Algorithm companies have launched a "chip-making" survival battle.
On October 16, XHEART, a developer of physical AI computing power chips, announced the completion of its strategic round of financing, with total historical financing amount reaching approximately RMB 5 billion. Three noteworthy names appear in the list of investors: Groupe Renault made its first investment, Chery Automobile increased its stake, and domestic storage leader ChangXin Memory Technologies participated in this round.
Also worth noting is the customer list of XHEART's X7 chip. The first vehicle model equipped with this chip is SAIC Volkswagen ID.ERA 9X, and subsequent coverage is planned for SAIC MG, Roewe, General Motors Cadillac, and some new energy and fuel vehicle models under Chery.
How could a chip company established only three years ago and with mass production deployment on vehicles for less than a year secure investments from storage giants and orders from domestic and overseas automakers at the same time? The key behind this lies in its "blood tie" with autonomous driving company Momenta.
Cao Xudong, Founder and CEO of Momenta, publicly stated at the 2026 Physical AI and World Model Conference opening on October 20: "XHEART, the 'sister company' of Momenta, defines chips around the needs of large models, which is expected to increase performance by about 10 times under the same cost and power consumption. Its next-generation X9 chip will further expand the scale of edge-side models by 100 times."
He summarized the rhythm of improving intelligent driving safety as "Intelligent Driving Moore's Law", and pointed out that the expansion of model scale requires chip support. The cooperation logic with XHEART is to drive chip design with model requirements and support model expansion with chips.
Demands of the Three Investors
XHEART was founded in December 2023, headquartered in Suzhou. Li Jun, its legal representative and chairman, is the former head of the chip department of Momenta. Cao Xudong and Xia Yan, core members of Momenta's founding team, hold shares in XHEART indirectly through the controlling shareholder. From the perspective of equity structure, the two companies do not have a direct subordinate relationship, but from the perspective of business and founding team background, XHEART was spun off from Momenta's chip project for independent financing.
This "blood tie" is directly reflected at the product level. During the planning and design phase of the X7 chip, the team conducted in-depth collaboration with the Momenta team, embedding algorithm understanding into the chip architecture. In August 2026, XHEART, together with Momenta and automotive operating system supplier QNX, jointly announced the development of a mass-production-oriented autonomous driving platform that meets global safety standards: Momenta provides full-stack algorithms, XHEART provides the automotive-grade SoC X7, and QNX provides a safety operating system.
From the project designation to mass production deployment on vehicles, XHEART took less than three years, which is faster than the usual 3 to 4-year R&D cycle in the automotive-grade chip industry.
The "blood tie" background with Momenta also explains why Groupe Renault, Chery Automobile and ChangXin Memory Technologies all appear in XHEART's investor list. The three investors have different demands, but they all value the same thing: a chip company that can hardwareize algorithm capabilities holds a unique position amid the trend of intelligent driving solutions moving toward "hardware-software integration".
Relevant personnel from XHEART stated that ChangXin Memory Technologies is a giant in the domestic storage industry. This investment marks its investment case for chip companies with automotive industry background, which is expected to help XHEART gain quotation and supply advantages against the backdrop of rising memory prices.
The equity participation of Groupe Renault and Chery Automobile is regarded by XHEART as "a key step for going global". Groupe Renault is a leading European automaker, and Chery Automobile is a pioneer of Chinese independent brands expanding overseas. The equity binding with the two parties means that XHEART's chips need to not only meet the demands of the Chinese market, but also comply with European regulations and safety standards.
"The participation of QNX is to help meet global safety thresholds. For Renault, investing in a Chinese chip company with mass production customer endorsements adds an alternative supply chain option in addition to Nvidia and Horizon Robotics," a relevant person in charge of a Beijing-based intelligent driving company told Economic Observer. For Chery, deep binding with chip suppliers is aimed at gaining more say in the definition of intelligent driving solutions.
Why Momenta Has to "Develop Chips"
Momenta is a leading domestic autonomous driving algorithm company, with a cumulative mass production delivery volume of more than 1.3 million units and a cumulative driving mileage of nearly 200 billion kilometers. However, the ceiling of algorithm development is approaching. Cao Xudong once said that software algorithms need to reach a sales volume of 4 million units to achieve economies of scale.
Self-controllable chips are the path to break this ceiling, and also the only way to get rid of dependence on external chip suppliers. Momenta's algorithms currently run on multiple chip platforms such as Nvidia, Horizon Robotics and Qualcomm, but the procurement cost, adaptation cycle and underlying optimization permission of each chip are not in its own hands.
"Chips are one of the most profitable links in the intelligent driving solutions. The gross profit margin of intelligent driving chips is generally between 40% and 50%, and the gross profit margin of Nvidia's intelligent driving chips even exceeds 60%. The gross profit of software solutions is inherently low, and automakers keep pushing down prices. All participants want to take the profit of the chip sector for themselves," the above-mentioned relevant person in charge of the Beijing-based intelligent driving company said, "At the same time, selling chips and solutions as a package brings higher profits and reduces the risk of being replaced by automaker customers."
The continuous iteration of intelligent driving algorithms requires a custom-built chip to support it. "Now everyone is saying that simply stacking computing power is useless. The essence is not that computing power is oversupplied, but that there are still shortcomings in general-purpose computing power supply. The focus of industry competition has shifted to efficient scheduling and optimization of computing power," an algorithm engineer from Intelligent Driving New Journey told Economic Observer.
From the perspective of many industry insiders, there are two driving forces behind Momenta's "chip development": first, the bargaining space of pure algorithms is continuously compressed, and algorithm companies must extend to the hardware end to master the cost structure and realize system-level optimization; second, the intelligent driving solutions of automakers are shifting from the combined procurement of "buying algorithms + buying chips" to the packaged delivery of "hardware-software integration".
"Once the chip is custom-designed for Momenta's algorithm architecture, under the same hardware cost, its software can achieve better performance than others. This in turn becomes its bargaining chip when negotiating with automakers, because what it sells is no longer a set of software that can be replaced at any time, but a deeply bound, hardware-software integrated solution, thus gaining the right to define the solution," the above-mentioned engineer from Intelligent Driving New Journey said.
"New Chip-Making Forces" Emerge
XHEART is not an isolated case. A batch of "new chip-making forces" are emerging intensively.
In February 2026, Anhui Shenji, a chip subsidiary of NIO, completed its first round of financing of RMB 2.257 billion, with a post-investment valuation of nearly RMB 10 billion, and NIO holds 62.7% of its shares. Core Tech, an independent chip company incubated under Geely's system, raised more than USD 200 million in total financing in the first half of 2026. In October 2026, Maher Heart Technology under Li Auto completed its first round of financing of RMB 1.625 billion. If all additional subscription rights are exercised, the maximum post-investment valuation will reach RMB 17.1 billion, and Li Auto holds 74.01% of its shares.
These automotive-grade chip companies share common features: almost all members of their founding teams come from the chip departments of algorithm companies, automakers or large internet companies, rather than from the traditional chip industry. They previously only served their parent company as the sole customer, but now they have all started independent financing and independently seeking external customers.
An important reason is that the economic calculation of automakers' self-developed chips is not viable. Su Qing, Vice President of Horizon Robotics, stated not long ago that chips are an infinite game where you need to pay royalties for tape-out, IP and production lines every year. Each generation requires new investment, and the investment scale keeps growing. Without a sufficiently broad downstream market to share fixed costs, full self-development is a fragile story.
He took Apple and HiSilicon as examples, pointing out that Apple can develop self-designed chips because its full product lines including iPhone, iPad, Mac and Watch support shipments of hundreds of millions of units; HiSilicon can survive because Huawei has a broad product cluster covering communication equipment, mobile phones, servers and cloud. If there is only the company's own automotive business as the downstream market, the R&D costs cannot be amortized.
"The reason why (automotive-grade chip companies) have concentrated on completing independent financing this year is another very important factor: intelligent driving chips have reached the critical point of large-scale deployment on vehicles," said the above-mentioned relevant person in charge of the Beijing-based intelligent driving company. As the penetration rate of intelligent driving applications rises, the shipment scale is large enough to support the model of spin-off financing and external sales.
In the first half of 2026, the penetration rate of urban NOA (advanced navigation assisted driving) reached 20.9%. Vehicle models priced at the RMB 90,000 level such as BYD Dolphin and Leapmotor A10 already support the urban NOA function. Horizon Robotics Journey chips added 5 million new shipments in the past 12 months, and its market share surpassed Nvidia for the first time. The superposition of these signals indicates that the demand scale of intelligent driving chips has reached a new level.
Yuan Chengyin, Secretary-General of China Automotive Chip Industry Innovation Strategic Alliance, previously told Economic Observer that the independent financing of the chip businesses of automakers and intelligent driving companies also shows that the industry is evolving in one direction: the focus of intelligent driving competition is shifting from "who has stronger algorithms" to "who can take a dominant position at the chip layer".
"In the end, only a few leading intelligent driving suppliers will remain. Latecomers who cannot increase their shipment volume within the window period will lose their positions after the track is fully consolidated," the above-mentioned engineer from Intelligent Driving New Journey said, "By the same logic, under the trend of co-iteration and packaged sales of algorithms and chips, if the automaker's own chips cannot be shipped quickly, not only will its own intelligent driving technology be dragged down, but previous R&D investment will also go to waste."
This article is from the WeChat Official Account Economic Observer, written by Zhou Xin, and authorized for release by 36Kr.