SecProbe.io

CORRESP
1
filename1.htm

Document

November 14, 2024

VIA EDGAR

Ms. Claire DeLabar

Mr. Robert Littlepage

Division of Corporation Finance

Office of Technology

Securities and Exchange Commission

100 F Street, N.E.

Washington, D.C.  20549

Re:    ECARX Holdings Inc. (the “Company”)

Form 20-F for the Year Ended December 31, 2023

Response dated September 18, 2024

Dear Ms. Claire DeLabar and Mr. Robert Littlepage,

This letter sets forth the Company’s responses to the comments contained in the letter dated October 3, 2024 from the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) regarding the Company’s annual report on Form 20-F for the year ended December 31, 2023 filed with the Commission on April 3, 2024 (the “2023 Form 20-F”). The Staff’s comments are repeated below in bold and followed by the Company’s responses thereto. All capitalized terms used but not defined in this letter or the Company’s response dated September 18, 2024 shall have the meaning ascribed to such terms in the 2023 Form 20-F.

Correspondence filed September 18, 2024

Financial Statements

Note 1. Description of business and organization

(c) Restructuring, page F-15

1.It appears from the related party disclosure in Note 28 and your consolidation policy in Note 2(b) that you do not consolidate Zhejiang Huanfu. Please tell us how you evaluated ASC 810-10-15-17(d)(1)and(2) in determining whether to consolidate Zhejiang Huanfu as a VIE. In this regard, we note the Company's related parties participated significantly in the design of this entity and it appears substantially all of the activities of Zhejiang Huanfu either involve or are conducted on behalf of the Company. Also, specifically address in your response:

•Whether you provided Zhejiang Huanfu with any loans or other financial support or committed to provide such financial support;

•What happened to the business that now is supported by the procurement framework agreement and Right to Data agreements with Zhejiang

175692.01H-BEISR01A - MSW

September 18, 2024

Page 2

Huanfu, previously conducted by your VIEs and how you determined that the contribution of this business, which was  previously integral in the performance of your services, was deemed to be immaterial as noted in your response to prior comment one;

•The nature and extent of Zhejiang Huanfu’s operating activities (i.e., tell us if Zhejiang Huanfu has other customers for similar data-related services. If not, tell us how the terms of the procurement framework agreement were determined to be arm's length. Also, does it simply hold the intellectual property related to data-related services or does it carry out other activities, such as updating maps, marketing, etc. using the intellectual property that Zhejiang Huanfu licenses from the Company?);

•How fees to Zhejiang Huanfu under the arrangement are determined; and

•Your analysis as to whether Zhejiang Huanfu is your de facto agent, pursuant to paragraphs ASC 810-10-25-43.

The Company respectfully submits that Zhejiang Huanfu was established by the Company’s controlling shareholder, which is Mr. Shufu Li, in 2016 and is still ultimately controlled by the same shareholder of the Company, who participated in the design of Zhejiang Huanfu. To the best knowledge of the Company, Zhejiang Huanfu has since been operating as a company with operations of its own which are, mainly, property management services and data-related services. Upon request, Zhejiang Huanfu advised the Company that (i) its operating revenues come from a variety of activities, e.g. data-related services (referring to the telematics service provider (“TSP”) service which requires accessing and processing certain personal data, not Mapping and ICP data), leasing and property management, etc. It has several customers and, specifically for the data-related service, more than a substantial majority of its data-related service revenue is generated from customers other than the Company; (ii) it has its own employees and operates its own sales and marketing, research and development and supplier management activities, etc.; (iii) in addition to the intellectual property licensed from the Company, its research and development team further develops new technologies; and (iv) it has its own financing resources. The Company believes that substantially all of the activities of Zhejiang Huanfu neither involve nor are conducted on behalf of the Company.

The Company considered the definition of related parties for the purpose of evaluating the accounting in accordance with ASC 810-10-15-17(d)(1) and (2) and concluded that VIE scope exception does not apply to Zhejiang Huanfu and potential consolidation of Zhejiang Huanfu by the Company under VIE model shall be evaluated.

The Company evaluated paragraph ASC 810-10-25-38A and concluded that the Company does not have power to direct the activities of Zhejiang Huanfu that most significantly impact its economic performance; nor does the Company have an obligation to absorb losses or receive benefits potentially significant to Zhejiang

175692.01H-BEISR01A - MSW

September 18, 2024

Page 3

Huanfu and, consequently, the Company does not have a controlling financial interest in Zhejiang Huanfu and should not consolidate Zhejiang Huanfu in the Company’s consolidated financial statements.

The Company further addresses the Staff’s specific questions as follows:

•Whether you provided Zhejiang Huanfu with any loans or other financial support or committed to provide such financial support;

The Company had provided Zhejiang Huanfu certain short-term advances of RMB103 million and RMB19.8 million during FY2020 and FY2021, respectively, which have been disclosed in the prior filings and were fully repaid by the end of 2021. The Company has not provided any financial support to Zhejiang Huanfu since 2021 and is not committed to providing any financial support to Zhejiang Huanfu in the future.

•What happened to the business that now is supported by the procurement framework agreement and Right to Data agreements with Zhejiang Huanfu, previously conducted by your VIEs and how you determined that the contribution of this business, which was  previously integral in the performance of your services, was deemed to be immaterial as noted in your response to prior comment one;

As described in Note 2(q) in 2023 Form 20-F, the Company provides connectivity service to its customers to enable end-users of secure connected car service, comprising (i) the TSP maintenance services and (ii) mobile data packs. During the service period, the Company is able to access the personal data. These data include (i) information related to vehicle user; (ii) information related to the vehicle settings and configurations; and (iii) information generated by vehicle when used and operated.

Before the transfer of Right to Data, the Company provided the TSP maintenance service using its own service team. In response to the move by PRC government authorities to tighten the regulatory framework governing data security, cybersecurity and privacy, the Company initiated the process to transfer the Right to Data to Zhejiang Huanfu in September 2021 and the transfer was completed in December 2021. Since then, the Company does not have any right to access any personal data other than certain vehicle identification numbers (VINs) provided by automotive OEMs in association with the connectivity service. The Company then entered into procurement framework agreement with Zhejiang Huanfu to provide TSP maintenance services in connection with the connectivity service contracts entered into prior to the transfer of the Right to Data. Further, the Company licensed certain intellectual properties to Zhejiang Huanfu to enable it to perform such TSP maintenance service and to further develop business opportunities of such service of its own. The Company did not initiate any new contracts with its customers which require access to personal data since then.

The total amount of TSP maintenance services fee charged by Zhejiang Huanfu in connection with the connectivity service contracts was RMB64.7 million and RMB69.1 million in the fiscal years ended December 31, 2022 and 2023, respectively.

175692.01H-BEISR01A - MSW

September 18, 2024

Page 4

The connectivity service revenue generated in the fiscal years ended December 31, 2022 and 2023 was RMB213 million and RMB191 million, respectively, contributing less than 5% of the Company’s total consolidated revenues. Furthermore, the annual amount of connectivity service revenue estimated to be recognized over the remaining period of these contracts would be even lower than the annual revenue previously recognized as there is no new contract entered into after the transfer of Right to Data and these contracts will gradually run out. Therefore, the Company concluded that the TSP maintenance services purchased from Zhejiang Huanfu were not material as it is only part of connectivity service, which is not its core business.

•The nature and extent of Zhejiang Huanfu’s operating activities (i.e., tell us if Zhejiang Huanfu has other customers for similar data-related services. If not, tell us how the terms of the procurement framework agreement were determined to be arm's length. Also, does it simply hold the intellectual property related to data-related services or does it carry out  other activities, such as updating maps, marketing, etc. using the intellectual property that Zhejiang Huanfu licenses from the Company?);

As stated in the first paragraph under this Comment No. 1 and as advised by Zhejiang Huanfu (i) Zhejiang Huanfu’s revenues come from a variety of activities, e.g. data-related services (referring to the TSP service which requires accessing and processing certain personal data, not Mapping and ICP data), leasing and property management, etc. It has several customers and specifically for the data-related service, more than a substantial majority of its data-related service revenue is generated from these customers other than the Company; (ii) Zhejiang Huanfu has its own employees and operates its own sales and marketing, research and development and supplier management activities, etc.; (iii) in addition to the intellectual property licensed from the Company, Zhejiang Huanfu’s research and development team further develops new technologies; and (iv) Zhejiang Huanfu has its own financing resources.

Further upon request, Zhejiang Huanfu advised the Company that it does not carry out any business relating to mapping and surveying services. The intellectual property that Zhejiang Huanfu licensed from the Company is for the purpose of enabling Zhejiang Huanfu to perform TSP service (which relates to personal data, not Mapping and ICP data) and to further develop business opportunities of such service of its own.

•How fees to Zhejiang Huanfu under the arrangement are determined; and

The fees paid to Zhejiang Huanfu are to compensate the services received, the amounts of which are commensurate with the level of effort required to provide these services and were determined based on the actual costs incurred by Zhejiang Huanfu plus a reasonable margin. Additionally, the procurement framework agreement included only terms and conditions that are customarily present in other service contracts with other vendors of the Company.

• Your analysis as to whether Zhejiang Huanfu is your de facto agent, pursuant to paragraphs ASC 810-10-25-43.

175692.01H-BEISR01A - MSW

September 18, 2024

Page 5

The Company evaluated the factors discussed in ASC 810-10-25-43 as follows and concluded that Zhejiang Huanfu is not a de facto agent of the Company:

-The Company does not hold any equity in, nor has it, directly or indirectly via any party, provided any subordinated financial support to Zhejiang Huanfu;

-Zhejiang Huanfu has not received any interests as a contribution or loan from the Company except as described above;

-No employee, officer or board member of the Company holds a similar position in Zhejiang Huanfu;

-There is no agreement between the Company and Zhejiang Huanfu or its equity holders restricting the latter’s ability to sell, transfer or encumber its interests without the prior approval of the Company; and

-The business relationship with Zhejiang Huanfu is not determined to be close business relationship as described above. The Company has not had any involvement in Zhejiang Huanfu’s operations other than the procurement from Zhejiang Huanfu for TSP maintenance service and paying the service fees based on commercial terms. Further, Zhejiang Huanfu has its own customer base and conducts its own business activities.

2.It appears from the related party disclosure in Note 28 and your consolidation policy in Note 2(b) that you do not consolidate Hubei ECARX. We also note that Hubei ECARX retained your Mapping and ICP business following the Restructuring. Please tell us how you evaluated ASC 810-10-15-17(d)(1) and (2) in determining whether to consolidate Hubei ECARX as a VIE. In this regard, we note the Company's related parties participated significantly in the design of this entity and it appears substantially all of the activities of Hubei ECARX either involve or are conducted on behalf of the Company.

Also, specifically address in your response:

•Whether you provided Hubei ECARX with any loans or other financial support or committed to provide such financial support;

•How you are able to continue providing your services following the transfer of the Mapping and ICP businesses to Hubei ECARX;

•The nature and extent of Hubei ECARX’s operating activities (i.e., tell us if Hubei ECARX has other customers for similar surveying and mapping services and ICP licenses. If not, tell us how the terms of the agreements to utilize these services and licenses determined to be arm's length. Also, does Hubei ECARX also have agreements with Zhejiang Huanfu regarding mapping and surveying services or data and ICP license access, does Hubei ECARX simply hold the intellectual property related to surveying and mapping or does it carry out other activities, such as updating maps, marketing, etc.?);

175692.01H-BEISR01A - MSW

September 18, 2024

Page 6

•How you continue to have access to the Mapping and ICP data without "any subsisting agreement with Hubei ECARX with respect to mapping data and other technology related data and ICP licenses" and how any fees to Hubei ECARX under any other arrangement for access to the data are determined; and

•Your analysis as to whether Hubei ECARX is your de facto agent, pursuant to ASC 810-10-25-43.

The Company respectfully submits that as part of the Restructuring as described in Note 1(c) to the financial statements, the Company terminated all its agreements that resulted in Hubei ECARX being an entity controlled by the Company, in April 2022. Immediately after the Restructuring, the equity interests of Hubei ECARX were legally held by Mr. Shufu Li and Mr. Ziyu Shen, respectively, with Mr. Shufu Li ultimately holding majority of the interest. Based on the publicly available information, both Mr. Shufu Li and Mr. Ziyu Shen transferred certain equity interest of Hubei ECARX to some unrelated third-party investors and all the remaining equity interest to Hangzhou Langge Technology Co., Ltd. ("Langge”), an entity under the control of the controlling shareholder of the Company. Currently, Langge holds 81.2% equity in Hubei ECARX and is Hubei ECARX’s principal equity holder (the “Parent entity”). Upon request, Hubei ECARX has advised the Company that the Parent entity’s rights and obligations arising from the shareholding in Hubei ECARX are in proportion to its ownership interest. Hubei ECARX has also advised the Company that (i) since completion of the Restructuring in April 2022, it has been operating as a company with operations of its own carrying out retained Mapping and ICP businesses. It h