SShares of Black Sesame International Holding, a Chinese startup developing chips for self-driving systems, plunged 27% in their Hong Kong stock market debut on Thursday, giving the company a market capitalization of $1.5 billion.
Black Sesame ended its first day of trading at HK$20.45, below the HK$28 per share price it set in its IPO. The company, based in Wuhan, a transportation hub and center of automobile production, raised more than HK$1 billion (about US$130 million) in its IPO, selling 37 million shares at the low end of a market range.
In its prospectus, Black Sesame stated that it would use the proceeds to fund its research and development efforts over the next five years and to improve its commercialization capabilities.
Founded in 2016, Black Sesame has so far supplied its self-driving chips to 85 domestic and foreign companies, including Chinese billionaire Robin Li’s tech giant Baidu, which has launched self-driving robot taxis, billionaire Eric Li’s auto giant Geely, state-owned automaker Dongfeng Motor and German auto parts maker Bosch.
The company’s last funding round was completed in June last year, when it raised $218 million at a $2.2 billion valuation. Black Sesame is backed by, among others, U.S. venture capital firm Northern Light Venture, whose portfolio includes Drive.ai, a self-driving car startup acquired by Apple; Chinese billionaire Lei Jun’s smartphone maker Xiaomi, which recently entered the electric vehicle space; Chinese tech giant Tencent; NIO Capital, the investment arm of Chinese electric vehicle maker NIO; and Korean billionaire Chey Tae-won’s SK Group.
Black Sesame’s listing comes amid a reported U.S. ban on Chinese software in self-driving vehicles. U.S. President Joe Biden’s administration is reportedly proposing rules that would ban Chinese software in highly autonomous cars in the U.S., which would effectively also ban the testing of autonomous cars made by Chinese manufacturers on U.S. roads, Reuters reported on Sunday.
Black Sesame is a relatively small player in the autonomous driving chip industry – the company said in its prospectus that it has a 2.2% market share. Larger rivals include Intel-backed Mobileye in Israel, AI chip giant Nvidia and chipmaker Texas Instruments in the US, and Horizon Robotics in China.
“To be successful as a supplier in this area, you don’t necessarily need to have the best technology,” says Eugene Hsiao, head of the China automotive division at Macquarie Capital, in an interview. “You just need good enough technology at the right price.”
“If you’re Horizon Robotics and Black Sesame, the goal is not to beat Nvidia. I think that’s very difficult,” Hsiao adds. “The goal is to say, ‘Hey, I can partner with a lot of these Chinese car companies that are very large and sell hundreds of thousands of cars a year, and I might sell a cheaper chip, but I sell millions of them.'”
Black Sesame’s revenue rose 89% year-on-year to 312 million yuan ($43.6 million) in 2023, with the majority of that coming from its autonomous driving products and solutions. The rest of its revenue came from artificial intelligence-based image enhancement solutions, such as portrait beautification and facial recognition. It attributed the revenue growth to the mass production of its chips in late 2022, shipping more than 156,000 units through March.
However, Black Sesame’s net loss increased from 2.8 billion yuan to 4.9 billion yuan during the same period. The company expects to continue to incur losses in 2024 due to significant R&D expenses.
Black Sesame is the second company to go public in Hong Kong under a new listing rule for specialized technology companies with smaller market capitalizations and lower revenues. The first was Chinese AI drug researcher Xtalpi, formerly known as QuantumPharm, whose shares have risen more than 8% through Thursday since its debut in June. The new rule was introduced over a year ago to revive the city’s sluggish IPO market.
Meanwhile, Black Sesame’s domestic rival Horizon Robotics also filed for an IPO in Hong Kong in March without disclosing details. The startup, backed by Hillhouse and HongShan, is expected to raise around $500 million, Bloomberg reported in March.
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