Connexion Media enters into agreement with Chinese auto hardware vendor
Only 24 hours after being awarded Gold Partner status by Microsoft, developer and distributor of smart car software apps and services, Connexion Media (ASX: CXZ) has entered into a Memorandum of Understanding with Chinese auto hardware vendor, Tass Internet of Vehicles Co. Limited (TassIOV), a group which currently supplies embedded hardware devices to two Chinese based automakers, and has commercial relationships with an additional five China-based automakers.
While yesterday’s news triggered a 20% spike in the company’s share price, this is a significant development for the company and could be a catalyst for further upside.
Although, it should be noted that share trading patterns should not be used as the basis for an investment as they may not be replicated. Those considering this stock should seek independent financial advice.
The agreement will include reciprocal distribution with TassIOV to co-sell CXZ telematics services to China-based automakers and CXZ to co-sell TassIOV’s hardware devices into the European and US automaker markets where it benefits from established relationships with automakers and aftermarket manufacturers based in those regions.
Given the size of the Chinese automotive market where annual new vehicle sales are expected to exceed 22 million units by 2020, this should be viewed as a substantial commercial opportunity for CXZ.
In tandem with growth in vehicle sales off an already strong base in China is the accelerating inclusion of software apps and services in order to meet demand for Internet connected vehicles and mobile devices.
The other important factor in this agreement is that it provides exposure to the aftermarket hardware devices sector, an industry which often offers superior margins than providing OEM products to motor vehicle manufacturers.
As a backdrop, TassIOV was established in 2015 as a supplier of embedded and aftermarket hardware devices and OBD-11 devices for Chinese manufactured vehicles.
The two China-based automakers it currently supplies include TassIOV’s hardware devices as standard equipment in their motor vehicles. The company has the capacity to manufacture 1.5 million devices per annum for the Chinese market.
Under the terms of the agreement both parties will collaborate to produce integrated hardware offerings that embed CXZ’s telematics software into TassIOV’s hardware products for distribution across the Chinese market.
The agreement will also see CXZ work with TassIOV to develop new SaaS solutions for the Chinese market with CXZ capturing all of the Chinese in-vehicle data generated by its partner’s devices.
Despite being approached by several Chinese parties wanting to collaborate with CXZ over the last 12 months, management has taken a measured approach in terms of committing to a collaboration agreement.
Chief Executive of CXZ, George Parthimos, said that a partnership with TassIOV was attractive because of the group’s substantive existing customer networks across China, and as such he believes this is likely to represent an opportunity for the company to be an early mover in the Chinese connected car market.