RoboSense amid fierce competition and limited pricing power?

Can a Hong Kong listing help the maker of LiDAR automotive sensors break out of a cycle of rising sales but mounting losses?

Key Takeaways:

  • The sensor technology firm’s losses have widened over the past three years, reaching 2.09 billion yuan last year
  • Gross margins are narrowing and last year spiraled to minus 7.4%, hit by price pressure from automakers 

     

By Li Shih Ta

Autonomous vehicles need to track their surroundings with high-precision “eyes” if they are to become the future of driving. And so the battle to create the smartest sensors is intensifying, with a strong focus on laser-based scanning.

Developers of the laser imaging, detection and ranging (LiDAR) sensors for self-driving cars need to invest heavily to gain an edge in the industry, sending some companies to the stock markets to fill their war chests.

China’s leading LiDAR company, Hesai Group (HSAI.US), listed its shares in the United States earlier this year and now one of its key competitors, RoboSense Technology Co. Ltd., is on track to become the first auto sensor specialist to make its debut on the Hong Kong Stock Exchange.

LiDAR sensors scan the immediate environment using pulses of laser light bounced off nearby objects, using the data to analyze parameters such as distance, direction, speed and shape.

The LiDAR devices can offer advantages over competing scanning technologies, being relatively small, high-resolution sensors that are able to cope with light variations and signal interference. But they are very expensive to develop and produce.

RoboSense was founded in 2014 with headquarters in Shenzhen. Its CEO, Qiu Chunxin, was born in the 1980s and graduated from Harbin Institute of Technology. RoboSense started out making scanners for the construction and interior design industries, releasing its first static 3D laser scanner in 2015. With the rise ofTesla and autonomous driving, RoboSense soon switched its focus to vehicle sensors. The company joined the battle for automotive-grade LiDAR in 2016, becoming one of the first mass producers of solid-state systems, in which the sensors are fixed rather than rotating.

Aside from automotive sensors, RoboSense develops LiDAR hardware for other industries including robotics, as well as selling integrated LiDAR technology and solutions for AI-based detection software.

As of the middle of this year, RoboSense had been selected as the sensor solution by 21 automotive OEMs and Tier 1 suppliers for use in 52 models, ranking first globally, according to a study by China InsightsConsultancy. The firm had already mass produced sensors for 13 automotive models under agreements with nine of those customers. It has also established cooperative relationships with more than 200 automobile equipment makers and suppliers worldwide.

Unit sales top 100,000

Since it entered the business, RoboSense had delivered more than 100,000 LiDAR sensors as of the end of March this year. In terms of revenue from automotive LiDAR, Hesai ranked first globally with a 48% market share in 2022, followed by RoboSense in third place with about 15.4%.

In this cash-guzzling industry, winning market share does not come cheap. RoboSense revenues have been rising, but so have its losses, according to an information pack released after the company passed its listing hearing.

Annual revenue was 170 million yuan ($23.7 million) in 2020, rising to 330 million yuan a year later and 530 million yuan in 2022. But over the same three-year period annual losses attributable to shareholders came in at 220 million yuan, 1.66 billion yuan and 2.09 billion yuan. The first half of this year brought a further loss of 770 million yuan, taking the cumulative total to 4.74 billion yuan. The young developer is trapped in a vicious cycle of rising revenues and deepening losses. 

Gross margin has also nosedived, all the way from 44.1% in 2020 and 42.4% in 2021 to a figure of minus 7.4% in 2022, as profits have been sacrificed to boost market share. Since June 2021, mass-produced orders have been sold at a discount to the sample price, while the unit price was also cut from 20,000 yuan to only4,346 yuan.

Prices for most of China’s electric vehicles are falling and the carmakers’ aggressive pricing power is putting downward pressure on LiDAR products. In the prospectus, RoboSense said it had agreed with a number of customers to cut prices by 1% to 5% per year in the future. The company said it would be hard to secure overall profit margin If prevailing EV prices continue to fall.

The company may have been named as the preferred sensor provider by 21 customers for 52 vehicle models, but few of these contracts have yet translated into definite orders.

RoboSense said it was in receipt of projects from leading Chinese automakers such as FAW Group (000800.SZ), SAIC Motor (600104.SH), Guangzhou Automobile Group (601238.SH, 2238.HK), Geely(0175.HK, GELYY.US) and Great Wall Motor (601633.SH, 2333.HK). However, FAW Hongqi, Leapmotor(9863.HK) and GWM have also reached cooperation agreements with Hesai, RoboSense’s rival, this year.

Musk is no fan of LiDAR

While it has many enthusiasts, the LiDAR business comes with risk factors. The stock price of industry leader Hesai has more than halved only nine months after the firm was listed on the Nasdaq, as investors fret that the technology could be targeted by the U.S. as a national security risk, given China’s strong standing in the automotive sensor industry.  

The technology does have its detractors. Tesla (TSLA.US) founder Elon Musk has gone on record as saying that “LiDAR is expensive, ugly and unnecessary” and “anyone relying on LiDAR is doomed.” Instead, Tesla advocates for a camera-based autopilot system called Pure Vision, which uses AI algorithms to process visual information. Toyota has also turned to a pure-vision model.

Meanwhile, LiDAR has a long road ahead to become commercialized at scale in advanced self-driving technology, despite being favored by many carmakers. That means manufacturers still need to keep burning R&D cash to refine their products and gain pricing power.

In the past three years, RoboSense’s annual R&D expenditures were 81.5 million yuan, 130 million yuan and 310 million yuan, accounting for 47.7%, 40.2% and 57.7% of revenue. The firm is looking to raise between HK$780 million and HK$1.17 billion from its Hong Kong IPO, 45% of which will be used for R&D.

RoboSense is clearly hoping that the IPO proceeds will help it find a way to stem losses while staying competitive in a cut-throat market.

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