Momenta approved for U.S. listing

The company is the latest from China’s increasingly crowded autonomous driving technology sector to seek funds from an overseas IPO

Key Takeaways:

  • China’s securities regulator has approved Momenta’s plan for a U.S. listing, which could raise up to $300 million
  • Despite partnerships with major automakers, the autonomous driving company faces challenges in finding partners to use its technology and from rival products

  

By Hugh Chen

Self-driving tech company Momenta Global Ltd. likes to tout a dual strategy that focuses on both mass-market Advanced Driver Assistance Systems (ADAS), as well as fully autonomous driving solutions. It claims such an approach, which it calls its “flywheel” strategy, allows it to generate revenue from current ADAS solutions while also gathering crucial data to develop more advanced autonomous driving systems for the future.

The company could soon find out if investors share its enthusiasm for that strategy as it mounts its own drive for an overseas IPO. That campaign took a significant step forward last week when the China Securities Regulatory Commission (CSRC) approved Momenta’s application for an IPO on either the Nasdaq or New York Stock Exchange. The company intends to issue up to 63 million ordinary shares.

Momenta is joining an increasingly crowded field of autonomous driving tech firms eying offshore IPOs, alongside others like Pony.ai and Zongmu that have filed similar applications. Only a handful have made it to market so far, with a spotty track record reflecting mixed investor appetite for such companies. Shares for one of those, Hesai (HSAI.US), have lost three-quarters of their value since their U.S. IPO in early 2023.

Despite the tepid reception, the IPO parade is marching on as Momenta and its peers seek funds to fuel their money-losing operations that are unlikely to become profitable in the near-term.

While Momenta hasn’t disclosed its fundraising target, Bloomberg reported last month the company might aim to raise between $200 million and $300 million. The company has yet to file any public documents with the U.S. securities regulator, though it’s possible it has already submitted some early confidential information.

Unlike many of its competitors that focused solely on fully autonomous driving from the start, Momenta has charted a different course since its founding in 2016. It began by concentrating on ADAS, aiming to provide a product with immediate revenue-generating potential. It wasn’t until 2019 that Momenta expanded to include fully autonomous driving technology.

Like many of its peers, Momenta was established in 2016 by a team with strong technical backgrounds. Its founding team included Cao Xudong, a former executive at facial recognition technology company SenseTime (0020.HK), along with other AI and automotive industry veterans.

The company has been a successful fundraiser over the years, soaking up over $1 billion across multiple funding rounds. Its diverse investor base runs the range from Singaporean sovereign wealth fund Temasek, to Alibaba-affiliated Yunfeng Capital, gaming giant Tencent, and Germany’s Daimler AG. One of its biggest rounds came in 2021 when the company raised $500 million, with participation from Toyota, Bosch, and Daimler.

Momenta’s early focus on integrating its products into mass-produced vehicles may give it a leg up on its peers in terms of commercialization. Many of its competitors only began shifting towards ADAS around 2022. One of those is Pony.ai, another recent IPO candidate, which only seriously entered the ADAS market in 2023.

Flywheel strategy

Momenta has prioritized building strong ties with automakers using two strategies. One of those has seen it secure such partners as investors, which include the likes of SAIC, Toyota and Daimler. Momenta also builds such ties through strategic joint ventures, such as a 2020 partnership with IM Motors, the high-end electric vehicle unit of SAIC; and a similar tie-up with BYD formed in late 2021.

Such partnerships serve dual purposes. The partners can become future customers. And once that happens, they can also provide extensive vehicle operation data. That approach is central to Momenta’s “flywheel” strategy, where collaborations generate both revenue in the present and data for the development of future products, in a self-reinforcing cycle.

Despite Momenta’s numerous partnerships, few of those partners have actually used its technology in mass-produced vehicles. Two notable adopters are IM Motors, which has integrated Momenta’s D.L.P. AI model into its vehicles; and Mercedes-Benz, which will use Momenta’s map-free advanced driving assistance systems in its all-electric CLA model, set for production in April 2025.

Momenta and its peers are targeting an ADAS market with substantial growth potential. Third-party research cited by Zongmu says that China’s ADAS market expanded from 9.3 billion yuan ($1.3 billion) in 2018 to 41.3 billion yuan in 2022, underscoring the sector’s rapid development.

However, the burgeoning sector is also becoming increasingly competitive, attracting both startups and also established automakers that are developing their own in-house ADAS solutions. For instance, BYD now uses its proprietary ADAS system, DiPilot, in many of its models including its Han series.

While focusing on ADAS for near-term revenue, Momenta is also ramping up for fully autonomous driving – a sector expected to be worth $360 billion by 2030, according to McKinsey. That leg of the company’s strategy includes the launch of Momenta Go, a robotaxi service that began commercial operations in 2021 in designated areas of the Eastern Chinese city of Suzhou.

Momenta has not disclosed many details about Momenta Go, suggesting its services are still in a trial phase. As such, that business is unlikely to generate significant revenue in the near term. We’ll also need to wait for some public filings with the U.S. securities regulator to gage how Momenta is doing in commercializing its older ADAS solutions.

Like other robotaxi service providers, Momenta will face significant hurdles beyond technological challenges. Chief among these is China’s complex regulatory landscape, where legal and regulatory frameworks often struggle to keep pace with technological advances, creating uncertainty and potential obstacles for widespread adoption.

However, recent developments in China’s regulatory environment offer some encouragement. In November, China issued guidelines for a nationwide scheme to accept applications from companies seeking to deploy more fully autonomous vehicles for mass adoption.

Under the new plan, drivers in test vehicles are allowed to take their hands off the steering wheels, with automakers and fleet operators assuming responsibility for safety. This shift in liability is a crucial development, potentially accelerating the path to wider autonomous vehicle deployment. However, it also places greater responsibility on companies like Momenta to ensure their systems are robust and reliable.

Despite such positive developments, Momenta will need to continue spending heavily on improving its technology, and a significant portion of its IPO funds are likely to go to R&D. The company appears to have laid a solid foundation to become an important player in the autonomous driving space. But we’ll need to see more about its relationships with automakers, as well as its current and future revenue potential, to better understand its longer-term prospects.

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