After SU7 became a hit, Lei Jun reaped a 9 billion smart driving IPO!

At Xiaomi's spring conference in March 2021, Lei Jun announced "the last major entrepreneurial project in his life" - making cars, and said that he would bet his entire reputation on it, lead the team personally, and fight for Xiaomi Automobile!

On March 28, 2024, Xiaomi SU7 was officially launched, with orders exceeding 10,000 in 4 minutes, 20,000 in 7 minutes, 50,000 in 27 minutes, and 88,898 units in 24 hours...

Regardless of the SU7 itself, in terms of performance, Xiaomi's explosive sales and dominating the hot searches have indeed broken many records in the automotive industry. Boss Lei's "unbelievable start" seems to indicate that he will succeed in starting a business again.

On the day SU7 was listed, Zongmu Technology (Shanghai) Co., Ltd. (hereinafter referred to as "Zongmu Technology"), an autonomous driving manufacturer that has close ties with Xiaomi, submitted an application to the Hong Kong Stock Exchange, intending to list on the Hong Kong stock market and launch an IPO.

It is worth noting that the Hong Kong Stock Exchange has received listing applications from three intelligent driving companies, namely, Ruqi Travel, Horizon Robotics, and Zongmu Technology, within just one week. Like Zongmu, Black Sesame Intelligence, an intelligent chip company that was once invested by Lei Jun and included in Xiaomi's first batch of car-making ecosystem, has also recently updated its application to advance the listing process. The next step is to accept a hearing at the Hong Kong Stock Exchange.

The rush of smart driving unicorns to list on the Hong Kong Stock Exchange, which uses AI as a stepping stone, is enough to show how enthusiastic the current capital market is about the concept of AI. However, can this wave of IPOs fulfill their beautiful vision? With billions of dollars in financing, which company can reverse the fate of the "money-burning black hole"?

01 Tsinghua University scholar, three attempts at capital market

Soft and hard

Founded in 2013, ZongMu Technology is a leading ADAS solution provider in China. With its advanced autonomous driving technology, it provides users with solutions covering comprehensive autonomous driving functions.

Founder Tang Rui graduated from Tsinghua University with a bachelor's and master's degree in electronic engineering. After graduation, he worked at Palm Microelectronics, where he led the development of the world's first integrated GPS application processor chip as a core team member. In 2008, he joined CSR Semiconductor, where he led the development of a number of automotive navigation chips.

With years of accumulation, Tang Rui founded Zongmu Technology in 2013. With the support of the founder, the core team also includes talents from top universities such as Tsinghua University and Shanghai Jiaotong University, and the deep industry-university-research cooperation established with many universities, Zongmu Technology has been carrying the "aura of academic tyrants" from the beginning.

At the beginning, Zongmu Technology successfully gained popularity through ADAS (Advanced Driver Assistance System) solutions covering parking assistance, panoramic surround view, forward collision warning and other functions. Through continuous technological innovation, Zongmu Technology has gradually expanded its business to full-stack autonomous driving solutions and won the industry's first closed park low-speed autonomous driving project using L4 technology.

Today, ZongMu Technology has become one of the few companies in China that can provide L4 autonomous driving solutions.

According to data from Frost & Sullivan, based on sales revenue in 2022, ZongMu Technology ranked fifth in the domestic passenger car ADAS solution market with a market share of 1.0%; ranked second in the automatic parking solution market with a market share of 4.9%; and ranked first in the APA (automatic parking assist) solution market with a market share of 5.6%.

Taking a closer look at Zongmu Technology’s product lines, it is not difficult to discover that the company has currently formed a layout covering the entire chain of perception, decision-making, and execution.

At the perception level, ZongMu Technology provides automotive-grade sensors such as cameras, 4D millimeter-wave radars, and ultrasonic radars ; at the decision-making level, ZongMu Technology's Drop'nGo computing platform provides the basis for the development and iteration of intelligent driving functions. According to the level classification, the platform can support multiple scenario applications from L0 to L4; at the execution level, the company relies on advanced domain control products to guide the actual operation of the vehicle.

Zongmu's "hardware and software integrated" solution has also enabled it to obtain a number of orders.

According to data, as of the end of 2023, Zongmu Technology has reached cooperation with Ideal, Changan, FAW, etc., with 50 models installed, and has achieved mass production of intelligent driving solutions with 16 OEMs.

In addition, Zongmu Technology has also entered the field of service robots based on its accumulation in the field of autonomous driving . Its energy service robot combines the Internet of Things technology and is controlled by a cloud scheduling algorithm. It has L4 autonomous driving functions and can accurately reach the destination and complete charging instructions.

The long road to IPO

Among the several companies going public in Hong Kong this time, Zongmu Technology is different from the other "seed players" in that it is a "veteran" who has tried several times to enter the capital market, and its road to listing has not been smooth.

As early as January 2017, Zongmu Technology was listed on the New Third Board, but it was delisted after only 11 months of operation. The reason was: considering the business strategy and compliance costs of the company's development stage, and adjusting the future development strategy. Some media said that Zongmu Technology was listed and then delisted because the New Third Board's trading volume was not enough to meet the financing needs.

In November 2022, Zongmu Technology submitted an application for listing on the Science and Technology Innovation Board of the Shanghai Stock Exchange, intending to raise 2 billion yuan, but ultimately chose to withdraw the application in September 2023.

This filing with the Hong Kong Stock Exchange is Zongmu Technology's third attempt to enter the capital market. The previous two attempts ended abruptly. On the one hand, this was related to the uncertainty of the industry's prospects, and on the other hand, it was also related to the company's own performance fluctuations and losses.

Currently, the global automobile industry is in a critical transition period of electrification and intelligence. Autonomous driving, the "sharp blade" of future transportation reform, is highly anticipated, but with current technology, it is only approaching high-level intelligent driving in a broad sense. In addition, due to factors such as regulatory policies, there are still many variables to achieve large-scale commercialization in the short term.

In this environment, the main theme surrounding smart driving companies cannot escape the word "loss", and Zongmu Technology's performance is naturally not very optimistic.

Although revenue has increased year by year, gross profit margin is low, and R&D investment accounts for more than 70%. In 2021, R&D expenses accounted for 120.9% of revenue, and business profitability is not optimistic.

According to the application, Zongmu Technology will suffer a loss of 434 million yuan in 2021, 587 million yuan in 2022, and 563 million yuan in 2023, with the total cumulative loss over three years exceeding 1.5 billion yuan.

Even after adjusting for net losses, the losses in 2021-2023 were 381 million yuan, 477 million yuan, and 516 million yuan, respectively, with a cumulative loss of more than 1.3 billion yuan in three years.

Zongmu said that the losses were mainly due to the large amount of sales costs incurred by the purchase of raw materials and hardware components for intelligent driving products and solutions. The main internal reasons were the excessive investment in product research and development and the long research and development cycle. Some designated vehicle models have not yet entered the mass production stage, and the fluctuations in downstream customer demand have also exacerbated the losses.

It will still take some time to achieve a breakthrough in the intelligent driving field and truly make a profit. At a time when listing supervision is becoming more cautious, a company that has been losing money for a long time will naturally find it difficult to obtain a "pass."

However, in this application, Zongmu Technology's financial data has new highlights compared to the last IPO.

In 2023, the company's gross profit reached 17.334 million yuan, and the gross profit margin reached 3.5%, achieving positive gross profit margin for the first time, and the company's working capital also turned from negative to positive.

In 2023, Zongmu Technology had cash and cash equivalents of approximately 357 million yuan at the end of the year. Although it dropped by more than 50% from the previous two years, the overall cash flow was still stable, but most of it was supported by financing. However, after the E round of financing of more than 1 billion yuan in March 2022, Zongmu Technology did not conduct a new round of financing, and the net cash from financing activities in 2023 also dropped from 742 million yuan last year to 153 million yuan.

It can be seen that the money raised from financing on the books has almost been “burned”.

Xiaomi "Friends Circle"

In the money-burning smart driving circle, financing can be said to be a "lifeline".