Summary of the Key Points
Horizon's 2026 annual financial report shows a nominal profit of 3.78 billion yuan, indicating a turnaround from losses. However, all of this profit comes from two "tactical accounting maneuvers," while its main business actually incurred a loss of 1.67 billion yuan. In essence, Horizon is using a strategy of "paying to expand scale" to aggressively gain a larger share of the high-end autonomous driving market. At the same time, the company is shedding costly operations and forming partnerships with giants like Volkswagen to secure customer relationships, aiming to become the leader in the domestic high-end autonomous driving market before the industry's profit turning point in 2027-2028.
Detailed Analysis
1. The "Profitable" Report Is a Mask for Hidden Losses
At first glance, Horizon's profit of 3.78 billion yuan might suggest that its main business is thriving. However, not a single penny of this profit came from selling chips or autonomous driving solutions. The 5.24 billion yuan came from a convertible loan from Volkswagen, where the value of the loan increased, effectively reducing Horizon's debt by 5.2 billion yuan and being recorded as income for the year—Horizon received no cash. The remaining 2.779 billion yuan came from removing the loss-making subsidiary, Diguang Robot, from the consolidated financial statements. This move was akin to changing the ownership of a losing milk tea business to a partnership, with Horizon still being the major shareholder and recording a profit of 2.7 billion yuan. Excluding these non-recurring, cash-free gains, Horizon's main business actually lost 1.671 billion yuan in the first half of the year, a 25% increase from the same period last year.
2. These Accounting Maneuvers Are Not Fraud but Smart Strategies
Horizon's actions are not intended to deceive investors but serve a practical business purpose. The convertible bond deal with Volkswagen was a mutually beneficial agreement that strengthened their partnership: if Volkswagen had converted all the bonds into shares, Horizon's existing shareholders would have seen their equity diluted. By redeeming part of the bonds, Horizon preserved the interests of its shareholders and made Volkswagen a 9.9% stakeholder with a commitment not to sell their shares for 12 months. This arrangement ensures that Volkswagen will use Horizon's autonomous driving solutions in its new electric vehicles, potentially expanding the partnership to multiple models in 2027. Removing Diguang Robot from the consolidated statements allowed Horizon to avoid further losses from the subsidiary's poor performance. Horizon remains the major shareholder and will continue to profit from Diguang Robot's operations.
3. Losing Money Now to Gain a Monopoly in the Future
Horizon has intentionally reduced the gross margin on its hardware solutions from 44% to 36%, seemingly sacrificing profits. This is part of a long-term strategy. In the autonomous driving industry, the key to success is not selling hardware but providing algorithmic services and technology licenses. Horizon's "licensing and services" revenue has surpassed hardware revenue, becoming the main source of income with a gross margin of 90%. By investing in widespread adoption of its solutions, Horizon expects to recoup the costs through software upgrades and licenses over time. For example, by supplying chips to affordable cars, Horizon has increased its market share in urban NOA (No-Autonomous Driving) from 23% to 25% in just half a year, rising from third place to second behind NVIDIA. Once its solutions are in millions of vehicles, the annual revenue from these services will be substantial.
4. Horizon Has Three Unique Advantages
Horizon has gained three advantages that others lack:
- Joint Venture Market: It has secured major orders from Volkswagen and is now supplying chips for entry-level and mainstream models of GAC Toyota, expanding its market share in this multi-billion-dollar sector.
- Export Market: It is one of three suppliers for autonomous driving systems to Chinese automakers, exporting chips to Germany, France, and Japan, leveraging China's automotive export momentum.
- Robotics: Its autonomous driving chips are used by over 400 robotics companies, covering more than half of the domestic market in this emerging field. This opens up new opportunities beyond the automotive industry.
5. The Race to Survive in a Lossing Industry
All high-end autonomous driving suppliers are currently losing money, and the industry expects a profit turnaround in 2027-2028. Horizon has 14.9 billion yuan in cash, which will help it sustain its operations until then. Its goals are clear: to achieve annual revenue of 10 billion yuan and a gross margin of 60% to cover research and development costs. Two key factors will determine its success: the cooperation with BYD and the production of its next-generation high-performance chip, Journey 7. If these go well, Horizon will solidify its market position. Failure to meet these targets could result in the loss of market shares to NVIDIA.
In summary, Horizon's financial report is not a sign of success but a declaration of intent to challenge the industry leaders.