After Hesai Technology was sanctioned, its stock price plunged, its plan to build a factory in the United States was terminated, and what are the chances of formally suing the U.S. Department of Defense? Xiaomi has a precedent for winning!
According to the latest news from Bloomberg today (May 14), Hesai Technology Co., a Chinese supplier of lidar sensors for self-driving vehicles, formally filed a complaint with the federal court in Washington yesterday (May 13), suing the U.S. Department of Defense for its inclusion in the 1260H list (China's military-related list).
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The lawsuit alleges that the action has caused Hesai Technology to "damage its reputation, plummet its stock price, and lost some business opportunities," and urged the court to rule that the U.S. Department of Defense remove it from the list or declare the list unconstitutional.
▲Source: Bloomberg
Previously, on January 31, the U.S. Department of Defense updated the list of "Chinese military-related enterprises" (1260H list) to include Hesai Technology in the list, and Hesai Technology announced its reputation on February 7 and said that it would sue the U.S. Department of Defense:
The decision was considered to be wrong, unjust and unfounded. In order to protect the company's reputation, Hesai decided to sue the U.S. Department of Defense to defend the company's legitimate rights and interests. Hesai has always adhered to compliance and upheld the principles of integrity and legal operation, and is committed to reducing accidents, saving lives, and making global travel safer.
Affected by the news of the U.S. Department of Defense sanctions, the day after the list was announced, Hesai Technology's stock plunged from $5.83 per share to $4.02 per share on February 1, and has hovered at this market value since then. On May 13, Hesai Technology's latest share price rose, closing at US$5.39 per share, with a market value of US$687 million (about 4.972 billion yuan).
In addition, the news also mentioned that Hesai Technology said that the presence on the list disrupted its plans to build a manufacturing plant in the United States, and negotiations have been suspended.
▲Source: Google
The U.S. Department of Defense's "Chinese military-related enterprises" list, also known as the 1260H list, highlights and restricts Chinese companies that are considered likely to strengthen China's military capabilities. While a business's inclusion on the Section 1260H list does not involve an immediate ban, it poses a significant reputational risk to designated companies and sends a stern warning to U.S. entities that there are risks associated with doing business with these companies. It could also increase pressure on the Treasury Department to sanction these companies. Listed companies are prohibited from doing business with the U.S. Department of Defense and its affiliates.
Chinese companies have sued the U.S. Department of Defense over the list of military involvement, including Xiaomi, China's well-known mobile phone giant.
On January 14, 2021, the U.S. Department of Defense listed Xiaomi as a "Chinese military-related enterprise" under Chapter 1237.
On February 17, 2021, Xiaomi filed an application for a preliminary injunction with the U.S. District Court for the District of Columbia to block the enforcement of the U.S. Department of Defense's designation of Xiaomi as a "Chinese military-related enterprise" to prevent the trading and holding restrictions on Xiaomi securities or derivatives arising from the designation.
On March 12, 2021, the U.S. District Court for the District of Columbia issued an order granting Xiaomi's interim injunction and ordering that the U.S. Department of Defense shall not enforce or enforce the U.S. Department of Defense's designation of Xiaomi as a "Chinese military-related enterprise" under Executive Order 13959 and the restrictions arising from such conduct.
On March 14, 2021, the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) replied to the question "Does the investment ban in the Revised Executive Order 13959 apply to Xiaomi?" by posting a response to the Section 880 question on its website. Namely, OFAC replied that the injunction under Executive Order 13959 does not apply to Xiaomi until a further order is issued by the U.S. District Court for the District of Columbia.
On May 11, 2021, Xiaomi and the U.S. Department of Defense released the Joint Status Report, in which the two sides reached an agreement on the lawsuit: the U.S. Department of Defense decided not to appeal, and agreed to make a decision to remove Xiaomi from the "Chinese military-related enterprises list", and Xiaomi and the U.S. Department of Defense will conduct further negotiations on the specific terms of the decision.
However, it is worth mentioning that Xiaomi's lawsuit mentions that the "investment ban" under the "Chinese List of Military-Related Enterprises" will apply to Xiaomi, an entity on the List of Military-Related Enterprises that prevents U.S. capital investment, and Xiaomi is a Hong Kong-listed company with "the majority of Xiaomi's shareholders as of December 31, 2020", so the inclusion of Xiaomi in the list will interfere with and affect its financing from U.S. entities.
On February 10, 2023, Hesai Technology was officially listed on the NASDAQ in the United States, becoming the "No. 1 LiDAR Stock in China".
What are Hesai's chances of winning this lawsuit against the U.S. Department of Defense?
The rise of China's lidar companies is unsettling for the United States, will sanctions be further intensified?
On November 28, 2023, 20 members of the U.S. House of Representatives, including Mike Gallagher (R-WI), chairman of the U.S. House of Representatives' Select Committee on China's Strategic Competition, jointly submitted a report to the Biden administration, calling for an investigation into all Chinese lidar (light detection and ranging, or LiDAR) technology companies to determine whether there is a reason to put them on three sanctions lists - The Ministry of Defense's List of Chinese Military-Industrial Enterprises, the Ministry of Commerce's Entity List, and the Ministry of Finance's Non-SDN List of China's Military-Industrial Complex Enterprises (CMIC List).
Among them, the report specifically mentions four domestic lidar companies: Hesai Technology, Suteng Juchuang, Huawei, and DJI Liwo. For related information, please refer to "U.S. Lawmakers Ask Biden Administration to Sanction Chinese LiDAR Companies"
Hesai Technology has been explicitly included in the U.S. Department of Defense's list of "Chinese military-related companies" — one of three lists suggested by members of the U.S. House of Representatives to "blacklist" Chinese lidar companies.
The U.S. House of Representatives believes that by 2018, the global lidar market was mainly dominated by U.S. companies, but due to China's industrial policy support such as tariffs and subsidies, Chinese lidar companies have developed rapidly. In addition, Chinese lidar companies have benefited from access to U.S. capital markets and technology through investments and acquisitions of U.S. lidar businesses, as well as intellectual property theft.
Lidar is an emerging dual-use remote sensing technology used in military, transportation, agriculture, meteorology, manufacturing, and other systems. It uses pulsed lasers to measure the distance, velocity, and/or height of physical objects to map their surroundings.
The technology is critical to creating high-definition maps around self-driving cars, raising serious national security concerns related to data security, cybersecurity, and granular maps of U.S. infrastructure. Lidar is also being deployed in "smart cities" of critical infrastructure in the United States, including traffic lights, ports, and suspension bridges.
Lawmakers are concerned about U.S. technology being used in opposing lidar systems, as well as the entry of so-called "unsafe" foreign lidar systems into the U.S. market and critical infrastructure systems. Currently, the U.S. government has taken multiple measures to restrict China's access to advanced U.S. technology, and the U.S.-China Economic and Security Review Commission warned in its 2023 annual report that "export controls against China face significant enforcement obstacles."
▲Members of the U.S. House of Representatives jointly signed a letter asking the Biden administration to sanction Chinese lidar companies
Chinese lidar companies are expected to lead the global development! China's Ministry of Commerce restricts the export of some lidar technology!
Overall, China's sensing industry is weak, and authoritative data points out that about 80% of China's mid-to-high-end sensors need to be imported.
Lidar is one of the few bright spots of domestic sensors, and plays an important role in high-level autonomous driving, consumer electronics, surveying and mapping and other fields.
According to Yole's 2023 Global Automotive LiDAR Market and Technology Report, in 2022, Hesai ranked first in the global automotive LiDAR total revenue for two consecutive years with a market share of nearly 50%, and its market share further expanded from 42% in 2021 to 47%. Tudatong relied on the continuous shipment of NIO to win the second place with a market share of 15%, and Valeo and Suteng Juchuang ranked third and fourth with a market share of 13% and 9% respectively.
Among them, Hesai Technology, Tudatong, and Suteng Juchuang are all well-known domestic lidar companies, and in addition, Huawei, DJI Livo and other companies also occupy a place in the global automotive lidar market.
▲来源:Yole
In the Q3 2023 financial report, Hesai Technology compared its revenue performance and delivery volume with 6 international peer listed companies (Luminar/Ouster/Cepton/Innoviz/Aeva/AEye), Hesai Technology's revenue in the third quarter was 450 million, 6 international peers had revenue of 350 million, Hesai Technology shipped 47,000 units in the third quarter, and 6 international peers shipped only 3,000 units.
In terms of revenue and shipments, Hesai Technology far exceeds its foreign counterparts. Domestic lidar companies are expected to lead the development of the global industry.
On December 21, 2023, the Ministry of Commerce of the People's Republic of China, together with the Ministry of Science and Technology, issued the latest revised Catalogue of Technologies Prohibited and Restricted by China for Export, adding "LiDAR System Technology":
符合以下任一条件的激光探测及测距系统技术：脉冲峰值功率（peak power）>30kW、脉冲宽度（pulse width）<1ns、探测距离（detection range）>2km、角准度（angularaccuracy）<40μrad、角分辨率（angularresolution）<20μrad、测距精度（rangingaccuracy）<2mm
According to the analysis of industry veterans, the restriction is mainly aimed at the field of special-purpose lidar, the current civil vehicle lidar is far from reaching, does not affect the export business of domestic vehicle lidar enterprises, the technical requirements in the "catalog" for the vehicle lidar There is a large technical "margin" for the vehicle lidar, and it does not affect the technological development of domestic vehicle lidar enterprises in the future.
▲Source: 2023 edition of the "Catalogue of Technologies Prohibited and Restricted by China for Export"
epilogue
Regardless of whether Hesai Technology wins the lawsuit against the U.S. Department of Defense this time, sensors, as a high-tech industry with important national defense and dual-use value, have been blocked by Western countries for a long time, and the shadow of U.S. sanctions hangs over the heads of domestic sensor companies like a sword of Damocles.
The development of lidar technology, as well as the earliest application in automobile autonomous driving, originated in foreign developed countries, and for a long time, foreign lidar companies were far ahead of domestic enterprises.
Fortunately, lidar technology as an emerging sensor technology, although domestic enterprises started a little late, but not too far behind, in this era of rapid development in China, there is a huge domestic market, a large number of domestic automobile enterprises support, to give domestic lidar enterprises to thrive fertile soil. China's lidar industry, represented by a large number of domestic enterprises such as Hesai Technology, Suteng Juchuang, Tudatong, Beixing Photonics, Huawei, DJI Liwo, LeiShen Intelligence, Tanwei Technology, Wanji Technology, etc., is leading the world!