The maker of self-driving technology solutions recently raised several hundred million yuan in its latest funding round.
This article by Ken Lo was first published in The Bamboo Works, which provides news on Chinese companies listed in Hong Kong and the United States, with a strong focus on mid-cap and pre-IPO companies.
Key Takeaways:
QCraft has raised over 1 billion yuan over six funding rounds, including its latest that raised several hundred million yuan.
Several rivals, including Momenta, Guangzhou WeRide and Pony.ai, have all been approved for overseas listings.
China's autonomous driving market has become a race to an evasive finish line, as a growing number of technology providers try to create sustainable business models while vying for business from a limited pool of vehicle makers.
The fierce competition means startups must often make financial concessions to vehicle makers to get their products into the ecosystem early, squeezing their already thin margins and draining their coffers even faster.
In such an environment, fundraising has become the mantra of the day for these companies, which are hitting up both private equity and stock market investors with their steady requests for new cash.
One relative latecomer to the race, QCraft Inc, recently topped up its coffers with the completion of its C round financing that raised several hundred million yuan, according to Chinese media reports.
Backers in its latest funding round included Beijing Zhongguancun Science City Holding and Cuihu Capital. The company will use the funds to improve the driving experience for vehicles using its technology, which recently went into mass production. It will also use the money to develop large AI models and to develop cutting-edge end-to-end autonomous driving technologies.
QCraft is a relative latecomer to the fast-developing autonomous driving space, founded just five years ago by CEO Yu Qian and three like-minded colleagues. All four came from Waymo, the self-driving arm of global search giant Google.
Despite its short history, QCraft hasn't wasted any time in the race to raise funds. The latest round was the company's sixth to date, following two seed rounds in 2020, two A rounds the next year and a B round in 2022.
It has raised an estimated 1 billion yuan ($138 million) in total from investors including YF Capital, IDG, China Merchants Group, Meituan, CICC Capital and TCL, to name a few.
Most high-end chips used to power autonomous driving solutions come from two US companies, Qualcomm and Nvidia. At its annual GPU Technology Conference in 2022, Nvidia named QCraft as one of its three technology partners for autonomous driving, alongside Chinese EV makers Xpeng and Zeekr.
QCraft said it would develop L4 autonomous driving solutions for its Robotaxi fleet using Nvidia's DRIVE Orin platform. Autonomous driving is divided into levels 0 to 5, with Level 4 (L4) and above considered fully autonomous driving.
According to QCraft, its L4 solution can support 1 to 5 Lidar, 0 to 4 blind area radar, 6 millimeter wave radar and 12 perception cameras. It says its products can flexibly combine different components to meet diverse customer needs.
And it says its product can achieve 99 percent L4 driving capability at just 10 percent of the usual cost, with a mass production cost as low as 10,000 yuan per unit.
The company achieved a milestone in early May when it delivered nearly 400,000 units of its navigate on autopilot (NOA) solutions to a number of leading carmakers, setting it apart from some of its peers that have yet to find many mass-market customers.
It delivered its AD Pro solution to Li Auto and provided high-speed point-to-point NOA and urban lane centering control (LCC) functions for a number of Li Auto's models.
New price war
While it has found a mass market for its products, QCraft's road hasn't been all smooth driving lately. A month before it started mass producing those products, EV giant Tesla announced price cuts on April 19 this year equivalent to around $2,000 for its cars in both China and the US Li Auto followed three days later by announcing similar cuts of between 18,000 and 20,000 yuan for four of its models.
Such price cutting reflects the cutthroat state of the EV market right now. And as car manufacturers make such cuts, they naturally squeeze their suppliers for discounts, further undermining margins for autonomous driving companies like QCraft.
QCraft certainly isn't alone in its fundraising frenzy, as it and its peers rapidly burn through their cash on R&D and go in search of more money. Momenta Global launched its IPO earlier this month and may go public later this year, reportedly with plans to raise between $200 million and $300 million. Before that, Guangzhou WeRide Technology and Pony.ai also secured approval from China's securities regulator to list in New York.
Another autonomous driving technology company, iMotion Automotive Technology (1274.HK), raised HK$586 million ($75 million) with its listing in Hong Kong last December. As one of the few publicly traded companies from the group so far, its finances shed some light on the situation confronting its peers.
Its revenue fell 8.3 percent last year to 1.22 billion yuan, though its gross profit rose 9.4 percent to 121 million yuan. Its gross margin also rose by 1.6 percentage points for the year to 9.94 percent. And its net loss also narrowed significantly, by 43 percent, to 195 million yuan. While the report was generally positive, the company still has quite a distance to travel before becoming profitable.
Desay SV, another larger player, boasts a higher gross margin, though the figure is moving in the wrong direction as competition grows. Its overall gross margin last year was 20.4 percent. But gross margin for its autonomous driving products fell 5.3 percentage points year-on-year to 16.2 percent, even as revenue from its autonomous driving business grew by 74.4 percent. The company blamed its eroding margins on negative effects from promotional costs and price cuts.
An autonomous driving industry veteran said it's extremely hard to get even smaller amounts like 20 million yuan to 30 million yuan to fund new projects in China these days, adding the best most startups can do is less than 10 million yuan.
With finances so tight, QCraft could well be joining peers like Pony.ai and Momenta in setting its next sights on an overseas IPO to keep fueling its autonomous drive ambitions.
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