Text/Du Xiaoxun

Editor/Ziye

As 2024 draws to a close, another intelligent driving unicorn company has successfully gone public.

On December 27, U-Drive Innovation listed on the Hong Kong Stock Exchange's main board with an issue price of HK$17 per share. The share price opened higher and, as of press time, stood at HK$18.12 per share, up 6.59%, with a market capitalization of HK$7.233 billion.

U-Drive Innovation's journey to public listing was relatively smooth.

In August 2023, U-Drive Innovation initiated its A-share listing process. However, after a period of preparation, it terminated its A-share IPO in May 2024 and switched to the Hong Kong Stock Exchange. From the switch to successful listing, it took U-Drive Innovation just over half a year. According to LiveReport big data statistics, the average listing cycle for new stocks on the Hong Kong Stock Exchange in 2024 was approximately 393 days, making U-Drive Innovation's listing speed significantly faster than the average.

As a leading intelligent driving solution provider, U-Drive Innovation boasts its own unique advantages.

In December 2014, co-founders Liu Guoqing, Yang Guang, Zhou Xiang, Wang Qicheng, and former director Wu Jianxin founded U-Drive Innovation. Over the past decade, the company has received 10 rounds of funding.

During its IPO, U-Drive Innovation's Hong Kong public offering was oversubscribed by over 14 times. Two cornerstone investors, Kangchengheng International Investment Co., Ltd., and Horizon Together Holding Ltd., cumulatively subscribed for over HK$540 million. Even the home appliance giant Midea Group participated in the IPO offering.

However, beneath its success lies the common challenges faced by autonomous driving companies: high performance pressure, substantial R&D investment, and tight cash flow.

U-Drive Innovation is no exception, reporting significant losses and showing signs of reducing R&D investment. Cash flow has also been tightening year by year. Even the attention garnered from multiple rounds of funding has begun to wane. Before going public, U-Drive Innovation faced the withdrawal of several major shareholders, and members of the founding team have also engaged in cash-out activities.

In addition, U-Drive Innovation lags behind its peers in the development of higher-level autonomous driving technology. According to 2023 data, its market share based on revenue from L0 to L2+/L2++ solutions is also relatively low.

Looking at the automotive industry, which is closely related to autonomous driving, more and more automakers are beginning to use self-developed intelligent driving chips or solutions, posing a challenge to U-Drive Innovation.

Under internal and external pressures, U-Drive Innovation must gain the favor of secondary market investors to resist these pressures and accelerate its growth.

1. Successful IPO Provides U-Drive Innovation with a Breather

For shareholders, investing in U-Drive Innovation may have proven lucrative.

Before going public, many major shareholders of U-Drive Innovation had already earned money by selling company shares.

Among them, the most noteworthy is Wu Yongming, CEO of Alibaba, who participated in U-Drive Innovation's angel round of funding. From January to April 2019, he transferred his registered capital in U-Drive Innovation to Xinrong Investment, Shanghai Hongjin, and Beijing Siwei, accumulating a cash-out of RMB 30.6 million.

The shareholding structure shows that before the IPO, Wu Yongming still held 2.31% of U-Drive Innovation's shares, corresponding to a value of RMB 123 million. Together with the previously cashed-out RMB 30.6 million, Wu Yongming had already obtained approximately 33 times his investment return before U-Drive Innovation went public.

It's not just Wu Yongming who chose to cash out. U-Drive Innovation's former shareholders, Hanbang High-Tech and Taolue Fund, have also transferred the company's shares. The cash-out amounts of these two major shareholders both exceeded RMB 20 million, and after the transfer, both withdrew directly from the shareholder lineup.

Not only major shareholders but also members of the founding team transferred the company's shares in 2016, 2018, and 2021, respectively. Through these three reductions, founders like Liu Guoqing have accumulated a cash-out of RMB 16.2779 million.

According to incomplete statistics from DoNews, before the IPO, U-Drive Innovation's shareholders had cashed out over RMB 250 million.

From the shareholders' perspective, this investment in U-Drive Innovation has been successful. However, from U-Drive Innovation's perspective, it still needs more financial support.

Like other autonomous driving companies, U-Drive Innovation has not yet achieved profitability.

The prospectus shows that from 2021 to 2023, U-Drive Innovation's operating revenues were RMB 175 million, RMB 279 million, and RMB 476 million, respectively; net losses were RMB 140 million, RMB 221 million, and RMB 207 million, respectively. Based on non-IFRS measurements, U-Drive Innovation's adjusted net losses for 2021-2023 were RMB 131 million, RMB 206 million, and RMB 185 million, respectively.

Although the company's net loss in 2023 was reduced compared to 2022, other data in the prospectus does not indicate a sustained recovery trend in the company's overall performance.

For example, U-Drive Innovation did not fully increase its R&D investment, and the proportion of R&D expenditure to total revenue also declined in 2023.

From 2021 to 2023, U-Drive Innovation's R&D expenditures were RMB 82.201 million, RMB 139 million, and RMB 150 million, accounting for 46.9%, 49.9%, and 31.5% of its total revenue, respectively.

In the first half of this year, it also seemed that U-Drive Innovation was deliberately reducing its R&D investment. During the reporting period, the company's R&D expenditure was RMB 63.31 million, accounting for 26.7% of revenue, compared to RMB 81.389 million in the same period last year, accounting for 49.7%.

U-Drive Innovation's operating performance data, sourced from the U-Drive Innovation prospectus

U-Drive Innovation also faces significant cash flow pressure and tight cash reserves. As of the end of June 2024, U-Drive Innovation held cash and cash equivalents of RMB 220 million, compared to RMB 198 million as of the end of 2023. This comparison shows that the company's net cash increase in the first half of 2024 was only approximately RMB 22.179 million.

In terms of liabilities, as of the end of June 2024, U-Drive Innovation's total liabilities were approximately RMB 431 million. Among them, current liabilities were approximately RMB 362 million, and non-current liabilities were RMB 69.15 million. The company's cash flow was also insufficient to cover these liabilities.

Additionally, U-Drive Innovation's production capacity utilization rate is relatively low. The prospectus shows that the company's Bao'an production base began production in July 2022. However, in 2023 and the first half of 2024, the production capacity utilization rate of this production base was 56.2% and 53.5%, respectively.

As an autonomous driving company, R&D investment must continue. U-Drive Innovation must accelerate its listing process to raise more funds in the secondary market to support high R&D investment.

Judging from U-Drive Innovation's fundraising situation, the company was very popular during its IPO issuance period.

According to IPO Early Bird reports, U-Drive Innovation's Hong Kong public offering portion was oversubscribed by 14.04 times, and the international offering portion was oversubscribed by 1.09 times.

Based on an issue price of HK$17.00 per share, U-Drive Innovation will raise a net fund of approximately HK$606 million through this IPO. According to Futu transaction data, U-Drive Innovation's gray market closing price was HK$18.30 per share, up 7.65% from the issue price.

It is understood that for this IPO fundraising, there are two cornerstone investors: Kangchengheng International Investment Co., Ltd., and Horizon Together Holding Ltd. The latter is wholly owned by another autonomous driving company, Horizon Robotics. The subscription ratio of these two cornerstone investors is as high as 72%, with a total subscription amount of HK$540 million.

IPO Early Bird also reported that Midea Group participated in U-Drive Innovation's IPO issuance.

An oversubscription ratio of over 14 times, in a sense, means that U-Drive Innovation still has considerable room for growth in the eyes of the capital market.

Now, the successfully listed U-Drive Innovation can be considered one of the first autonomous driving companies to stay in the game. It can now take a breather and have more money to develop products and enhance technological capabilities.

2. After a Decade of Establishment, What Are U-Drive Innovation's Strengths and Weaknesses?

The beginning of an autonomous driving company's growth is always closely related to the founder's enthusiasm for autonomous driving technology research and development.

The story of U-Drive Innovation began with the Singapore government's ADAS (Advanced Driver Assistance Systems) research project led by founder Liu Guoqing.

At that time, Liu Guoqing was pursuing his Ph.D. at Nanyang Technological University. After leading the ADAS project, he saw the huge potential for autonomous driving development. In April 2013, after graduating from Singapore, Liu Guoqing teamed up with five friends to venture into the autonomous driving market.

Initially, the six-member team developed an APP with low-level warning and assistance functions. Although this trial product did not achieve the desired results, it led the team to reach a consensus on professionally developing ADAS and gradually upgrading to L1, L2/L2+ level solutions.

As the company's overall direction was established, the team gradually grew from six to fifteen members. In 2014, the company headquarters moved from Nanjing to Shenzhen, and U-Drive Innovation was officially founded.

Although U-Drive Innovation experienced an industry winter at the end of 2015, with the company temporarily suspending salaries, the launch of U-Drive Innovation's first-generation intelligent driving solution, iSafety, gradually put the company's business on the right track. This product, which has functions such as distance monitoring, collision, and deviation warning, began large-scale delivery in 2017 and attracted important customers such as XPeng Motors and Wanshang Group.

iSafety solution demonstration, sourced from the U-Drive Innovation official website

In 2018, U-Drive Innovation began entering the front-loading field and achieved large-scale mass production and delivery. Liu Guoqing was very proud at the time. In an interview with Yuanjing Capital, he said, "I felt that the fruits were finally starting to bear. During that time, I often stayed in the factory, and my WeChat nickname was changed to 'M Factory Director.'"

Starting from 2020, U-Drive Innovation gradually expanded its business to the intelligent cockpit and vehicle-road coordination fields, successively releasing products such as the L2+/L2++ level automated intelligent driving iPilot solution and the interactive intelligent cockpit solution.

More and more companies are cooperating with U-Drive Innovation. According to public information, U-Drive Innovation has currently reached cooperation with dozens of OEMs in the passenger vehicle field, including NIO, Chery, Changan, Geely, SAIC Motor Passenger Vehicle, SAIC MAXUS, smart, JAC, and FAW Besturn. Mass production has been scheduled for nearly a hundred models.

Behind the rapid technological advancements, U-Drive Innovation has attracted substantial capital investment.

According to incomplete statistics, since receiving angel round funding from Alibaba Group CEO Wu Yongming in 2014, U-Drive Innovation has maintained a funding rhythm of approximately one round per year.

In early 2018, U-Drive Innovation completed its A1 round of funding worth tens of millions of US dollars, led by Puhua Capital, with follow-on investments from Jiaxin Investment, Dehan Investment, and co-investor Hechuang Capital.

Entering 2019, the funding amounts received by U-Drive Innovation were almost all above 100 million yuan. Before the IPO, it completed a total of 10 funding rounds, raising a cumulative amount of 1.5 billion yuan. It attracted capital support from companies including NavInfo, CIC Capital, Puhua Capital, Dongfeng Asset Management, Huaqin Technology, and Yuanjing Capital.

As of the completion of the last funding round in November 2023, U-Drive Innovation's post-investment valuation reached RMB 5.348 billion.

Judging from the current situation, U-Drive Innovation has its technological advantages.

The prospectus shows that U-Drive Innovation possesses full-stack self-developed and integrated software and hardware technical capabilities. The company's core algorithms cover four key intelligent driving modules: perception, fusion, mapping and positioning, and planning and control.

The prospectus also states that among the five emerging technology companies in domestic intelligent driving, U-Drive Innovation's proportion of using chips without embedded algorithms is as high as 99.98%, leading the industry. This provides a solid technical support for the high performance and differentiated competition of its products.

However, from the perspective of the level of intelligent driving solutions, U-Drive Innovation's advantage lies in L0 to L2+ level solutions. But competitors such as WeRide and Pony.ai have already begun research and development of L4 autonomous driving technology, and WeRide already has the capability to operate on L4 public roads.

In addition, the company's market share is also relatively low. According to data from Zero Intelligence Consulting, based on 2023 L0 to L2+/L2++ solution revenue, U-Drive Innovation ranks sixth among domestic intelligent driving solution providers, with a market share of only 0.6%.

It seems that after going public, U-Drive Innovation still needs to innovate in "U-Drive."

3. Demand Remains, but the Trend of Automakers' Self-Development is Evident; U-Drive Innovation Must Run Faster

U-Drive Innovation's revenue primarily stems from its iSafety and iPilot solutions within its suite of intelligent driving solutions, as outlined in its prospectus.

Between 2021 and the first half of 2024, the company's intelligent driving solutions accounted for 98.8%, 95.7%, 81.1%, and 77.0% of total revenue, respectively, with gross profit margins of 10.7%, 10.1%, 13.7%, and 13.9%, respectively.

Currently, the market for intelligent driving solutions, in which U-Drive Innovation operates, continues to expand.

A report from the China Industry Information Research Institute reveals that the global market size for autonomous driving solutions in passenger vehicles surged from RMB 58.6 billion in 2018 to RMB 187.6 billion in 2022, achieving a CAGR of 33.76%. This figure is projected to exceed RMB 200 billion in 2023.

This growth is evident in the passenger vehicle market, where most new energy vehicle companies have incorporated intelligent driving systems into their offerings.

For instance, the recently launched XPeng MONA M03 features the XPILOT intelligent assisted driving system; the AVIA 11 is among the first models equipped with Huawei's Kunlun Intelligent Driving System ADS 3.0; and NIO's ET9 boasts the Aquila 2.0 Cepheus Super Sensing System.

According to 36Kr, citing data from the Ministry of Industry and Information Technology, as of June 2024, domestic computing power reached 246 EFLOPS (based on FP32 calculations). Converted to FP16, this equates to 492 EFLOPS. Notably, the combined cloud computing power of Huawei, XPeng, NIO, and Li Auto comprises approximately 3.5% of the national computing power scale.

Vehicles equipped with intelligent driving systems are gaining increasing acceptance among consumers.

A survey report by Continental indicates that 90% of Chinese respondents view autonomous driving as a useful and advanced technology, with 82% believing it will become a part of daily life within the next five years.

This growing market demand presents both opportunities and challenges for U-Drive Innovation.

As automakers increasingly recognize the importance of intelligent driving, they are expanding their collaborations with companies in the intelligent driving industry chain while also developing their own intelligent driving technologies.

Some automakers have even incorporated self-developed intelligent driving systems or chips into their recent models, posing a certain degree of competition for intelligent driving solution providers like U-Drive Innovation.

As of the first half of 2024, UDrive Innovation has mass-produced 94 models with 29 automakers, including seven of the top ten domestic automakers by sales. By December 5, UDrive Innovation had cumulatively mass-produced for 35 automakers.

According to the UDrive Innovation official website, its existing OEM mass production customers primarily include NIO, Nezha Auto, FAW Group, Geely Auto, SAIC Motor, JAC Motors, Dongfeng Motor, Liuzhou Wuling Automobile, Shaanxi Automobile Group, and Jiangling Motors.

As automakers trend towards developing autonomous driving systems in-house, UDrive Innovation may face increased difficulty in acquiring new customers.

Moreover, the research and development of new technologies remain crucial for UDrive Innovation. Post-IPO, with access to funds, UDrive Innovation must promptly invest in autonomous driving system R&D to develop more appealing products for its customers.

As stated in its prospectus, approximately 40% of the net proceeds from the IPO will be allocated to enhancing R&D capabilities and recruiting and retaining relevant R&D talent; roughly 30% will be used to improve production efficiency and solution competitiveness; about 20% will strengthen sales and marketing capabilities; and approximately 10% will be reserved for working capital and general corporate purposes.

It is reported that UDrive Innovation is developing Advanced Driver Assistance System (ADS) functions and anticipates delivering the iRobo solution in the first quarter of 2025. The company claims that the iRobo solution can support fully autonomous driving in specific areas and scenarios.

Image source: UDrive Innovation official website

UDrive Innovation must recognize that going public marks a new starting point for the company's development. Amidst fierce industry competition and numerous internal challenges, it must seize the opportunities presented by its IPO and accelerate its growth in the field of intelligent driving.