AEVA - 2024 Lidar Industry Updates

2024-01-14 04:42:12 ET

Summary

• Tier 1 companies like Continental, Bosch, and ZF Friedrichshafen are discontinuing their lidar development programs, impacting companies like Innoviz.
• Cepton lost a contract with GM, questioning $33M in revenue expected in 2024.
• Luminar remains positive about its relationship with Daimler Truck and has a significant agreement with Volvo and Polestar.

Western LIDAR Cancelations

December 2023 marked a challenging period for the lidar industry, with Tier 1 companies implementing cost-cutting measures and discontinuing their automotive programs, which included lidar development. Notably, Continental ( CTTAF ), Bosch ( BSWQY ), and ZF Friedrichshafen referred to as ZF, made the strategic decision to pivot away from lidar technology. Previously engaged in an autonomous shuttle program, ZF terminated this initiative, directly impacting Innoviz ( INVZ ). Although Innoviz downplayed the impact of the program's loss, the significance becomes more evident when considering that, in the company's Q3 presentation, the autonomous shuttle incorporated 4 to 6 lidars per vehicle.

In May 2023, Innoviz replaced Luminar ( LAZR ) when winning Volkswagen ( VWAGY ) ID. Buzz project, but the anticipated revenues from this deal aren't expected until mid-decade or post-2025. Consequently, this situation casts doubt on the previously projected $76M revenue for 2024, as the only source of revenue is the BMW I7 program managed by Magna, which has significantly lower revenue expectations due to Innoviz seeing lower margins from this deal.

GM ( GM ) delivered a cancellation notice to Koito ( KOTMY ), a tier 1 partner of Cepton ( CPTN ), prompting Koito to propose buying Cepton shares it does not own for $3.17. I anticipate that Jun Pei, CEO of Cepton, will accept the offer since he was named a participating shareholder in the deal. The combined ownership of the two parties amounts to approximately 42% of the shares outstanding. The loss of GM contract by Cepton questions $33M in revenue expected in 2024. Despite possessing $62M in cash, sustaining the company until 2025, Koito's potential decision to privatize Cepton and its ability to incorporate it into its product lineup remains uncertain for the future of sensors. With Koito investing over $150M in Cepton, the buyout may serve as nothing more than damage control for its failed investment. On January 5th, the CFO of Cepton quit.

Another setback occurred for AEye ( LIDR ) as Continental terminated its partnership to produce a sensor, HRL 131, on licensed technology from AEye. Despite AEye's announcement of a new prototype in November, the dissolution of this crucial relationship is detrimental to the company's future. With $48M in cash at the end of Q3, the forecasted $12M in revenue for 2024 will no longer be there.

The Western lidar market capitalization leaders were not spared in the shuffles taken by OEMs or tier 1s. I mentioned that Innoviz has taken away Luminar's VW ID. Buzz shuttle project, but lost his own ZF platform due to ZF abandoning the autonomous shuttle program. The anticipated collaboration with VW for Innoviz seems to hinge on Audi. News from China indicates that Huawei may not only be offering the operating system for Audi vehicles destined for the Chinese market but also it is rumored to supply sensors to Audi.

On another note from China, BMW was recently granted permission to operate at the L3 level, prompting my speculation about Innoviz's involvement in the I7 in China. Against geopolitical tensions surrounding lidar, prospects for integrating Western lidar technology into mass-produced vehicles in China are diminishing. Concurrently, Hesai ( HSAI ) secured a global OEM design deal for a luxury line electric vehicle ((EV)). While I anticipate or hope this win is confined to China, it may be with BMW, but this remains speculation on my part. Hesai has been actively pursuing deals beyond China following its success with numerous Chinese OEMs.

If Hesai's global consumer ADAS win extends beyond China, it can impact the entire Western lidar industry. Investors in the lidar sector should closely monitor this development, as it holds substantial implications for the industry as the proverbial floodgates become open.

Luminar lost Torc Robotics to Aeva ( AEVA ), which was especially surprising given that Daimler Truck was an investor. Despite the news, Luminar remains upbeat about its relationship with Daimler Truck, foreseeing deals in L2 and L3 autonomy, not L4, as made by Aeva.

On a brighter note, Luminar's significant agreement with Volvo ( VOLAF ) and Polestar ( PSNY ) is poised to place the company in the first place with a significantly higher revenue this year. The 2024 revenue estimate currently stands at $187M, and with a cash reserve of $300M forecasted by the end of Q4, Luminar is gearing up for a challenging period. The goal is to achieve a positive or breakeven Q4 gross margin, with an estimated $27M in revenue for the same period. This upcoming quarter represents a substantial test of the company's deliverables, and the results will hopefully set the tone and expectations for Luminar's business in 2024.

Second, in the market cap among Western lidar companies, MicroVision ( MVIS ) has been silent about its list of expected wins. MicroVision is not alone. As it stands out, no company has had a new win. Aeva named its win in January. However, that is not a recent win, as the company announced an OEM collaboration in August. I cannot consider the Luminar extension of the Mercedes deal a new win.

The latest series of cancellations suggests that the adoption of lidar, particularly in autonomous applications such as consumer-ADAS, robotaxis, and trucks, is shaping to be a mid-decade delay. The recent setback faced by Cruise, a carrier of Hesai sensors alongside Velodyne's Alpha Prime, underscores the challenges that robotaxis are encountering in the United States, with achieving full autonomy now under intense public scrutiny.

Original equipment manufacturers prioritize lower costs and a more robust sensor solution than their initial deals. While the new generation of sensors is undeniably more powerful, the question remains whether the pricing aligns with market expectations. The automotive sector is proving highly price-sensitive, emphasizing the long-known truth of low margins, perhaps assisted by proprietary software sales whenever possible. One of the looming concerns for Western lidar companies is the emergence of mass-produced Chinese sensors, a threat driven by the economic implications of lidar technology coming from China (read as cheap) and continuous disregard for IP security.

The issue of lingering cash deficiencies is also worth considering. Aeva, which secured Torc for sensor application and its software, has projected a substantial $1B in revenue potential, as reported by Reuters. This $1B declaration mirrors similar claims made by Innoviz and Luminar when announcing their design wins. I've been describing these instances for a long time, categorizing them based on internal assessments rather than solid commitments from OEMs.

The events in December provided an explicit confirmation of the realities associated with these so-called "contracts." This aligns with my perspective rooted in standard investing logic, emphasizing revenue growth, cash on hand, and profitability while cautioning against getting carried away by the hype surrounding headlines proclaiming $1B in revenue. Notably, Aeva production is set to commence in 2027 for a sensor that won't be available until 2025. Unsurprisingly to me, Luminar executives found Aeva's declaration to be much more than they had expected from Torc.

To bolster their win, Aeva opted to sell 36M shares at $0.58 per share and committed to a financing facility of $125M through a preferred share offering with existing shareholders. Aeva's $233M in Q3 was not considered satisfactory to reach Torc SOP. Aeva spent $90M in three quarters of 2023, so its yearly rate is about $120M. Without recent financing, the company would run out of money by 2025, and with it, without changing the pace of spending, will see Q1 2027.

Cancellations may have ended the futures of Cepton and AEye, but certainly, a new win for Avea made the second worst outcome for investors: dilution. The recent price appreciation is notable, but whether it is sustainable remains to be seen.

Ouster Q4 Update

Ouster ( OUST ) just released its preliminary Q4 results, and it looks like it passed the midpoint of its guidance range of $23M to $25M in expected revenue for the quarter. Suppose they hit $24.5M, that puts their revenue for 2023 at $83M. Based on the Q3 guidance of mid % revenue growth at 40%, I am projecting $116M for 2024. Utilizing the provided gross margin range of 35% to 40%, with the mid-level at 37.5%, I anticipate that Ouster will achieve around $43M in gross profit in 2024. I expect Ouster to beat that specific revenue expectation through 2024.

Ouster's absence from CES and no updates beyond Q3 on the DF sensor represent the company's communication consistency, which no longer surprises me. More and more, I think safeguarding its intellectual property ((IP)), especially considering the significant challenges it faced in US democratic trade institutions in 2023, resulting in white noise, is becoming a preferred modus operandi for the company.

Ouster faced a setback with the termination of the ITC investigation due to a technical default related to the existence of an arbitration agreement between Velodyne and Hesai. The company appears to choose not to file a notice of appeal with the Court of Appeals for the Federal Circuit to contest the ITC decision. In September, Hesai filed with the Patent Trial and Appeal Board or PTAB, questioning the application of Ouster's patents—a move that Ouster considered duplicitous, given that Hesai insisted on resolving all disputes through arbitration at JAMS in London during the ITC proceedings. Despite paying for an agreement to use Velodyne's IP, Hesai continues to deny infringing on Velodyne's patents. As Ouster expected during the ITC process, there has been no progress with JAMS. I also believe that PTAB has become a reason why the Federal case in Delaware against Hesai is stayed. PTAB reviews are scheduled for March and April of this year.

New products

The new product announced was Aeva's Atlas sensor; another was from Cepton, Ultra renamed/ or perhaps redesigned Vista -120 plus sensor. 4Sight™ Flex from AEye was released in November. Ultra has offered all the specifications, and it is the smallest sensor in form factor, smaller than ET25 from Hesai.

AEye offered specifications without form factor size, but the picture above illustrates a huge reduction versus no longer in play Continental made HRL131. HRL131 was 7 cm high and 19 cm wide; Flex appears to be 3.5 cm and perhaps 10cm wide. Aeva declared that Atlas is 70% smaller than Aeries II, but it is hard to confirm without actual specs. It offered standard FoV for consumer ADAS, but no resolution in the news.

Aries II was the largest sensor out of all companies. That leaves now Iris Plus and Mavin from MicroVision as the largest form factor sensors.

2024 Expectations

In my outlook for 2024, I anticipate Cepton being taken private by Koito, and AEye may experience further depreciation, possibly becoming an acquisition target for MEMS-based lidar companies. The company could be a relatively inexpensive buy for its library of patents and only valued at $12M. However, standing alone, I don't envision AEye operating beyond 2024, as the feasibility of winning any design contracts appears questionable, considering its current cash levels and the optimistic timeline of two years from design to implementation.

I anticipate revenue reductions for all companies except Ouster, with the most interesting updates for Luminar and Innoviz from their current forecasted levels. My assumptions will be validated when Q4 results are announced, providing hopefully more precise yearly expectations. Both AEye and MicroVision will likely require some form of financing in 2024. Aeva has already secured funding, and beyond the two mentioned, all other companies should be able to operate until 2025 with their current cash levels.

I maintain my investment in Ouster, as I perceive the company to be undervalued compared to its peers, despite a relative increase in value since Q3 (as indicated in the table below). I am optimistic about Ouster gaining further recognition based on its financial performance in 2024. My price target remains $12 by the end of 2024, aligning with the details outlined in the write-up from November.

The market cap snapshot for the group:

The financial details of the industry can be found in my Q3 review . I will provide the review of Q4 sometime in March 2024.

For further details see: