In Sep-2020, the China Ministry of Transportation (CMOT) announced Commercial Truck
Safety Conditions. The Conditions require heavy trucks (over 18 t) to mandatorily have lane
departure warning (LDW) and forward collision warning (FCW) since Sep-2020; all heavy trucks
are to mandatorily install autonomous emergency braking (AEB) after May-2021. The
Conditions accelerate ADAS camera adoption for commercial vehicles in China, and we expect
the number of cameras per commercial vehicle to increase from three to six by 2025.
With support from the government and development of autonomous technology, we forecast
the average camera per car to reach 5.5 units and total shipment of auto camera to reach 161
mn units in 2025.
Auto camera sets higher standard for lens maker and first-mover is favoured
Auto camera has a high entry barrier. (1) Prolonged R&D and testing time. Our check suggests
the R&D duration is about two years and it takes another two years to conduct the road test
(automaker requires at least 3,000+ hours on-road test) and configuration. Such a long period
is favourable for first-movers. We note that Chinese automotive OEMs are shortening the
development cycle to 1.5 years and are more open to adopt new entrants. (2) Glass lens is
preferred but harder to manufacture. Vehicle cameras are more likely to be subject to extreme
operating environments; therefore automakers prefer glass lens for its better scratch-resistance,
transmittance, heat-resistance (-40° to 85°), and refraction. The manufacturing process of
glass lens is more complicated than that of plastic lens as it includes special processes like
diamond grind, special fining, and hardening. As a result, companies with well-founded
expertise in glass lens are capable of grabbing a higher market share.
Sunny Optical (OUTPERFORM) ranked No. 1 in the vehicle lens market, with over 30%
market share. Overall, the automotive business accounted for 7% in 1H21 and we expect it
to reach close to 10% by 2023. It has been growing faster than the industry average of 15-
20% YoY in the past years and we believe the trend will continue as it has a higher market
share (over 40-50%) in front and interior cameras, which will be the growth areas for the
overall vehicle lens market, driven by autonomous driving. Sunny Optical began shipping
vehicle camera modules since 2H18. The contribution is gradually growing but still not
material. It started mass production for 8MP vehicle camera modules as the first to launch
high-mega-pixel lens in the market. The majority of vehicle cameras are of VGA/1MP/2MP
resolution, but several new EV makers have adopted 8MP. More projects have entered mass
production since 2H21.
O-film (upgrade to NEUTRAL) targets to become the No. 1 vehicle camera module supplier
in China. Different from Sunny Optical, O-film has become a tier 1 supplier by acquiring CETC-
Motor and Nanjing Tianqing in 2015. It expects a boost to its revenue in 2H22-23 based on
orders secured. Currently, its capacity is fully loaded, and requires capacity expansion to fulfil
demand. It also aims to be the No. 2 globally in vehicle lens (second to Sunny Optical). It
wanted to shut down its Tianjin fab unit (acquired from Fujifilm in 2018), but failed given there
were too many legacy projects. It currently manufactures in both Tianjin and Nanchang, but will
move to Nanchang in the future. It purchases aspherical glass from Nanjing MDTP Optics
(invested by O-film), and in-house glass for high-end lens will commence production from Jan-
2022. Its automotive business accounted for 4% of its 1H21 revenue. O-film targets to reach
Rmb10 bn for its automotive business and Rmb5 bn for the non-smartphone business in three
to five years, accounting for over 30% of its total revenue.
Q-Tech (OUTPERFORM) has four projects in production for different vehicles of different
customers. It has also been qualified as a camera module vendor by more than ten carmakers
and has several projects in the qualification stage. Its automotive revenue is expected to
double in 2022 and double again in 2023, based on the current commercial projects. There
could be further upside if more projects pass qualification. The company targets to generate
25% revenue from its non-handset businesses in five years, from 2% currently, driven by
automotive camera modules and a wide variety of different IoT projects.