In an unpredictable sequence of events reminiscent of a thrilling roller coaster, the stock price of China's leading smart driving chip company, Hezhizhen Intelligent, has been experiencing dramatic fluctuations over a mere span of a week.

On February 11th, the stock took a downturn, closing at 22.35 Hong Kong dollars per share, reflecting a drop of 4.69%. This decline comes after a significant rise just days earlier.

On February 6th, the stock had surged nearly 12%, and just a day later, it exploded by over 55%, eventually closing with a staggering increase of 37.59%, leading to a cumulative rise exceeding 50% over those two days.

However, the euphoric trend received a sharp blow on the morning of February 10th when the company issued a clarification notice to the market. Following this announcement, the stock plummeted precipitously, momentarily dropping over 50% before settling with an overall decline of 39.56%, closing at 23.45 Hong Kong dollars per share.

A prevailing belief in the market ties these volatile stock movements to developments involving BYD, a significant player in the electric vehicle sector.

The Roller Coaster Stock Behavior

On February 6th, BYD announced their upcoming "Smart Drive Equality" launch event set for February 10th, highlighting their advanced "Eye of God" high-level driving system.

This news invigorated the smart driving sector, prompting stocks across this category to rally; Hezhizhen Intelligent surged by over 37%, while firms like Horizon Robotics and Aimor Technology marked increases of 10.42% and 10%, respectively.

The following day, it was reported that BYD would be utilizing Hezhizhen's automotive-grade automatic driving computing chips in marketing vehicles from its Tengshi brand. Hezhizhen's representatives confirmed that their chips had indeed been adopted and were already in mass production, although they declined to disclose further specifics.

The series of positive announcements played a pivotal role in the rapid ascent of Hezhizhen's stock price. Analysts noted that BYD is the largest new energy vehicle manufacturer globally and anticipated that its increase in intelligent technology would enhance sales significantly. The application of Hezhizhen's chips in BYD’s smart systems would greatly bolster the latter's credibility and market positioning.

However, this ascendancy was abruptly halted by a clarifying statement that tempered expectations. On February 10th, Hezhizhen Intelligent's board acknowledged unusual trading volumes and price fluctuations that had occurred on February 7th within their shares.

The announcement highlighted that the group has maintained long-term operational ties with automotive original equipment manufacturers (OEMs), including BYD, a routine aspect of their business activities. Furthermore, the statement emphasized that their partnerships with major auto enterprises, including BYD, classified as standard business practices.

As more details surrounding the BYD launch began circulating, investors quickly understood that Hezhizhen might merely serve as a conventional supplier for BYD, rather than a critical choice for high-end models. This realization suggested that the correlation between BYD’s advanced driving technology and Hezhizhen’s chips was not as significant as initially presumed.

With inflated expectations deflated, the market reverted to a more cautious and rational outlook. On February 10th, Hezhizhen's closing value of 23.45 Hong Kong dollars per share showcased a 39.56% decrease, returning to levels seen prior to February 6th.

Three Years of Losses Approaching 10 Billion

As the global automotive industry pivots towards electrification and smart technology, the demand for intelligent features in new energy vehicles has surged, presenting immense opportunities for businesses within the related supply chains.

Hezhizhen Intelligent, focusing on the research and development of autonomous driving and AI chips, took advantage of this trend, successfully listing on the Hong Kong Stock Exchange in August 2022, thus claiming the title of China’s “first smart driving chip stock”.

In the first half of 2024, the company reported a revenue of 180 million yuan, with a net profit reaching 1.105 billion yuan, marking a significant turnaround. Notably, revenue from autonomous driving products and solutions was 167 million yuan, an impressive year-on-year increase of 85.5%, driven by an extensive product portfolio and more large-scale customer engagement. Conversely, income from intelligent imaging solutions declined by 21.1% to about 12.9 million yuan due to alterations in client procurement timelines.

Remarkably, this shift from loss to profit is not necessarily a direct byproduct of business growth. It has primarily arisen from changes in the fair value of the financial instruments issued to investors.

Financial reports indicate that in the first half of 2023, Hezhizhen incurred a fair value loss of approximately 3 billion yuan from the financial instruments it had issued. However, by the first half of 2024, due to fair value fluctuations tied to priority equity held by investors, this figure transformed into a gain of 1.932 billion yuan, leading to the company's return to profitability.

Despite this turnaround, Hezhizhen witnessed three consecutive years of losses. From 2021 to 2023, their net profit attributable to shareholders recorded losses of 2.357 billion, 2.754 billion, and 4.855 billion yuan, summing to nearly 10 billion yuan. Whether the company can sustain profitability in the 2024 financial year remains uncertain.

Additionally, as competition intensifies industry-wide, Hezhizhen Intelligent faces fierce rivalry from both domestic and international firms.

In the domestic arena, enterprises such as Huawei, Baidu, and Horizon are making significant strides in the autonomous driving chip sector with notable technological capabilities and market shares. Meanwhile, on the international stage, giants like NVIDIA and Intel leverage their robust technological foundations and financial clout to rapidly capture portions of the global autonomous driving chip market.

This competitive landscape marked by dual pressures from internal and external forces presents substantial challenges for the future evolution of Hezhizhen Intelligent.