Profiteers of the autonomous driving boom Horizon Robotics is soaring thanks to the e-car boom in China—and VW

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Horizon Robotics offers highly profitable combined hardware and software packages for autonomous driving, positioning itself as a key player in China's rapidly growing market. In China, no new vehicles without autonomous features are expected to be produced in the near future, creating vast potential for Horizon. However, its success might be fragile, as the company is heavily reliant on a few major customers, particularly Volkswagen, making it vulnerable to changes in these partnerships.

The boom in smart electric cars in China is boosting the business of Horizon Robotics, a leading provider of hardware and software for autonomous driving. The start-up, an important partner of Volkswagen in China, is currently preparing for an IPO in Hong Kong, where it hopes to raise around half a billion US dollars in fresh capital.

The IPO, which has already been approved by the Chinese supervisory authorities, should take place soon, possibly this year, according to financial media such as Jinrong Jie. The figures in Horizon Robotics' IPO project, which has just been submitted for this purpose, paint a picture of breathtaking development—both for the young company itself and for autonomous driving technology as a whole in China.

From zero to one hundred

The company, which was only founded in 2015, increased its annual turnover from 467 million to 906 million USD between 2021 and 2013 and most recently to 1.552 billion yuan, the equivalent of around 200 million euros. This corresponds to a compound annual growth rate (CAGR) of 82.3%, which can probably only be correctly categorized with terms such as "rapid" or "rocket-like".

In the meantime, since Horizon Robotics has focused primarily on the automotive sector, a Chinese rival to Nvidia is growing up. 42 car brands from 27 manufacturers already use chips and software solutions from Horizon Robotics and install them in 290 different vehicle models, according to the prospectus.

In this context, it should also be noted that "all of the top ten Chinese car manufacturers have chosen the company's solutions for intelligent driving", writes the Chinese automotive portal Gasgoo. There are a number of reasons for this, but the decisive factor is probably the fact that Horizon Robotics has been able to develop ever more powerful chips and driver assistance solutions (ADAS) year after year, which are also much cheaper than those of the competition from abroad.

Lots of power for little money

Horizon Robotics has evolved from a supplier of car chips to an integrated provider of "chip plus software for autonomous driving". Such combined hardware and software packages cost Horizon around 5,000 yuan (just under 650 euros (approx. 700 USD) in the medium performance range, which is "40 percent cheaper than the average in the industry", as the Chinese business magazine Caixin writes. The performance of the latest "Journey 6" series has once again increased by 40 percent.

As a result, ever better ADAS functions and, in the long term, autonomous driving will become possible for more and more segments of the Chinese car market, moving from the premium brands further and further "down" into the volume market. Insiders say that there will probably be no more new cars without autonomous driving functions on the Chinese market in the future.

The upcoming IPO is likely to be a smash hit, but one with an announcement. Ever since it was founded, Horizon Robotics has been a favorite of all kinds of investors. Its largest strategic investors include the Chinese state-owned automotive group SAIC (10.02% of shares), Volkswagen (2.64%), CATL (1.12%) and BYD (0.13%). Hillhouse Capital and Sequoia Capital are two examples of institutional investors who recognized the disruptive potential of artificial intelligence for the future of the automotive industry at an early stage.

AI in the car

This potential was recognized even earlier by founder Yu Kai, who was previously Vice President of Research & Development at the leading Chinese Internet company Baidu, where he helped shape Baidu's pivot from a Google-style search engine provider to an AI and technology company.

Yu Kai and several other former top managers at Baidu firmly believe that artificial intelligence will have a decisive impact on mobility in the future. Especially the jovial, but at the same time bright Yu Kai, who holds a doctorate in computer science from Ludwig Maximilian University in Munich and later also worked for Siemens and Microsoft, is certain of this.

And he can convince others of his vision, perhaps comparable to the American jack-of-all-trades Elon Musk - without the latter's vanity. One top manager he can count among his admirers is Ralf Brandstätter, the VW board member responsible for China. The two like to drive through Beijing together and then post a video of their conversation on social media.

Volkswagen gets involved

In fall 2022, Volkswagen invested 2.4 billion euros (approx. 2.6 billion USD) in Horizon Robotics. 1.3 billion euro (approx 1.41  billion USD) has been invested in a new joint venture with Horizon in China, CARIZON (Beijing) Technology Co., Ltd. 60% of the shares are held by the VW software subsidiary CARIAD, which has failed to develop good and affordable software solutions for VW.

With its investment, Volkswagen is hoping to finally catch up in the "smart e-mobility" race with the help of the clever AI programmers and chip manufacturers at Horizon Robotics, where it has been increasingly left behind by the Chinese, especially BYD, in recent years. Horizon Robotics, for its part, has gained a top customer in VW. The parent company Horizon Robotics sells licenses for algorithms and other software to Carizon, whose biggest customer is VW for new cars in China. In the first half of this year, 37.6 percent of Horizon Robotics' total turnover (351 of 935 million yuan) came from the licensing business with Carizon.

"It is worth noting that Horizon's rapid sales growth is mainly due to the contribution of Volkswagen," writes the Chinese business newspaper Jingji Guanchao Bao. "The dependence on Volkswagen has ensured that Horizon makes 77.9 percent of its turnover from its five largest customers," the newspaper continues. In addition to the joint venture Carizon, which is dependent on VW orders, Horizon Robotics' other major customers this year are NavInfo, Li Auto, Freetech and BYD.

Such dependence on a few major customers is not normally very popular on the stock market, and Horizon Robotics' first IPO attempt therefore had to be postponed. In view of the forthcoming second attempt, the Chinese trade media also warn that Horizon Robotics is still making losses, which it justifies with ongoing large investments in R&D.

This time, however, everything should go well. Due to the strong founding team and the geopolitical situation, which increasingly favors Chinese providers of ADAS solutions in China over foreign providers, most recently due to the ongoing boom in e-cars and hybrids in China and the strong demand for ADAS solutions for new cars, the prospects for the IPO are considered to be largely favorable this time.

What is certain is that the race for the autonomous driving and e-mobility technologies of tomorrow is currently being fought primarily between Chinese companies such as Horizon Robotics and American companies such as Nvidia. German companies are still involved as joint venture partners in China, such as the VW subsidiary Cariad with Carizon. This is an important consolation in view of the overall situation in the German automotive industry. In Wolfsburg, too, we should therefore keep our fingers crossed for Horizon Robotics for its IPO in Hong Kong. (sb)

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