On July 27, 2024, WeRide, known as Wenyuan Zhixing in China, submitted its initial public offering (IPO) application to the U.S. Securities and Exchange Commission (SEC). This filing came shortly after the company, which specializes in autonomous driving technology, received approval from the China Securities Regulatory Commission for overseas listing on August 25, 2023. Despite the anticipation surrounding WeRide's entry into the U.S. stock market, the financial performance outlined in their IPO documents has raised eyebrows among investors and analysts alike.
In the years spanning from 2021 to 2023, WeRide's revenue has displayed considerable volatility. The company reported earnings of 138 million yuan ($21.5 million) in 2021, which saw a significant increase to approximately 528 million yuan ($82 million) in 2022, only to decrease to about 402 million yuan ($63 million) in 2023. Alongside these fluctuations in revenue, the adjusted net losses have grown from 427 million yuan ($66 million) to 502 million yuan ($79 million) over the same period, indicating persistent challenges in achieving profitability. Most concerning is the financial performance in the first half of 2024, where the firm recorded revenues of 150 million yuan ($23 million), a decline of 17.8% compared to the previous year, and adjusted net losses that expanded by 36.6% to 316 million yuan ($50 million).
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WeRide's reliance on a select group of clients for the majority of its revenue emerged as a crucial point of concern. During a recent earnings call, the company indicated that two customers accounted for a staggering 52.4% of its revenue in the first half of 2024. This heavy reliance on a small number of clients raises red flags regarding the sustainability and risk associated with their business model, as losing a key customer could have dire financial consequences.
Founded in Silicon Valley in 2017, WeRide quickly made headlines by conducting open-road autonomous driving tests just two months post-launch. The technological backdrop at that time was also notable, as Intel made headlines with its $15.3 billion acquisition of Mobileye, while Baidu established its own autonomous driving division, drawing attention to the possibilities within the sector.
Fast forward to the present, and WeRide's business has diversified across five segments: Robotaxi, Robobus, Robovan, Robosweeper, and Advanced Driver Assistance Systems (ADAS) solutions. Yet, the market appears to be increasingly competitive. As a notable shift has occurred, WeRide has observed declining revenue from product sales, which previously boasted higher contributions to overall earnings. In 2024, the company reported that 86% of its revenue stemmed from service-oriented business activities, including ADAS and operational support, marking a significant pivot from its initial focus on product sales.
The nuances of this shift are seen in the sales figures, albeit modest ones. Over the first half of 2024, WeRide managed to sell just nine units of its Robobus system, which underscores the challenges of translating research and development investments into immediate sales. The statement by the company suggests that while research expenses have seen a marked increase — with R&D costs climbing to 517 million yuan ($80 million) in the first half of 2024, up from prior years — the realization of revenue from these investments requires time and the maturation of the technology.
Interestingly, WeRide's R&D expenses are concentrated among its engineering team responsible for the design, development, and testing of autonomous vehicles, reflecting a strategic focus on innovation and technological advancement. Analysts specializing in autonomous vehicle markets, like Li Jinqing, have emphasized that the company is currently navigating an adjustment phase, transitioning from product-focused sales to a service-oriented model, which may provide benefits in the long run but introduces uncertainty at present.
As for revenue concentration risk, WeRide has openly acknowledged this in its filings. In 2021, a staggering 89.8% of its total revenue derived from only six major customers, while this percentage diminished slightly over the subsequent years, reflecting potential progress in diversifying its client base. However, the fact remains a substantial portion of the revenue is still heavily reliant on a limited subset of clients.
WeRide’s decision to enter the market at this juncture can likely be attributed to aspirations of capturing more ground by 2024 and beyond, aiming for large-scale deployment of its Robotaxi services. The firm intends to ramp up commercial operations as part of its strategic vision, echoing sentiments shared by other players in the sector regarding the importance of establishing a solid commercial framework for the long-term viability of the business.
The growing interest in autonomous transport solutions underscores not just WeRide’s ambition but also a broad shift in how urban mobility is envisioned for the future. With services already operational in seven countries, including various cities in China, the company is positioned uniquely in both the consumer and business (B2B) segments, offering an intriguing blend of services to a growing customer base. Current pricing models for their Robotaxi services indicate a competitive approach to consumer adoption, albeit one that may take time to yield profitability given the sector's immaturity.
Despite the excitement of WeRide’s initial public offering and its initiatives in the autonomous vehicle space, experts caution patience among potential investors. The company’s success hinges not just on its technological capability but also on its ability to scale operations and diversify its revenue streams, ensuring that it is not over-leveraged to a handful of clients. As the landscape of autonomous driving continues to evolve, with increasing pressure from both established automakers and tech giants, WeRide must navigate this complex environment to ascertain its place as a formidable contender in the future of transport.