2003: Starting with Foreign Trade

Chapter 975 The "Flatness" of the Horizon

P.S.: At the beginning of the month, could you please give me a guaranteed monthly vote?
In the ever-changing world of business competition, there is cooperation, but more often it is driven by self-interest.

With ample inventory and unlike other automakers that have cut budgets for automotive-grade chips, Weilai has no problem squeezing out some orders for competitors.

But Tan Jincheng certainly couldn't do such a thing. He didn't know how long the chip shortage would last, and besides, the price of subsequent orders would definitely go up.

Geely is also developing its own chips and has its own invested companies and partners. This is similar to what Tan Jincheng did when he acquired Guomin Technology to develop its own chips. However, like Weilai, Geely's chip technology is currently only in its initial stage.

While it can be used as a substitute for some relatively low-end chips, it still needs to be purchased from other component manufacturers for high-end components.

Among domestic car manufacturers, BYD is probably the only one that doesn't have to worry about chip issues. This is something all car companies envy, but it's also what BYD deserves. Who says people have been working on semiconductors since the early 2000s?

Many mobile phone manufacturers have placed orders with BYD, and BYD has also supported many Huawei chips. The old man's quirky actions, coupled with this special event, can be said to have brought a brand new development opportunity to BYD's semiconductor business.

Often, a crisis can also be an opportunity. The chip crisis of the past few years has been a great opportunity for BYD.

As is well known, whenever a certain industry experiences a production capacity crisis and the balance between supply and demand is broken, fires in the manufacturers' factories are highly probable, and even frequent.

This has happened to Micron, Samsung, TSMC, and some domestic manufacturers; it's nothing new.

However, Micron's questionable actions have officially brought the chip shortage, a problem that had previously been somewhat concealed, into the open.

The next wave of price increases is expected for both automotive-grade and consumer-grade chips.

On Monday, July 20, global stock markets opened. Affected by the fire at Micron's headquarters factory, stock markets, chip-related concepts, and related industries around the world all reacted to varying degrees, with huge fluctuations.

Tesla's stock price reacted most dramatically. Since the second quarter of this year, Tesla's stock price has continued to rise sharply. On the 20th, it surged 9.47% to close at $1643, continuing to break Tesla's market value record since its listing.

Although it has been continuously suppressed and overtaken by Chinese companies such as Wynn and BYD in terms of sales, the Model 3 has also lost a significant portion of its market share in Europe to the ET5. Among imported models, the ET5 is currently second only to the Model 3 in popularity in Europe.

Even Musk had to address this question during his interviews.

However, in terms of stock market performance and personal wealth, neither BYD nor Wanda can compare to Tesla. Tesla's stock price has been the most outstanding performer this year, without exception.

Based on the closing price of $418.33 on December 31, 2019, Tesla's stock price experienced two phases in the first half of this year: a surge to nearly $1000 in February, followed by a sharp drop in March.

The continuous circuit breakers in the US stock market in March, coupled with the uncontrollable situation in North America, greatly affected Tesla's production and sales. Tesla's stock price fell to around $350 in March.

However, this large-scale short selling exhausted the short sellers' power. Starting in March, Tesla's stock price began to rise rapidly, more than doubling in the three months of the second quarter.

Musk's net worth also skyrocketed, and Tesla has now truly entered a worry-free state. It has to be said that the high efficiency of the Shanghai factory and our control over unexpected events have greatly exceeded the expectations of the world.

The Shanghai factory saved Tesla. Of course, in addition to making Musk's net worth skyrocket, Tesla's Shanghai factory also brought about changes in the overall domestic auto industry, with all parts supply chains, large and small, experiencing a boom.

A range of battery supply chains, including Weilai Group, as well as domestic component suppliers, have seen their stock prices perform much more resiliently compared to their peers during this special period this year.

Weilai's current market value is approaching 5000 billion, and Musk's net worth has skyrocketed, as has Tan Jincheng's.

Six months have passed, and stimulated by the special events, the changes in the wealth of the rich have been very obvious. Overall, the changes are still centered around the special events, with the most obvious change being in the healthcare industry.

Industries such as medical devices and vaccines have benefited greatly. For example, the water seller's wealth skyrocketed because he owned a vaccine company. Tan Jincheng also benefited from the medical industry.

Tan Jincheng, who holds a 33.33% stake in Inco Medical through his personal and corporate holdings, amassed a fortune of 126 billion yuan solely from his stake in Inco Medical.

As of July 20, 2020, Inco Medical's stock closed at 159.5 yuan, with a market value of 376.42 billion yuan. The original founder, Liu Fangyi, also had a net worth of over 10 billion yuan. Just six months ago, his net worth was barely over 7 billion yuan.

Besides companies that directly benefit from events like healthcare, the global central bank easing measures triggered by special events have also brought significant benefits to the capital market. Emerging industries such as e-commerce, cloud computing, and new energy have experienced rapid growth, leading to increased valuations for related companies.

Furthermore, this special event has accelerated the progress of digitalization, and companies in related industrial chains have also seen significant growth. So, despite the fact that everyone has been feeling rather depressed in the first quarter and even now, the stock market performance in 2020 has actually not been bad.

FlashTech, Orange Group, Weilai Group, and even Orange Live, which is controlled by Orange Group, have all seen rapid growth in market value, so it's only natural that Tan Jincheng's net worth has skyrocketed.

However, among these companies, apart from Flash Technology which does not require much capital operation, companies such as Orange Group, Weilai Group, and even Orange Live have invested heavily in recent years.

Based on its own strategic plans, the controlling shareholder, ByteDance, cannot provide support every time. Therefore, financing has become essential for these companies, with frequent use of capital market financing methods such as private placements and convertible bonds.

The repeated financing rounds have gradually diluted Tan Jincheng's shareholding in these two companies. However, in Tan Jincheng's view, the decrease in shareholding is not a big problem, as it does not affect his control over the companies.

The involvement of more capital, using funds from investment institutions to develop the company, is actually beneficial to the company.

In this day and age, being able to secure investment is enough to demonstrate a company's excellence, and it is also very beneficial to the company's cash reserves.

FlashTech's acquisition of Leichi New Energy, after agreeing to Tan Jincheng's request, has been formally submitted to the regulatory authorities. However, since it involves related-party transactions, the China Securities Regulatory Commission (CSRC) is scrutinizing the acquisition quite strictly. Tan Jincheng is unsure when it will be approved or rejected outright.

However, Tan Jincheng didn't really care whether it passed or not. If it passed, that would be great, as it would relieve ByteDance of some responsibility without affecting the treatment of existing employees. If it didn't pass, they could just continue operating.

In any case, Leichi New Energy's transformation is gradually getting on the right track, and exports from North America are gradually recovering, while exports from Europe are gradually getting back on track.

"The reason for developing our own automotive-grade chips instead of using consumer-grade chips is actually due to the company's strategic considerations."

After the chip shortage was exposed, Tan Jincheng also took some time to come to the capital and inspect Horizon Robotics.

Besides paying attention to Horizon Robotics' R&D and production progress, another reason is that Horizon Robotics is about to release new products. The next-generation, more efficient automotive AI chip Journey 3 and AIoT continuous AI chip Sunrise 3 will be officially released in September this year.

Horizon Robotics, which operates independently, has developed quite rapidly in recent years after adjusting its strategy and focusing on its core business of intelligent assisted driving chips. Horizon Robotics' most recent financing round was Series D.

The Series D funding round only involved one institution: SAIC Motor, which had been deeply involved in Horizon Robotics' investment from the very beginning. SAIC Motor currently holds a 9.06% stake, making it the third largest shareholder after ByteDance's advertising platform and the founding team.

With more and more chips being mass-produced and more and more OEMs and car models being partnered with, the company has not yet turned a profit, but its development path is already very clear. Yu Kai and his team are becoming more and more adept at running the company.

"When the time is right, I will allow your founding team to repurchase a portion of the equity held by ByteDance, so that you can truly control the company."

When discussing the strategic reasons for acquiring National Technology with Yu Kai, Tan Jincheng reassured him that Horizon Robotics, having already completed its Series D funding round, would likely only need to proceed with its IPO.

Before the IPO, resolving the issues of founder shareholding and voting is crucial for Horizon Robotics' smooth development and IPO; of course, this was also a promise made when Yu Kai was recruited.

Back then, in order to recruit outstanding talents for his own use, Tan Jincheng made many promises that at the right time, he could use various methods, such as signing a concerted action agreement or transferring the company through an agreement, to allow the founder to truly control the company.

This is true for Bafang Electric, Inco Medical, and Horizon Robotics.

"There's no rush. We haven't put forward an IPO proposal yet, and the main problem is that I can't raise that much money."

Yu Kai chuckled and said there was no rush. Both parties had signed a concerted action agreement, and they also adopted an AB share structure, so their team's voting rights were sufficient to be guaranteed.

Of course, they really don't have the money. If they were asked to repurchase some of the shares held by ByteDance Engine, their team simply couldn't come up with the funds.

Horizon Robotics was valued at US$87.1 billion (approximately RMB 620 billion) during its Series D funding round. Tan Jincheng held a 33.17% stake through ByteDance's advertising platform, valuing the company at over RMB 200 billion.

Yu Kai and his team also had their own plans. To repurchase some of the shares held by ByteDance Engine, they would need to come up with at least 60 billion yuan, which they simply couldn't afford. Although they could obtain the money through financing, the risks were still very high.

Horizon Robotics has not yet achieved profitability and still needs the support of a powerful major shareholder like ByteDance.

Tan Jincheng nodded: "Okay, if you have any other ideas, just contact General Manager Huang directly to handle them."

Yu Kai wasn't in a hurry, nor did he force the issue, and the matter was thus resolved. As for General Manager Huang, that is, Huang Ming, in the field of intelligent assisted driving chips, apart from the more core high-end chips that still rely on imports, for some chips that can be domestically replaced without affecting performance, they use chips designed by domestic companies such as Horizon Robotics.

However, in the fields of power semiconductors (such as IGBTs), MCUs (microcontrollers) and sensors, the domestic self-sufficiency rate is still insufficient. Weilai's acquisition of Guomin Technology is mainly aimed at developing in these areas.

The intelligent vehicle system of new energy vehicles requires a lot of chips. Currently, there are no specific national regulations on chip usage in certain areas, which is relatively chaotic.

Automotive-grade chips can be used, and consumer-grade chips can also be used as alternatives.

Taking smart cockpits and entertainment systems as an example, automotive-grade chips can be used, as can consumer-grade chips. Tesla uses AMD consumer-grade chips in its smart cockpit, and Weilai also uses consumer-grade chips in its entertainment system.

Automotive-grade chips and consumer-grade chips each have their advantages and disadvantages. In terms of safety and reliability, automotive-grade chips are irreplaceable, but consumer-grade chips have an absolute advantage in terms of performance and cost.

Simply put, one is safe, reliable, and stable, while the other is high-performance, runs smoothly, and is inexpensive.

Most automakers also use consumer-grade chips to replace those with safety features, which sounds nice to say is to make the car perform better, but in reality it's just for cost reasons.

"In terms of performance, what our competitors say is indeed correct. However, cars are not like mobile phones. We must consider safety performance and not just so-called performance and cost."

The two are fundamentally different in terms of working environment and stringent reliability certification standards.

To give a simple example, automotive-grade MCUs need to work stably in the engine compartment (high temperature and vibration), while mobile phone chips only need to adapt to room temperature. Automotive-grade chips need to complete working tests in an environment with a temperature range of -40 degrees to 125 degrees, or even 150 degrees.

Consumer-grade chips only need to complete the working test in an environment between 0 and 70 degrees Celsius to be considered qualified. The difference between the two can be seen by looking at the simple testing environment.

In addition, in terms of reliability, automotive-grade chips need to pass the mandatory certification of AEC-Q100 and the functional safety certification of ISO 26262, while consumer-grade chips do not require these two standards.

In terms of lifespan, automotive-grade chips are required to match the lifespan of vehicles, generally more than 10 years, and even 15 years. However, electronic products iterate quickly, so consumer-grade chips are basically iterated every three to five years.

"Safety performance is our primary consideration. In addition to safety, we also need to consider the lifespan of the car. After all, this is a consumer product worth tens or hundreds of thousands of yuan. We have to be true to our conscience."

On this point, Tan Jincheng felt somewhat emotional. Regardless of whether he manufactured cars or not, he was quite knowledgeable about automobiles.

Let alone the new energy vehicle market a few years from now, even in today's market, the pace of automotive iteration is getting faster and faster. With the addition of a large number of electronic devices, the life cycle of cars is indeed not as long as before.

Even gasoline-powered cars in recent years are not as durable as they used to be. The lifespan of electronic products is naturally shorter than that of mechanical products.

"This is actually an unsolvable problem. Changes in the cost of goods and changes in consumption concepts will bring about changes such as the life cycle of a car, which is not something we can solve."

Yu Kai, however, had a different view. In his opinion, the boss's idea seemed a bit too idealistic. No matter how expensive a car is, it is a consumer product, and consumer products are subject to market changes.

It is commendable that Wei Lai wants to make better and safer products, but his idea of ​​going against consumer norms is somewhat unrealistic.

“You misunderstood me. We also use consumer-grade chips in our entertainment systems to reduce costs. But wouldn’t it be better to develop more suitable automotive-grade chips to extend the product’s lifespan, while ensuring safety and reducing costs?”

The idea of ​​a car lasting for ten or even several decades and still being in perfect working order is unthinkable for new energy vehicles. As Yu Kai said, the high degree of electrification and the resulting shortened lifespan are indeed unsolvable problems.

Currently, the lifespan of new energy vehicles is generally within ten years. Not only electronic components, but also batteries will degrade. The power battery of a car is actually a super-sized mobile phone battery, so its lifespan is just so-so.

However, by focusing on unseen components, while ensuring cost and profit, we can maximize the smooth operation of vehicles after five or six years of use, thus extending their lifespan.

If we can achieve this, we will have succeeded. Through the accumulation of reputation across generations of models, we can truly leave consumers with the impression that our products are of high quality.

"If that's the case, then we do need more investment in research and development. Now I understand what the boss means."

Having figured out what Tan Jincheng was thinking, Yu Kai smiled. Now he understood why his boss wanted to buy National Technology.

Whether it's cars, mobile phones, or other consumer goods, manufacturers always like to cut costs in places that can't be seen.

For example, in areas that are visible and perceptible, such as the material differences between aluminum and steel, and the thickness of the profiles, some manufacturers can openly reduce costs. In areas that are not visible, the reductions are even more outrageous.

"Yes, we don't need to cut costs or reduce product quality in terms of raw materials. We should use what we need. However, we also can't stop pursuing profits. Reducing costs through research and development is the best way we can do it."

At this point, Tan Jincheng was quite proud: "In fact, we have already achieved great results in this area."

Despite a slight decrease in overall revenue, the company was able to maintain an increase in net profit in its half-year financial report, thanks to the technological breakthroughs resulting from its massive R&D investment over the years.

Breakthroughs in battery technology have brought the most direct benefits of cost reduction and efficiency improvement to Weilai.

Research and development investment is a long-term and huge project, but once a technological breakthrough is achieved, it is truly rewarding.

Horizon Robotics' automotive-grade chip is the first AI-grade chip in China. It uses a 28nm process, has a computing power of 4 TOPS, and supports L2-level assisted driving functions such as lane keeping and adaptive cruise control.

The chip is manufactured by TSMC using a 28nm HPC+ automotive-grade process and a 17x17mm BGA package. As the first mass-produced domestically made automotive-grade AI chip, the Journey series is currently used in WILAY and Aion brand models, and is expected to be used in several other models.

The Changan UNI series, which will be launched this year, as well as the Yuechi series, some models from Chery, Great Wall, and GAC; of course, SAIC Group, Horizon Robotics' current strategic partner with the deepest background, is also like Weilai, with many models such as the Wuling series using Journey series chips.

"Based on the performance of the Journey series, Horizon Robotics has become a qualified automotive parts supplier."

Yu Kai was giving a work report, and Tan Jincheng was listening attentively.

"Through the combination of hardware and software, we have already gained a considerable market share in intelligent driver assistance systems. Currently, BYD is also discussing cooperation with us regarding intelligent driver assistance systems."

It is indeed quite difficult for traditional automakers to make rapid progress in this area. BYD is considered to be quite farsighted, as they began to focus on intelligent driving several years ago. In fact, there are still some automakers that are still struggling with gasoline vehicles and have not paid much attention to intelligent driving.

"That's right, Horizon Robotics has indeed officially gotten on track, so what are the future goals?"

Tan Jincheng has been investing in Horizon Robotics for about six or seven years, investing a lot of cash and resources. In the early stages, it was mostly supported by ByteDance, Weilai, and SAIC.

Now they've finally grown up.

The intelligent driving chip market is currently dominated by Mobileye (Intel), Nvidia and Qualcomm, while domestic manufacturers such as Horizon Robotics and Black Sesame Technologies are still in the early stages.

Horizon Robotics seems to be doing very well, but its actual market share is less than 5%, and that 5% was mainly taken from Mobileye.

Yu Kai smiled too; the boss was making a request, that made sense.

“Currently, our market share is less than 5%, and it is mostly in low-end products. However, a low market share also has its advantages, which means that we still have a lot of room for growth. If we can take 5% from Intel, then we can take another 5% and more.”

"Our goal for the future is to enter the top five in the industry within three years and the top three within five years."

Yu Kai's goal isn't too outrageous. With the explosion of new energy vehicles, Mobileye's approach to cooperation, and Intel's gradual decline, taking over Mobileye's market share isn't an unrealistic goal.

"That's right. We need to be ambitious and at least become the number one domestic brand. In the future, our goal is to have one out of every five or even three intelligent driving models on the market use our chips."

"Many people in the industry are talking about equal access to intelligent driving technology, saying that intelligent driving should be made available to lower-end models, but how many of them can actually do it?"

"There is no unified standard, no strict safety regulations, and no laws and regulations. Everything seems so chaotic. In addition to making your chips the number one domestic substitute, I have another requirement for you."

"That's what's called equal access to intelligent driving. I hope it's the same level of equality that's achieved on the horizon."

(End of this chapter)