Chinese auto chip maker Black Sesame has recently filed to go public in Hong Kong, offering a glimpse into the business prospect and challenges of an industry that's increasingly important amid an autonomous driving boom and China's stride toward semiconductor independence.
Founded by veterans of Bosch and OmniVision, Black Sesame is seen as one of the domestic players that can potentially replace the likes of Nvidia, Qualcomm and NXP Semiconductors in the auto chip space. The seven-year-old company has seen its revenue grow significantly over the last three years, but its losses have also ballooned. The question, then, is whether Black Sesame can continue to pour money into R&D until it becomes profitable.
Black Sesame makes system-on-chips (SoCs) to power autonomous driving cars and other intelligent car functionalities. Its most advanced chip, the Huashan A1000 Pro designed for Level 3 autonomous driving (meaning a vehicle can handle all aspects of driving but still requires human intervention if necessary), offers 160+ TOPS, a unit for measuring computing power. It's also in the progress of developing a version with 200+ TOPS, which will put it on par with Nvidia's Drive Orin, which features 254 TOPS and has been in production.
While Black Sesame plays a role in helping China achieve independence in auto chips, its own products rely heavily on access to the global supply chain. For instance, it depends on TSMC to manufacture its SoCs. Its production is vulnerable because the U.S. has been pushing to block TSMC from manufacturing for certain Chinese chip design firms, especially on the higher end.
As stated in the prospectus, Black Sesame's ability to receive supplies from the fab could be "adversely affected by international trade policies, geopolitics and trade protection measures, including imposition of trade restrictions and sanctions."
The company's chips also feature core parts that are dependent on third-party IPs. Though not specified, these IPs could be subject to the U.S.'s expanding semiconductor war on China.
Black Sesame's revenue tripled from 53 million yuan ($7.33 million) to 165.4 million yuan between 2020 and 2022, but its losses grew to 1 billion yuan ($140 million) in 2022, a more than 200% increase from 293 million yuan in 2020. It's not expected to be profitable in the foreseeable future, for it estimates losses this year to "significantly" increase as it's in the stage of "expanding" its business, which demands substantial R&D investments. In 2022, its R&D expense surged to 764.1 million yuan ($106 million).
Its gross profit at the end of 2022 was 29.4%, dwarfed by Nvidia's enviable 65%.
To date, Black Sesame has raised approximately $115 million from outside investors, including Nio Capital, the venture fund of EV maker Nio's founder, a state-owned Dongfeng Motor investment vehicle and Bosch's China-focused fund Boyuan, according to Crunchbase data. As of 2022, the company had total assets worth $140 million and a runway of 24 months.
Like many companies in China's critical industries, Black Sesame receives government grants and tax incentives because it operates in the field of automotive SoCs. But it could lose a significant source of funding if these benefits were to end.
Its financial performance also hinges on its major customer, which accounted for as much as 43.5% of its revenue last year. It currently supplies over 30 original equipment manufacturers and Tier 1 suppliers, including FAW Group, Dongfeng, JAC, HYCAN, ECARX, Baidu, Bosch, ZF Group and Marelli.