David Li says he was “shocked” in May last year when the US Congressional Research Service accused his company, Hesai — the world’s biggest producer of laser sensors used in electric vehicles — of supporting the Chinese military.
The CRS report was the first public sign that Hesai would become the latest victim of the US-China tech war. Then, in January, Hesai was hit with even worse news when the Pentagon added the Shanghai-based and New York-listed group to a list of Chinese entities alleged to be part of China’s military-civil fusion programme.
While the Pentagon move to add Hesai to a list of about 40 “Chinese Military Companies” instituted in 2021 had no regulatory impact, it created a perception of investment risk that helped trigger a battering of Hesai’s share price.
Li, a University of Illinois Urbana-Champaign graduate and Hesai chief executive, decided that the company he had co-founded had to fight back.
Hesai began legal proceedings by suing the Pentagon in a US court in May, and this month asked for a summary judgment. The action came shortly after Li returned from Washington after an unsuccessful bid to talk US officials around.
“It became difficult to get the record clean without suing them,” he told the Financial Times in an interview. “The goal isn’t to defeat anybody. The goal is to . . . have an open dialogue because we think it is a really bad mistake.”
Hesai is among a rising number of Chinese groups targeted for alleged military links amid deepening fears in Washington over the threats posed by Beijing to US national security.
Congress is considering legislation that would ban the Pentagon from using products that contain Chinese-made lidar, which uses lasers to detect surrounding road conditions for advanced driver-assistance systems. Lidar can also be used in sophisticated robotics products.
Hesai is also a rare example of a Chinese group deciding not to take US actions against it lying down. ByteDance, owner of video app TikTok, is also contesting a law that would ban the platform unless it divests the app.
Hesai alleges that the Pentagon’s behaviour was “arbitrary and capricious” because it did not provide the company with prior notice or an opportunity to respond. It argues that the Pentagon has failed to explain its rationale, provide evidence or review information submitted by the company.
The Pentagon declined to comment on the lawsuit. But it said Hesai met the definition of a “Chinese military company” as outlined in the US law that requires the defence department to compile the list. The Pentagon added that the term generally referred to companies “owned by, controlled by, affiliated with, or contributing to the People’s Republic of China’s military modernisation or to the PRC defence industrial base”.
Li denies any connection between Hesai and the Chinese military and says it has not received “any investment” from the Chinese government or state-linked entities.
Hesai’s lidar sensors, he says, are controlled and operated by customers. It cannot access the images generated by lidar, as the technology does not have wireless connectivity and cannot be accessed remotely.
“This is civilian technology . . . we have procedures in place to even prevent the units being directly sold to any military of any country,” Li said.
Founded 10 years ago in Silicon Valley, but with its main operations now in Shanghai and Hangzhou, Hesai has a market share of just under 50 per cent of lidar sales to the global automotive industry and works with most of China’s top EV makers.
Of its Rmb1.8bn ($250mn) in revenues in 2023, China accounted for 55 per cent and the US just over 40 per cent, but Hesai expects that US proportion will fall to less than 20 per cent this year.
Hesai has also faced scrutiny from China experts in Washington. In a report on Hesai, James Mulvenon, chief intelligence officer at the US group Pamir Consulting, alleged that it appeared to have facilities inside, or just next to, a dedicated military-civil fusion (MCF) zone in Shanghai.
Mulvenon said Hesai also appeared to have supply-chain connections with universities that conduct cutting-edge research for the People’s Liberation Army. His report also alleged that Hesai technology had been used in vehicles used in the repression of Uyghur Muslims in the Xinjiang region.
Hesai disputed Mulvenon’s claims, saying it had no connections with any Chinese military organisations, does not have any facility within or adjacent to any dedicated MCF zones in Shanghai, nor is it aware of its products being used as part of the Xinjiang allegations.
The US is also increasingly concerned that Chinese groups may use their technology to target the data of Americans. The White House recently launched an investigation into whether Chinese cars that use sensors, including lidar, and data-collection technology posed a risk to US national security.
US officials are also concerned about Chinese laws that require domestic firms to hand over data to the government.
In a preliminary prospectus filed with the US Securities and Exchange Commission ahead of its New York listing early last year, Hesai itself said it faced risks associated with having the majority of its operations in China, including the fact that Beijing “may influence or intervene in our operations at any time”, in addition to having possible oversight influence on “data security”.
Mulvenon said the US intelligence community was concerned about “telematics” — systems that store data and allow its wireless transfer over long distances.
“Intelligence professionals know that vehicle telematics data like lidar have a high value, and China’s laws give me zero confidence that Hesai can protect American vehicle data,” he said.
Ouster, an American rival of Hesai, has also urged lawmakers to take these risks more seriously before the Chinese company has a chance to expand further in the US.
Revenues for the lidar market globally are forecast to surge to about $14bn next year and to more than $45bn by 2030, from less than $2bn in 2022, according to S&P. China is expected to dominate about two-thirds of the market next year.
While Hesai brands itself as “global” with offices in the US and Germany, Li said the company has benefited from being in China just as the country’s EV industry has boomed.
“If you are the best lidar [company] in China, there is a good chance that you could be the best in the world,” he said.
But he conceded the backdrop of tensions between Washington and Beijing created uncertainty about Hesai’s overseas sales.
“I don’t like where geopolitics is going. There’s nothing I can do about it,” he said.
Additional reporting by Gloria Li in Hong Kong
