Freetech Finds Investor Interest in Slower Autonomous Driving Lane

The company has raised nearly $150 million in its B-series funding, including $100 million last November and another 300 million yuan late last month

Key Takeaways:

• Freetech raised about 300 million yuan in its latest fundraising round, and may have already reached the $1 billion valuation level late last year
• The company lost 175 million yuan in the first six months of 2019 on revenues of just 1.5 million yuan

By Trevor Mo

Self-driving cars continue to face an uphill road despite a decade of hype, lacking any major commercial success and the big bucks that brings. Chinese companies faced extra challenges in 2022, a year pockmarked with business shutdowns, bankruptcies, and layoffs, as the nation implemented some of its toughest-ever restrictions in its now-abandoned effort to control the latest Covid outbreaks.

All that negativity has put the brakes on investor sentiment towards the sector. Companies from the group raised just north of 20 billion yuan ($2.9 billion) in China last year, down nearly 80% from the previous year’s 93.2 billion yuan, according to data compiled by news portal Sohu. One of the dwindling number still able to entice investors is Freetech Intelligent Systems Co. Ltd., which announced raising new money late last month, bringing its new fundraising to nearly 1 billion yuan ($147 million) since late last year.

With expectations that truly autonomous vehicles may be years – if not decades – away, investors are now increasingly favoring startups like Freetech, which are taking an incremental approach by first focusing on developing Advanced Driver Assistance System (ADAS) products. But the company is facing growing competition as rivals increasingly pile into the ADAS space as well.

Hangzhou-based Freetech’s latest funding likely totaled about 300 million yuan, after it raised another $100 million in November. Investors in both rounds are all domestic funds, including Blue Fund, a subsidiary of stated-owned China Communications Construction, Jiangsu province-based Tsari Capital, and Zhejiang province-based Yunxiang Equity Investment.

Freetech said it will use the money to ramp up iteration and commercialization of its advanced intelligent driving technologies and products, according to the statement. The latest B-round funding comes after the company raised $100 million in its A-round in 2021, according to the website PitchBook. 

The company didn’t give a valuation from the latest funding. But the figure may have reached $1 billion, according to a January report by U.S. business magazine Forbes, which included Freetech in a list of 74 Chinese startups that recently achieved “unicorn” status, defined as companies worth $1 billion or more.

Founded in 2016 by automobile veteran Zhang Lin, Freetech is taking a more incremental approach in its autonomous vehicle technology development strategy. Instead of focusing solely on fully-autonomous driving technologies, it has spent its resources initially on low- to mid-level technology and driver-assisted systems in hopes of finding earlier success in the mass market.

The shifting investor attention to companies focused on assisted-driving comes as fully autonomous driving has experienced major setbacks over the past few years. In October, U.S. automaker Ford announced it would be winding down Argo AI, a company it backed along with fellow automaker Volkswagen, focused on developing Level 4 autonomous driving technologies. Autonomous driving is broken down into six levels from Level 0 to Level 5, with Level 4 considered as the first fully autonomous. In November, media reported that Pony.ai, a leader in the Chinese field, was laying off half of its staff, even though the company denied the reports.

Key in commercialization

Freetech’s focus on assisted driving makes sense from a money-earning perspective, as an increasing number of Chinese automakers adopt some level of automation technologies. In the first quarter of last year, 23.2% of new cars made in China had Level 2 automation, up from 7.5% in the same period the previous year, data from industry research firm IDC showed.

Level 2 automation includes limited steering and speed assistance to drivers, according to the U.S.-based Society of Automotive Engineers.

Freetech has long touted itself as a full-stack solution provider, offering a variety of products to automakers. That runs the range from hardware, such as smart cameras, laser detection and ranging (LADAR) scanners, sensors, and domain controllers, as well as a full suite of software services from middleware to applications.

In November, the company announced the launch of its ODIN software platform, which integrates its hodgepodge of hardware and software. The platform is powered by high-performance computer chips, which can enable customers to achieve higher automation in more scenarios such as in highway settings, according to a news brief.

Freetech may keen to emphasize its strong product development capabilities that give it an edge over its rivals. But available information seems to indicate the company has been slow to commercialize its products and services. The company has formed strategic partnerships with more than 40 automakers, including leading private domestic brand Geely, which partnered with Freetech early 2019 to develop smart cameras.

But actual sales to those partners may be meager. The company recorded revenue of just 1.5 million yuan in the first half of 2019, and 221,100 yuan for all of 2018, according to local Chinese media reports. More recent results were not available.

Meanwhile, heavy investment in R&D also means that Freetech is almost certainly still losing big money. It recorded losses of 326 million yuan in 2018, and it lost 175 million yuan in the first six months of 2019.

At the same time, competition is heating up in the ADAS space as many firms that previously focused on fully autonomous vehicles shift down a gear. Pony.ai is one of those, setting up a separate business unit last year for the ADAS market. “Our previous consistent investments in Level 4 technologies prepare us well to develop Level 2 products,” vice President Mo Luyi said in a recent interview with local media 21st Century Business Herald.

Freetech also faces a number of deep-pocketed rivals tied to internet giants such as Baidu (BIDU.US; 9888.HK) and Alibaba (BABA.US; 9988.HK), and leading AI startup SenseTime (0020.HK), which has recently ramped up its efforts in the space. A growing number of automakers are also increasingly developing ADAS technologies in-house, reducing their need to do business with third-party providers. That group includes three of China’s leading electric vehicles markers, Nio (NIO.US; 9866.HK), Xpeng (XPEV.US; 9868.HK) and Li Auto (LI.US; 2015.HK). 

Freetech says its current focus on the ADAS market is transitional and its ultimate goal is to provide fully autonomous technologies. In a recent memo to investors obtained by local media, CTO Shen Junqiang said the company will continue increasing investment in research and development of Level 3 and Level 4 products.

For now, at least, Freetech’s biggest task will be figuring out ways to commercialize its products to start earning some meaningful revenue and keep investors interested in its story. Otherwise, it could find its fuel tank running on empty, and potentially join what’s likely to become a major pileup of failed autonomous driving technology companies whose products failed to find a market.

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