressure on Horizon Robotics. Although Horizon Robotics has a higher valuation, Black Sesame Technology's earlier listing undoubtedly captured market opportunities and attracted the attention of some investors.

According to relevant data, in 2023, Horizon Robotics ranked second in terms of market share for low-end and high-end smart driving chips in the Chinese market, with a market share of 21.3% and 35.5%, respectively. Israeli chip manufacturer Mobileye and NVIDIA held dominant positions in the market.

Moreover, Horizon Robotics' major customers, NIO and Li Auto, have announced successful tape-outs of their self-developed chips. This trend undoubtedly poses significant challenges to Horizon Robotics' future market share and intensifies competition in the market.

An automotive industry expert told "Business Show" that "Horizon Robotics' strength lies in its experienced technical team with rich R&D experience. Their Journey series chips have certain advantages in terms of performance and cost-effectiveness. However, compared to Black Sesame Technology, Horizon Robotics' later listing has, to some extent, impacted its market share expansion."

The automotive industry expert further stated that Black Sesame Technology has also excelled in market promotion, and Horizon Robotics needs to intensify its efforts in this area. "In the long run, Horizon Robotics needs to focus more on technological innovation, continuously launch competitive new products, strengthen cooperation with automakers, and enhance brand influence."

Apart from competition from Black Sesame Technology, international chip manufacturers NVIDIA and Mobileye are also formidable competitors for Horizon Robotics. NVIDIA's Orin chip holds a prominent position in the high-end smart driving market, recognized for its powerful computing capabilities and excellent performance. Mobileye's EyeQ series chips are widely used in the mid-to-low-end market, trusted by automakers for their mature technology and stable performance.

In comparison, while Horizon Robotics' Journey series chips have certain advantages in terms of performance and cost-effectiveness, there is still a gap in brand influence and market share compared to these international giants.

Furthermore, Horizon Robotics' major customers, NIO and Li Auto, have begun to develop their self-developed chips. NIO has announced the successful tape-out of its 5nm smart driving chip "Shenji NX9031," and Li Auto plans to complete the tape-out of its self-developed chip in 2024.

This trend undoubtedly poses a significant impact on Horizon Robotics' future market share. An insider from NIO told "Business Show" that "automakers' self-developed chips are aimed at better mastering core technologies and enhancing product competitiveness and differentiation. For Horizon Robotics, this indeed reduces our reliance on their chips."

However, this does not mean a complete severance of the partnership. "Horizon Robotics can continue to cooperate with us by continuously improving their technological capabilities and providing better services and customized solutions. Meanwhile, they can also expand their customer base and reduce reliance on a single customer," the insider said.

At an industry forum, Yu Kai, founder of Horizon Robotics, stated, "Horizon Robotics has always adhered to technological innovation as its core. We will continue to challenge ourselves, break through technical bottlenecks, and contribute to the development of smart driving. Facing fierce market competition, we will not retreat but will steadfastly move forward, continuously improve our products and services, and meet customer needs."

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In 2015, Horizon Robotics was founded by Yu Kai after he left Baidu. Yu Kai invited Huang Chang, the chief architect of Baidu IDL, Yang Ming, the founder of Facebook FAIR, Fang Yi, the former vice president of Nokia, and Zhou Feng, the former chip architect of Huawei, to join him in starting the business.

The founding team, with backgrounds from NEC lab and Baidu, had a distinct technical foundation. Horizon Robotics' initial goal was to create a brain for intelligent everything, with business divisions including the Andersen platform for smart homes and robots and the Hugo platform for automotive smart driving. Later, the smart driving business developed rapidly and gradually became the company's primary focus.

In March 2016, Horizon Robotics released its first-generation BPU (Brain Processing Unit processing architecture). At the launch of Singularity Automobiles, Horizon Robotics demonstrated an ADAS prototype system capable of simultaneously detecting lane lines, vehicles, and pedestrians on real vehicles and secured orders from two tier 1 suppliers. In 2017, Horizon Robotics launched its first automotive-grade chip, "Journey," and its first self-developed chip for IoT scenarios, "Sunrise."

In 2019, Horizon Robotics released its first mass-produced automotive-grade smart chip, Journey 2, and secured Series B funding of US$3 billion. In 2020, Journey 2 began to be integrated into mass-produced vehicles, and Journey 3 was officially launched. In 2021, Horizon Mono (Advanced Driver Assistance System) equipped with "Journey 3" achieved mass production on the Li ONE, making Horizon Robotics the first domestic supplier for pre-installed mass production. In 2022, Horizon Pilot equipped with "Journey 5" was mass-produced on Li L series vehicles. In 2024, Horizon Robotics launched the Journey 6 series, with 5 million processing hardware units delivered, and established a joint venture with Volkswagen called Corejourney.

In fact, over the past three years, Horizon Robotics has invested heavily in technology research and development, with R&D expenditures reaching RMB 5.39 billion. While this has brought technological advantages to Horizon Robotics, it has also led to sustained losses for the company. To date, the company's cumulative losses have reached RMB 17.523 billion.

Moreover, Horizon Robotics' revenue is highly dependent on a few major customers. In the first half of 2024, its top five customers contributed 77.9% of its revenue, with the largest customer accounting for 37.6% of total revenue. This concentrated revenue structure significantly increases the company's operational risks.

To balance technology and finance, Horizon Robotics needs to find a sweet spot between technology research and development and market expansion.

An industry insider analyzed that, on the one hand, Horizon Robotics needs to continue investing in technology research and development to enhance product performance and quality to meet market demands. On the other hand, it also needs to strengthen market expansion efforts, expand its customer base, increase market share, and boost revenue. Additionally, Horizon Robotics must optimize its management structure, reduce operating costs, and enhance operational efficiency.

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Since its inception, Horizon Robotics has focused on the research and development of smart driving chips. However, as the market continues to evolve and competition intensifies, relying solely on chip business is no longer sufficient to meet the company's long-term development needs.

Therefore, while maintaining its chip advantage, Horizon Robotics needs to appropriately expand into other areas of smart driving solutions.

Partnering with software companies is a crucial development direction. Smart driving systems require not only powerful chips but also excellent software algorithms to achieve various functions. Horizon Robotics can collaborate with software companies to jointly develop smart driving software, offering customers more comprehensive smart driving solutions.

For instance, Horizon Robotics can partner with map software companies to enable real-time updates and navigation functions for high-precision maps. Collaborating with AI companies can facilitate the development of more intelligent driving assistance systems, enhancing driving safety and comfort.

Furthermore, Horizon Robotics can consider expanding into other areas of smart driving, such as smart cockpits and connected vehicles. Smart cockpits represent a vital direction for future automotive development, offering passengers a more comfortable and convenient driving experience.

Leveraging its technological advantages in chips and AI, Horizon Robotics can develop smart cockpit chips and software, providing automakers with complete smart cockpit solutions. The connected vehicle market also holds immense potential, and Horizon Robotics can collaborate with telecommunications companies to develop connected vehicle chips and software, enabling seamless interconnection between vehicles and the external world, thereby offering users richer services.

Crucially, technological innovation remains key for long-term development. In chip design, Horizon Robotics can strengthen research and application of advanced manufacturing processes to improve chip performance and power consumption ratio. Additionally, it can enhance research and optimization of AI algorithms to boost chip intelligence, enabling more precise perception and decision-making.

Importantly, Horizon Robotics' current revenue is highly dependent on a few major customers, increasing the company's operational risks. Therefore, Horizon Robotics needs to actively expand its customer base and reduce reliance on any single customer. It can strengthen cooperation with small and medium-sized automakers and introduce products and solutions tailored to their needs.

In summary, despite facing numerous challenges and opportunities post-IPO, Horizon Robotics must continuously enhance its technological capabilities, expand its business areas, and optimize its revenue structure to secure a foothold in the future smart driving market and achieve sustainable development.

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