Ecovacs and iRobot Reach a Cooperation Agreement

On April 23, the USTR office announced exemptions for products in the 2000 billion tariff list. Among them, robot vacuums were also included in the exempted items. This exemption is retroactive, meaning that previously imposed tariffs can be refunded. The specific procedures involve calling Trump to inquire about the process.

From the description of this clause, it is clear that it only applies to domestic robot vacuums, excluding commercial ones. iRobot may become the biggest beneficiary of this exemption.

Currently, iRobot's main contract manufacturers are Jabil, Shenzhen Jianyibao, and BYD (yes, the one that makes batteries and cars). Previously, I was told by a friend that when BYD took on the contract manufacturing for iRobot, they had already prepared the production lines and workshops, then approached iRobot to negotiate, saying "You don't need to invest anything here; all you have to do is send over your molds, and we can start producing at a lower cost than your original suppliers."

Recently, when I shared insights on this industry with some investment banks, they asked me about the future development of the robot vacuum cleaner market. This question stumped me as well. For now, it can only be said that neither Roborock nor Ecovacs have a clear direction. Technologically speaking, there is unlikely to be any breakthroughs in the short term. Product-wise, more focus may be on mopping and automatic cleaning of cloths.

I remember when iRobot launched its robotic lawn mower Terra at the beginning of 2019. This was a major innovation for robot lawnmowers as it did not require wiring. However, due to the pandemic, the launch of this product was postponed. We can expect to see this product in the market once the pandemic subsides.

This product is seen as iRobot's next major project and a significant milestone for the company's development. Currently, the pandemic has led to iRobot cutting 5% of its workforce.

Another explosive news: iRobot and Ecovacs have reached an agreement:

>Company Announcement, May 19, 2023 - Ecovacs (603486) announced that it signed a product procurement agreement and a technology licensing agreement with the U.S.-listed company iRobot. According to the agreement, iRobot will exclusively purchase robot vacuum products based on Ecovacs' unique design and sell them under its own brand in the agreed market regions. Additionally, iRobot will license its Aeroforce® technology and related intellectual property rights to Ecovacs. The specific procurement volume and amount have not been specified, and their impact on future operating performance is uncertain.

The details of the agreement are as follows:

>1. Product Purchase - During the validity period of the agreement, iRobot will pay a certain amount for initial development and production costs and exclusively purchase designated integrated cleaning robot products from Ecovacs to sell under its own brand in the agreed market regions. The exact procurement volume will be determined by iRobot's orders, with final sales amounts based on actual settlements from iRobot’s purchase orders. The agreement is valid until December 31, 2022. Before the end of the cooperation period, both parties can negotiate whether to extend the agreement.

>2. Technology Licensing - During the agreed term, iRobot will license its Aeroforce® related intellectual property and patent technologies to Ecovacs, allowing Ecovacs to apply these technologies in its branded cleaning robots within the specified market regions. Ecovacs will pay a certain technology licensing fee according to the agreement. The agreement is valid until December 31, 2022. Before the end of the cooperation period, both parties can negotiate whether to extend the agreement.

>4. Impact on Company Operations

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>1. The signing of the product purchase agreement marks iRobot's full recognition of Ecovacs' technical, production, and quality capabilities in the cleaning robot sector, as well as a positive outlook on the market prospects for Ecovacs' integrated cleaning robots. It is expected that the implementation of this agreement will help increase revenue sources.

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>2. The signing of the technology licensing agreement also marks Ecovacs' recognition of iRobot's long-term technological accumulation and user value in specific scenarios, as well as a positive expectation for enhancing product user experience through the application of licensed technologies. It is expected that products using authorized technologies will bring additional revenue to the company.

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>3. The company will recognize income based on agreement fulfillment during relevant fiscal years, which is expected to have a positive impact on its operating performance. The execution of the agreement will not adversely affect the company's business independence.

This development highlights several points:

1. Ecovacs has been producing cleaning robots without engaging in contract manufacturing for many years and certainly not for iRobot’s main competitor. The most likely scenario is that Ecovacs reached a patent agreement with iRobot, allowing its products to be sold in North America without the risk of being sued by iRobot. For reference, I previously wrote about how iRobot sued thirteen Chinese companies.

1. Originally, iRobot was significantly behind Ecovacs and Roborock in integrated cleaning robot product lines. Now, through contract manufacturing with Ecovacs, iRobot has a chance to regain market share that competitors have taken away. This is somewhat regrettable for Ecovacs, as it could have been an opportunity to surpass iRobot.

1. For Ecovacs, although there are costs involved, the patent licensing agreement clears the path for its entry into the North American market legally. The number of companies able to sell in North America may decrease significantly. Roborock and other domestic cross-border brands operating in North America will face greater challenges. This should be a positive development for Ecovacs.