(Image source: Visual China)

Blue Whale News, November 26 (Reporter: Shao Yuting) Another Geely-affiliated autonomous driving company is rushing for an IPO in the Hong Kong stock market.

On November 22, FreeTech (Zhejiang) Intelligent Technology Co., Ltd. (hereinafter referred to as "FreeTech") submitted a listing application to the Hong Kong Stock Exchange, with CITIC Securities, CICC, Huatai International, and HSBC serving as joint sponsors.

Zhang Lin, the founder of FreeTech, was once the vice president of Geely Holding. With the support of Geely, FreeTech has emerged in China's intelligent driving market, with a total valuation exceeding 6 billion yuan. Like most Geely-affiliated companies, Geely is both a shareholder and a major customer, but despite Geely's support, FreeTech has not yet achieved profitability.

"Geely-affiliated" autonomous driving company, valued at 6 billion yuan

Over the past decade, the intelligentization of automobiles has moved from concept to reality, with growing momentum. With the advent of advanced safety and comfort features such as highway NOA and urban NOA, automobiles are gradually transforming from traditional means of transportation into intelligent mobile terminals.

At the beginning of the development of the new energy vehicle industry, Zhejiang was once at the forefront of the nation, and FreeTech was also born here. In 2016, Zhang Lin, who was then vice president of Geely Holding responsible for overseas marketing and factory construction, founded FreeTech, focusing on the provision of intelligent driving solutions.

FreeTech started with advanced driver assistance systems (ADAS) and then developed autonomous driving system (ADS) technology, with the self-developed integrated intelligent driving platform ODIN that combines hardware and software. According to data from CIC, in 2023, based on the number of L2 and L2+/L2++ intelligent driving solutions installed in vehicles in China, FreeTech ranked third among domestic suppliers with a market share of 14.6%.

According to the prospectus, FreeTech has established business partnerships with 46 original equipment manufacturers (OEMs), covering all the top ten domestic OEMs in terms of vehicle sales in 2023, and has accumulated more than 280 designated projects and over 200 mass production projects.

In addition to founder Zhang Lin coming from Geely, several other executives at FreeTech also have backgrounds in Geely. According to the prospectus, Yang Jian, the non-executive director of the company, once served as the vice chairman and director of Geely Holding; Guo Li, the joint secretary, served as the investment director of Geely Holding; and Peng Wenshuai, the vice president of the Human Resources Department, also worked at Geely.

Against this backdrop, Geely's presence is also evident in FreeTech's early financing.

According to the prospectus, since its inception, FreeTech has completed a total of 12 rounds of financing, with investors including BAIC Industrial Investment, TCL Venture Capital, and Shaanxi Automobile Group. The initial shareholders on the day FreeTech was established were Hu Gang, Shuanglin Co., Ltd. (300100.SZ), ECARX (ECX.NASDAQ), and Hangzhou Langma, among others.

ECARX was co-founded by Li Shufu, the founder of Geely Holding Group, and Shen Ziyu. When FreeTech was established in 2016, ECARX, as an initial shareholder, subscribed for 80 million yuan and obtained a 16% stake, becoming the company's third-largest shareholder. In June 2021, ECARX transferred all of its shares to nine companies, including Shenzhen Huiyou and China Internet Investment, for a total price of 303.86 million yuan, with a per-share cost of 3.80 yuan, and has since ceased to be a shareholder of FreeTech. In March 2021, ECARX was listed on the U.S. stock market.

In 2018, Li Shufu founded the investment company Ningbo Junma and acquired a 25% stake in FreeTech from initial shareholder Hu Gang for 89.5997 million yuan in 2020. After a series of financing and equity changes, Ningbo Junma became FreeTech's largest institutional shareholder before the IPO, with Geely Group holding a 12.31% stake in FreeTech through Ningbo Junma.

After a series of equity transfers among Geely-affiliated companies, FreeTech's valuation reached 6.06 billion yuan after the C3 round of financing on May 30, 2024. Based on this calculation, Geely Group's current shareholding is valued at over 700 million yuan.

Nearly 40% of revenue comes from Geely, but it is still mired in losses

Currently, Geely Holding Group is FreeTech's largest single customer.

According to the prospectus, from 2021 to 2023 and the first half of 2024 (hereinafter referred to as the "reporting period"), FreeTech's revenue from its top five customers (including Geely Holding Group) accounted for 84.0%, 73.6%, 76.4%, and 85.9% of its total revenue for each corresponding period, respectively; among them, revenue from the single largest customer accounted for 43.5%, 22.0%, 43.3%, and 36.5% of total revenue, respectively.

Although specific revenue amounts were not disclosed, in terms of related-party transactions, FreeTech disclosed that during the reporting period, the company provided products and services to Geely Holding for amounts of 100 million yuan, 65 million yuan, 393 million yuan, and 114 million yuan, respectively. During the reporting period, FreeTech's revenue was 333 million yuan, 328 million yuan, 908 million yuan, and 312 million yuan, respectively. Based on these figures, revenue from Geely Holding accounted for approximately 30%, 20%, 43%, and 37% of total revenue, respectively, which is close to the proportion of revenue from the single largest customer.

FreeTech expects that from 2025 to 2027, the amount of products and services it provides to Geely Holding will reach 1.115 billion yuan, 1.33 billion yuan, and 1.548 billion yuan, respectively.

Despite being backed by Geely, FreeTech is still mired in losses.

According to the prospectus, during the reporting period, FreeTech's annual losses were 296 million yuan, 855 million yuan, 738 million yuan, and 278 million yuan, respectively; and the adjusted net losses were 276 million yuan, 691 million yuan, 627 million yuan, and 217 million yuan, respectively.

FreeTech stated in the prospectus that its losses are primarily due to the company being in the early stages of operational expansion and scale enlargement, with significant investments in procurement costs, research and development, and talent retention. The prospectus shows that the company currently has a total of 855 employees, of which 625 are R&D personnel, accounting for 73.1% of the total workforce. Among them, 50.6% hold bachelor's degrees, and 47.2% hold master's degrees or higher.

During the reporting period, FreeTech's procurement costs were 216 million yuan, 234 million yuan, 742 million yuan, and 245 million yuan, respectively, accounting for 64.9%, 71.5%, 81.7%, and 78.5% of revenue for the same periods, respectively; R&D investments were 185 million yuan, 515 million yuan, 561 million yuan, and 187 million yuan, accounting for 55.6%, 157.2%, 61.8%, 106.8%, and 60.0% of total revenue for the same periods, respectively; total employee benefits expenses were 158 million yuan, 519 million yuan, 436 million yuan, and 176 million yuan, accounting for 47.4%, 158.2%, 48.0%, and 56.5% of total revenue for the same periods, respectively.

Therefore, the funds raised through FreeTech's IPO are intended to strengthen the company's research and development of intelligent driving solutions and products, iterate its intelligent manufacturing systems, and expand its sales and service network.

Currently, the "Geely-affiliated" group includes nine listed companies: Geely Automobile (0175.HK), ECARX (ECX), Zeekr (ZK), Lotus Technology (LOT), Volvo Cars (VLVLY), Polestar (PSNY), Lifan Technology (601777.SH), Qianjiang Motorcycle (000913.SZ), and *ST Hanma (600375.SH).

Recently, Caocao Chuxing also submitted an IPO application to the Hong Kong Stock Exchange. Regardless of which company lists first, the "Geely-affiliated" group will have its tenth listed company.