Last week, Chinese lidar maker Hesai made a massive IPO in the US, with layoffs, bankruptcies and consolidations rocking the industry. The Shanghai-California-based company, which makes sensor technology integral to self-driving cars and increasingly sophisticated driver-assistance systems, raised $190 million from its public offering on the Nasdaq.
As my colleague Kirsten wrote in January, lidar manufacturers face a do-or-die year in 2023. Of her nine lidar companies listed through SPAC, Quanergy has filed for bankruptcy protection and Ouster has merged with her Velodyne. Ouster’s stock has been trading below $2 since last June, and Innoviz’s stock is about $4 a share for him.
Hesai was founded in 2013 and was originally scheduled to go public two years ago. China’s Nasdaq-style listing application on the STAR board was approved in January 2021, and at a valuation of 10 billion yuan, he was expected to raise more than 200 million yuan ($30 million). However, the IPO plan he dropped two months later.
Hesai has advanced its US IPO amid dark clouds in the industry. Worries aside, the company’s shares rose nearly 11% to $21 on the first day of trading last Thursday. The company’s listing also marked his largest Chinese IPO in the U.S. since Didi Chuxing in 2021, and subsequently triggered China to crack down on overseas listings, citing data security concerns.
Ranks of Chinese tech companies are entangled in rising tensions between the two major economies, prompting them to either delist from the US or seek a secondary listing in Hong Kong. It does not mean that you will not receive Despite his rosy IPO, the company faces obstacles ahead, as described in his IPO prospectus. The document is also a useful lens for understanding the current state of China’s lidar industry and how it is sandwiched between her two superpowers.
caught on the way
For Hesai, the challenge of doing business amid the tech war between the United States and China is evident in supply chain stability. Last year, the US government introduced new export controls on the sale of high-end chips to China. “These sanctions and export controls may adversely affect us and/or our supply chains, business partners or customers,” Hesai warned in the prospectus.
Hesai is working on its own application-specific integrated circuits, but its in-house ASICS development is “early” and the company remains “reliant on third-party chips” for its lidar products.
A global chip shortage that has hit industries from automobiles to consumer electronics has exacerbated supply chain problems for lidar manufacturers. “The ongoing global chip shortage has made it difficult to secure sufficient and timely chip supplies, including automotive grade receivers and FPGA (Field Programmable Gate Array) chips, resulting in poor business operations and financial performance. It got worse,” the company noted.
Chinese companies considering international public offerings also face renewed pressure from Beijing, which is stepping up scrutiny of data-rich tech giants that could pose a threat to national security. Didi Chuxing came under pressure from New York to delist after it determined China lacked a robust data security infrastructure. The government has since enacted a series of rules to curb offshore listings, including requiring companies to seek Chinese approval if they possess the personal information of more than one million Chinese users. Nevertheless, Hesai said it has received confirmation from relevant authorities that the IPO does not require such a review.
customer pressure
Hesai was the largest lidar manufacturer by shipments in 2022, according to estimates by Frost & Sullivan. But sales don’t equate to profitability. The company expects his 120 million yuan ($17 million) in 2019, his 107 million yuan in 2020, his 245 million yuan in 2021, and his first nine in 2022. He has a record of losing 165 million yuan in a month.
Several factors may explain why the losses continue. In recent years, Chinese lidar manufacturers have entered a price war to make their once prohibitive hardware more affordable and mass-adoptable. This is partly a response to domestic electric vehicle brands trying to sell smart driving as a key selling point. To win orders from major automakers, lidar companies are often forced to sell at competitive prices and even lose money.
As Hesai acknowledges in its prospectus, “The cost-reduction initiatives adopted by our customers often lead to increased downward pressure on pricing. have significant influence over their suppliers, including the It serves a large number of customers and has a high fixed cost base.”
It doesn’t help that Hesai’s revenue depends on a “limited number of customers and products.” The company’s gross margin has fallen from 57.5% in 2020 and 53.0% in 2021 to 44% in the first nine months of 2022.
Lidar’s applications extend beyond autonomous driving, but many players in China have jumped on the EV boom as the government heavily subsidizes companies pushing the transition to electricity. So lidar makers can rise and fall as the EV space cycles. As Hesai wrote:
“Many of our customers in China are focused on NEV development and production. [new energy vehicles] We are also entitled to certain incentives and subsidies from the government…However, China’s central and local governments are beginning to phase out such incentives and subsidies…We as a LiDAR supplier affect. “
