Wang Chuanfu, the founder and head of BYD, has undergone a significant transformation in his stance towards smart driving technologyInitially, he expressed skepticism, dubbing it "unreliable." However, recent developments indicate that BYD is now deeply committed to advancements in intelligent drivingThis pivot comes as the company announces the integration of its proprietary chips into vehicles, a move that has also piqued the interest of investors in companies like Black Sesame Intelligence, a manufacturer of smart driving chips.

BYD's strategy to enhance its capabilities in intelligent driving has not only uplifted its own stock prices but has also created a ripple effect, benefiting various companies along the industry chainThe excitement within the sector is palpable, with many investors keen to capitalize on the anticipated advancements in autonomous technology.

On February 10, BYD plans to unveil a new strategic initiative focused on smart drivingA key highlight of this event will be the introduction of the "Eye of God" advanced driving assistance systemInterestingly, even before this system has been fully revealed, shares of Black Sesame Intelligence have surged dramatically on the Hong Kong stock market, indicating the optimistic outlook investors have towards smart driving technology.

For instance, on February 6, Black Sesame experienced a stock price increase of 12.35%, and this momentum continued into the following day, with shares soaring an additional 55% during trading hours, ultimately closing up 37.59%. This resulted in a significant surge of 54% over two days, adding approximately 7.8 billion HKD to the company's market valuation.

The driving force behind Black Sesame's remarkable surge appears to be directly linked to BYD's innovative forays into intelligent drivingBlack Sesame has recently confirmed that its chips have been adopted by BYD and have already entered mass production.

A deeper analysis reveals that Black Sesame Intelligence has been buoyed by multiple funding rounds from various prominent investors, which include tech giants like Tencent and Xiaomi, as well as financial institutions such as Bank of China and China Merchants

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Additionally, automotive brands like NIO, Geely, and SAIC have also shown interest in supporting the smart driving chip manufacturer.

The close association between BYD’s strategic advancements in smart driving and the consequent rise of Black Sesame in the market is noteworthyAs the driving force of innovation in the automotive space, BYD's foray into smart driving technologies has been pivotalFollowing the announcement on February 7, Black Sesame's stock reached a historic high of 43.85 HKD during intraday trading, culminating in a market cap that topped 22.08 billion HKD.

The revelation of BYD’s strategies to launch its high-level intelligent driving systems reinforces the belief that the automotive landscape is rapidly evolvingWhen the company's announcement about the “Eye of God” system is made, it's expected that there will be significant demand for Black Sesame's smart driving chips, marking a new era for both companies.

Looking back at recent changes, it's clear that BYD's engagement with intelligent driving technologies has intensifiedIn a meeting with investors back in March 2023, Wang Chuanfu cast doubt on smart driving, comparing it to “the emperor’s new clothes,” suggesting that the technology was more hype than substance.

Fast forward to January 16, 2024, during the “BYD Dream Day” event, Wang acknowledged the early transitions occurring within the industry, indicating that while full autonomy might be a distant goal, the era of intelligent driving is already upon us.

Then, on November 18, 2024, BYD celebrated its 30th anniversary by committing to invest 100 billion yuan into developing smart technologiesAdditionally, on December 24, they announced that their “Eye of God” high-level driving assistance system would be launching capabilities for “no map” urban navigation across the country.

Goldman Sachs has projected that these advancements will have a profound impact on the market, noting BYD's leadership role will encourage other automakers, particularly those targeting the mainstream market, to mimic its advancements.

From a supply chain perspective, analysts at Huatai Securities point out that the wider adoption of smart driving features will trigger an increased demand for high-performance chips and computing platforms

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This trend is particularly advantageous for Chinese automotive-grade chip manufacturers like Black Sesame, which are poised to benefit from BYD's initiatives.

Focusing specifically on Black Sesame, the company specializes in automotive computing chips and solutions, positioning itself as a newer force in the smart driving sectorNotably, they have developed two main series of autonomous driving chips, named “Wudang” and “Huashan.”

According to their mid-2024 report, Black Sesame launched the “Wudang C1200” chip while its “Huashan A1000” chip has already entered mass productionThis high-performance chip supports an array of Level 2 to Level 3 autonomous driving functionalities.

By mid-2024, the Huashan A1000 chip found application in various models, including those from Geely and DongfengThere is a pipeline of production orders involving 16 automotive OEMs and suppliers, encompassing a total of 23 modelsFurthermore, Black Sesame is working on the Huashan A2000 chip, which targets several applications, including Navigation-on-Autopilot (NOA) and robotaxi services.

With backing from major tech players like Tencent and Xiaomi, the impact of Black Sesame’s technology is likely to deepenThe founder, Shan Jizhang, spent 20 years in the semiconductor industry, primarily at OmniVision Technologies, before establishing Black Sesame in 2016.

Post his departure from OmniVision, Shan quickly focused on raising investment for Black Sesame, securing funding from major venture capital firms such as Northern Light Venture Capital shortly thereafter, which expressed quick enthusiasm for the company’s potential.

The funding journey for Black Sesame has not been short of high-profile investment roundsBeyond Northern Light, it garnered financial support from noted entities such as Tencent, Xiaomi, and Bank of China, facilitating a rapid ascent in valuation after successful funding rounds.

However, despite the robust financial backing, Black Sesame has faced a numbing reality in its business performance

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Over the fiscal years from 2021 to 2023, the company posted losses of 2.356 billion yuan, 2.754 billion yuan, and 4.855 billion yuan, respectivelyEven in 2024’s first half, the losses remained significant at 602 million yuan.

Revenue figures, while showing growth, have remained modest, with reported sales of just 60.5 million yuan in 2021, climbing to 165.4 million yuan in 2022, and reaching 312.4 million yuan in 2023. For the first half of 2024, the revenue was reported at around 180.1 million yuan.

The company has indicated in its latest mid-2024 report that the order book has seen substantial growth, which has propelled efforts towards commercializationHowever, challenges remain, particularly in customer retention and market share amid stiff competition.

The presence of major clients contributes significantly to their financial performance, as one customer contributed to around 41% and 44% of their revenue in 2021 and 2022. However, by 2023, this figure has drastically reduced to under 10%. Black Sesame explained this decline as temporary due to necessary upgrades to their existing smart driving solutions.

Moreover, customer retention rates have fluctuated significantly, falling from 50% in 2021 to just 29% in 2023 for algorithm-based solutionsThis instability poses a considerable challenge to the company's growth.

Furthermore, the competition landscape is tightening, with other Chinese firms also vying for a share in the automotive-grade smart driving chip marketAs of 2022, Black Sesame held a market share of 5.2%, which increased slightly to 7.2% in 2023, yet the top two suppliers dominate with 72.5% and 14.0% market shares respectively.

Forecasts from consultancy firms suggest that by 2026 and 2030, smart vehicle sales in China are expected to reach 20.4 million units and 29.8 million units respectively, with penetration rates of 81.2% and 99.7%. This presents a tremendous opportunity within the intelligent driving chip sector.

In this context, the market for smart driving chips is indeed vast, and companies like Black Sesame must brace themselves for more intense competition from peers

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