Hesai Group Q4 2023 Earnings Call Transcript

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Provided by Quartr
March 11, 2024

There are 9 speakers on the call.

Operator

Hello, ladies and gentlemen. Thank you for standing by for Hesai Group's 4th Quarter and Full Year 2023 Earnings Conference Call. At this time, all participants are in listen only mode. Please note that today's conference call is being recorded. I will now turn the call over to our first speaker today, Yuan Ting Shi, the company's Investor Relations Director.

Operator

Please go ahead.

Speaker 1

Thank you, operator. Hello, everyone. Thank you for joining Cosai Group's 4th quarter and full year 2023 earnings conference call. Our earnings release is now available on our IR website at investor. Hoseta.com as well as via Newswire services.

Speaker 1

Today, you will hear from our CEO, Doctor. David Li, who will start the call with an overview of our recent updates. Next, our Global CFO, Mr. Louis Teh, will address our financial results before we open the call for questions. Before we continue, I refer you to the Safe Harbor statement in our earnings press release, which applies to this call as we will make forward looking statements.

Speaker 1

Please also note that the company will discuss non GAAP measures today, which are more thoroughly explained and reconciled to the most comparable measures reported under GAAP in our earnings release and SEC filings. With that, I'm pleased to turn over the call to our CEO, Doctor. David Li. David, please go ahead.

Speaker 2

Thank you, Yunding, and thank you, everyone, for joining our call today. 2023 was a landmark year for Tensai. We not only continued to substantially outperform our LiDAR peers, but also extended our leading market share with stellar full year results across revenues, total shipments and the blended gross margin, all of which surpassed our previous expectations. Furthermore, we created a virtuous cycle of cost control and economies of scale and achieved multiple significant milestones on our path to profitability. For instance, our operating cash flow for the full year of 2023 reached positive territory, a feat unparalleled within the industry.

Speaker 2

These remarkable accomplishments reflect our unwavering commitment to sustained and responsible growth to our mission of reducing accidents, saving lives and making global transportation safer for everyone. Let's delve into our Q4 business updates. On the domestic side, we achieved a significant milestone in the 4th quarter by expanding our collaboration with 1 of the world's largest EV manufacturers based in China. Our extended cooperation encompasses another fresh lineup of vehicle models that are set to debut starting 2024. In addition, we were recently selected by Lioto as the exclusive LiDAR provider for their mega MPV platform.

Speaker 2

Lioto also made ADA standard equipment on their popular L7 and L8 Pro versions immediately adding 100 of 1000 of LiDAR units to HeTa's growing order block. We also recently forged new strategic partnerships with Great Wall Motor, one of China's largest auto brands and Leap Motor who has recently formed a joint venture with Stellantis to include joint research endeavors and the integration of a variety of lidars into their vehicle models with SOPs scheduled to commence in 2024. We anticipate that our partnership with these prominent domestic OEMs will soon deepen even further. The EV revolution is in full swing, particularly in China. In 2023, the estimated NOA penetration rate in China stood at 10%.

Speaker 2

It is projected to increase to over 20% by 2025. OEMs are eager to distinguish themselves through intelligent NOA functions. For instance, as I just mentioned, Lialto's L8 and L7 Pro models now feature our LiDAR as a standard configuration with an urban NOA function, which navigates from urban Point A to Point B with minimal driver intervention. Additionally, LiDAR is increasingly recognized as an essential safety feature just like AirBabs. Consequently, LiDAR has become a prerequisite for safety conscious consumers seeking the highest safety standard.

Speaker 2

Moreover, as the industry advances towards L2 plus and L3 autonomous driving systems, a transformative trend is emerging with ADA systems equipped with LIDAR configurations making their way into passenger cars in a growing range of price categories. This evolution began with vehicles priced at RMB400000 range in 2022 to RMB300000 range in 2023 and now has extended to models priced near RMB150000 range in 2024 as illustrated by the recent launch of Leapmotor's latest EV model. The widening accessibility of LiDAR technology across affordable price categories represents a transformative phenomena for our industry, unveiling a mass market opportunity 10 to 20 times larger than the previously served premium sector only. The catalyst signal is a key inflection point for ADAS and LiDAR adoption in China and the rest of the world. China has maintained its global leadership in EV production and the sales for 9 consecutive years, commending a majority market share exceeding 60% worldwide.

Speaker 2

Meanwhile, Chinese OEMs commenced to mass EV production in 2021, 2022 in contrast to global OEM timeline, which mass EV production is anticipated to begin around 20252026. In other words, China's EV industry is approximately 5 years ahead of the global curve. We are in the right place at just the right time to capture the opportunity. With the cumulative shipments surpassing 300,000 LiDAR units by end of 2023, Hexai has not only realized financial advantages through economies of scale, but also amassed significant technological expertise and a profound understanding of mass production at a quality systems. This serves as a compelling evidence of our established proficiency for global OEMs, particularly those who may be more conservative in vendor selection due to past unsuccessful attempts with our U.

Speaker 2

S. And European peers. Armed with this strength, we are well positioned to compete successfully on the global stage. Let me walk you through some of the specifics. 1st, Hesai's pioneering R and D initiatives are defining the LIDAR industry's product development trajectory.

Speaker 2

In January 2024, we unveiled AT512, our next gen ultra long range flagship ADAS lidar scheduled for mass production in 2025. This cutting edge technology is establishing new industry benchmarks, posting the highest available detection range and resolution. It not only outperforms industry's competitors by a significant degree, but also challenges long standing misconceptions about technical bottlenecks, including the notion that only LiDAR designed with 15 50 nanometer wavelengths can detect beyond 250 meters. Standing out with industry leading performance across every key metric, AT512 greatly enhances the vehicle's perception capability by detecting objects at least twice as far away as competing lidars in this category, giving the intelligent driving system over 40% more reaction time to make the safest decisions. As the CEO of a leading global OEM declared, when it comes to safety, the 2nd best of LiDAR isn't good enough.

Speaker 2

We firmly believe that investing in development of the best LiDAR products, which not only meet but exceed the dynamic demand of the market, provides substantial long term benefit to society as well as our company and stakeholders. We are seeing various new LiDAR debuts at 20 24 CES event in Las Vegas reflect a technological convergence towards our innovation direction. Several competitors who had traditionally emphasized the use of the 1550 nanometer lasers or MEMS technologies are now unveiling products based on rotating mirror scanning system for 905 nanometer laser. This underscores a growing recognition of the benefits of our technology offers in terms of cost, performance and reliability. Our leadership and ingenuity were recognized at CES event where our groundbreaking ultra thin long range in cabin lidar ET25 won the prestigious 2024 Innovation Award at CES.

Speaker 2

2nd, we firmly believe that mass production at scale is the only way to ensure sustained operation, effectively manage cost and cultivate enduring trust with our customers. As of now, we operate 2 major factories, our Maxwell Center in Shanghai focusing on new product R and D and testing and our horse center in Hangzhou, a facility dedicated to mass production, boasting an unprecedented automation rate of over 90%, unparalleled in the global LiDAR industry. By the end of 2023, we achieved an annualized production run rate of over 800,000 units, a figure we project to rise to 1,500,000 to 2,000,000 by end of 2024. Meanwhile, we expect to cumulate to ship over 2,000,000 LiDAR units to the market by end of 2025. 3rd, beyond manufacturing capability, stable quality and reliability have emerged as crucial indicators for OEMs when considering mass installation of LiDAR systems.

Speaker 2

LiDAR systems require the sophisticated integration of optics, mechanics, electronics. As such, quality and the precision are paramount. The 1,000,000 intense competition and widespread adoption of ADAS systems, LiDAR product maturity has become EV manufacturer's primary concern. From OEM's perspective, there's no better indicator of our product's superior quality and reliability than their outstanding long term performance in real life road conditions. Drawing upon these assets and know how, we are confident in our ability to expand our domestic leadership to a global scale.

Speaker 2

We are beyond surreal to announce that as of now we have won over 60 ADAS series production EV models from 16 major OEMs and Tier 1 suppliers worldwide. We've been selected by 2 top global automotive OEMs for their new EV series production programs And there are more. Our global RFI, RFP lineup has expanded to include a total of 13 with 9 leading global OEMs from North America and Europe and we're adding Asia ex China to the roster of the quarter. These major accomplishments marks a promising start to our global ADAS journey. Stay tuned for the updates.

Speaker 2

As we look ahead, the road ahead is filled with opportunity to broaden our impact. Our achievements thus far are just the beginning. With market leading LiDAR technology and strategic partnerships worldwide, we are poised to capitalize on the evolution of intelligent driving, reducing accidents, saving lives and creating a safer global transportation system. I'll now turn the call over to Louis to share more details on our financial performance and outlook. Louis, please go ahead.

Speaker 3

Thank you, David, and hello, everyone. Let's go through our operating and financial figures for the Q4 and full year 2023. To be mindful of the length of our earnings call today, I encourage listeners to refer to the Q4 earnings release for further details. In the Q4 and full year of 2023, we achieved a host of remarkable milestones that underscores our leadership in the global LiDAR industry. In Q4, our net revenues exceeded RMB561 1,000,000, an increase of 37.1 percent year over year and 25.9 percent sequentially.

Speaker 3

Quarterly total LiDAR shipments reached 87,736 units, an increase of 84.6% year over year and 84.9% sequentially. Our Q4 2023 shipments alone surpassed our combined total for full year 2022. Even more exciting, for full year 2023, our net revenues increased by 56.1% year over year to a new high of RMB1.877 billion with a full year blended gross margin of 35.2 percent, above the top end of our guidance range of 30% to 35%. Our 2023 total LiDAR shipments topped 222,000 up 176% year over year. Meanwhile, our cumulative lidar shipments exceeded 300,000 units by the end of 2023, making Hesai the 1st automotive LiDAR company worldwide to reach this mark.

Speaker 3

We remain focused on enhancing revenue scalability and cost efficiency and delivered positive operating cash flow for the 1st year underscoring our clear path to profitability. Heartened by these stellar results, we have set ambitious targets for the Q1 and full year of 2024. We anticipate the revenues in the range of RMB320,000,000 to RMB350,000,000 and total shipments to exceed 50,000 units in the Q1. This muted guidance is attributable to 2 main factors. 1st, a significant slowdown in our robo taxi business compared to last year.

Speaker 3

It is crucial to note that given the reasonable price discount granted to a certain large robo taxi customer, The suspension of deliveries to that customer will not hinder our ability to meet our gross margin target. Despite this setback, demand for the rest of our AM line LiDAR products remains strong. 2nd, the Q1 of the year traditionally marks the slow season for China's automotive industry. Due to the New Year's holiday, both OEMs and suppliers strategically pull forward production and deliveries to the Q4 of the preceding year. As ADAS lidar shipments accelerates, our revenue mix will transition from autonomous mobility led, including robotaxi and industrial robotics to ADAS led in 2024.

Speaker 3

ADAS revenues are projected to increase from below 40% of our revenues in 2023 to approximately 60% in 2024. The Q1 of 2024 will be a transitional quarter with steady growth in robotics and strong growth in ADAS, accompanied by a drop in robotaxi contribution. Thereafter, our outlook for 2024 is highly optimistic, with a significant uptick in revenues and shipments expected in the Q2 of 2024. This optimism is bolstered by addition of 13 SOP vehicle models and 6 SOP ADAS OEMs in the Q2 alone. We believe this will lead to an approximate 3 times quarter over quarter increase in total LiDAR shipments for about 150,000 units in the Q2 of 2024.

Speaker 3

By the end of Q2, 2024, we anticipate SOP for 26 vehicle models from 12 ADAS OEMs. We are poised for an even greater surge in shipment figures in the second half of twenty twenty four. We expect over 200,000 LiDAR shipments per quarter in the second half of twenty twenty four as we expect 12 OEMs representing approximately 40 vehicle models to SOP by the end of this year. These projections are based on current customers' forecasts and may be subject to change. Our revenue guidance for full year 2024 stands firm in the range of US400 dollars to US450 million dollars an increase of 50% to 70% year over year.

Speaker 3

Meanwhile, we expect to maintain a blended gross margin within the 30% to 35% range for the full year of 2024, a testament to our robust cost management systems and growing economies of scale. Furthermore, we expect our commitment to operational excellence and prudent expense management strategies to help us achieve profitability in the Q4 of 2024. To wrap up, the Thai is defined by our unwavering commitment to reducing traffic accidents, saving lives and making global transportation safer for everyone. We are firmly committed to delivering on our promise to our customers, partners and shareholders. This concludes our prepared remarks for today.

Speaker 3

Operator, we are now ready to take questions.

Operator

Thank Your first question comes from Cindy Huang with Morgan Stanley. Please go ahead.

Speaker 1

Hi. Thanks for taking my questions and congratulations on splendid results. So my first question is regarding the dispute with U. S. DoD.

Speaker 1

Is there any update on the development? And will there be any impact in terms of working with U. S. OEMs?

Speaker 3

Thank you, Cindy. This is Louis. I'll take that first and David can chime in. Yes, for the $12.60 as we have said in our statement after January 31 when we were put in the DoD list, We don't know why. So we're trying to ascertain that.

Speaker 3

As we've said very clearly in the past to our investors and to the whole world, we do not work with the Chinese military. We do not our LiDARs cannot do surveillance, do not store data. And we are only for civilian use and commercial use only. So we made that very, very clear. So we have now asked the DoD for information as to why we're on the list.

Speaker 3

We have moved forward with the legal proceedings. But at this point, we don't want to comment further given the sensitivity of litigation. But that's where it stands. As far as effects on U. S.

Speaker 3

OEMs, it certainly has a reputational effect and it has impacted us in a negative way. So we continue to monitor it. We're still in discussions with our OEM customers. But it's certainly not something that we want to happen, and we will do everything we can to get removed from that list because we don't believe it's justified.

Speaker 2

Peter, do you

Speaker 3

want anything else? Yes, Yes.

Speaker 2

Thank you, Louis. I think Louis has made our position very clear. And we do not we are not a military company and those acquisitions are false. So I will not repeat that. I and it's true that it's becoming an increasing increased concern, especially the U.

Speaker 2

S. OEMs that and geopolitics is becoming part of the equation, and it is hurting us. And of course, is not a company specific issue. It's becoming a global issue that any U. S.

Speaker 2

OEMs will have concerns using parts directly from China. So that's why we are working very diligently with them hopefully to resolve the issue. On top of that, what I'd like to comment is that it is also becoming clear that because geopolitics is going to become an issue, remember those European and American OEMs, the premium brands, they also have a significant size of the market in China at sometimes up to 50%. And for those cars, actually, we become a preferred vendor because they like us anyways, but they definitely wanted to use us or a Chinese brand in China for obvious reasons. So on the flip side, it is not great that geopolitics is a company issue across the border, and it is impacting our U.

Speaker 2

S. Business for sure. But they also build cars in China, and it's a significant volume. And for that, we don't have any problems, and that is not a concern. So that is also a part of the equation that I think is important to us.

Speaker 3

Thank you,

Speaker 1

David and Louis. And my second question is related to our shipment forecast. Despite 4 gs new model launches in the pipeline and demand and model sales are super volatile, Does HOSAI apply any adjustment to OEMs order forecast? And how would you respond to a rapid order change?

Speaker 3

You mean order change for the positive or the negative?

Speaker 1

Both ways.

Speaker 3

Okay. I think you've known me you guys known me for many, many years. I always build a discount into the forecast. So our actual orders are much higher than numbers we give. So that is already built in.

Speaker 3

As far as, upside surprises, we have the capability with our manufacturing facility to meet almost any demand level, because of our efficiency in manufacturing in Hertz and also because of our automation and our access to raw materials. So upside is always good. In fact, we were very, very happy to do the partnership with Liato, where the mega and the mega standard equipment are LiDARs, it was just launched. And then on their NPV, their new L7 or their L7 and L8 models pro will now be standard equipment to have outside LiDARs used to only be the MAX version. That alone will do the take rate from the auto from 30 in the 30% range plus to probably 60% to 80%.

Speaker 3

So you think about that's 100 of thousands of orders over the next couple of years. So there's a very so we have the upside surprises.

Speaker 2

And then any kind of downside surprises, we obviously can handle because we discount to you the number we give for our LIDAR deliveries. So again, let me talk about this topic from a technical standpoint. So one thing worth noting is that we actually built a standard product. We always call that AT128. It was like not specific to any customers because it's the same LiDAR.

Speaker 2

The only difference is some of the communication software is some of the mounting, which is a minimal change. It means that, yes, you're absolutely right, there are ups and downs across some 40, 50 car models that we're expecting to ship, and it's impossible to predict 6 months down the road. But if you look at the aggregate effect, it is not very difficult to understand how many of the units will be needed across the entire specialty price category, right? What we are happy to see is that it used to be more on the premium category and now it's penetrating down to the RMB150000 level, which is a much bigger market, given that we have many car models now in the more cheaper part of the bracket. And we're actually more confident that with the blended volume, it will be a very robust and steadily growing volume this year.

Speaker 1

Thank you. That's very clear. And can I follow-up with one more question on next generation product? So how do we bridge the gap amid the transition from AT1 to AT Alpha-twelve?

Speaker 2

Yes, yes. This is a great question. Thank you. So I think there are 2 parts of the strategy. 1st, if you remember, our overarching thesis has always been a simple term called Moore's Law.

Speaker 2

If you look at what Moore's Law does is that there are actually two ways of using Moore's Law. One way is that you try to keep the price range. It's like your CPU, right? But then your performance almost doubles every 18 months or so. So that's one of the way we're doing.

Speaker 2

Essentially, this is the path that AT512 is taking in the sense that AT512 will always stay at the range of the AT128 on the price. But as you can already tell, it is 8x more resolution and roughly 50% more on the range at a similar price range. So this is exactly what Moore's Law did to a lot of the consumer electronics, right? Your CPU didn't just half its price over time, right, becomes 0, right? Of course, that didn't happen.

Speaker 2

Having said that, we also recognize that for LiDARs to be widely deployed to more vehicles, not just 100 of 1000 of them, but tens of 1,000,000 of them, the mass market needs a cheaper LIDAR. And that's possible to be more slow. Of course, if we try to build a more affordable version of it, it wouldn't have the full performance of the AT512. It will still be reasonably good, especially definitely better than AT128, but it could be cheaper over time if you don't need the full performance of AT512. That is the direction we're looking at.

Speaker 2

We're not quite there yet. And we will release information as they become available. But this will definitely be another trend, especially for the Chinese market that people want and we know we have technology platform to support that.

Speaker 1

Thank you. That's very clear.

Speaker 2

Thank you.

Operator

Thank you. Your next question comes from Tina Hu with Goldman Sachs. Please go ahead.

Speaker 1

Thank you very much. Hi, management. Congrats on the result and the strong gross margin number. I have a question. So David, you just now you mentioned that by 2025, there will be you guys will accumulately ship 2,000,000, VIDARs, so which means about 1,700,000 in 2024 2025 together.

Speaker 1

So I'm just wondering, is that also a conservative number, like a bear case scenario that you're given? Or this is more of like a place case scenario? Thank you.

Speaker 3

Thank you, Tina. I'll take that, since given the numbers question. I think the $2,000,000 cumulative figure is realistic and probably leaning toward the bearish side. So I think as David mentioned in his remarks, the demand for LiDAR as it moves down to the affordable car mid range and lower range. The adoption of LiDAR in new EV vehicles is going to just explode.

Speaker 3

So I think there was a Holy Grail mentioned in 2020 by all the LIDAR makers in the world are reaching 1,000,000 units by 2025. I believe, Hosai will be the only company to actually do so by next year. So yes, as of 300,000 we've done now, 600,000 or 700,000 for this year. And we expect to ship over 1,000,000 units in 2025. And that's partly because of what David discussed, a market where we have high end AT-five twelve and we have lower end versions for the mass market cars that are more affordable.

Speaker 3

Those 2 together, you'll have to wait to hear the details. But those 2 together will generate expected units of well over 1,000,000 for 2025.

Speaker 2

I also believe Tina, this is David. I also believe this is could be on the more conservative side for another. So the consumer market, especially the e commerce market in China, it moves very fast. Everybody is kind of looking at each other and what they do and then they try to cooperate something into their car model that will roll out in the next 18 months. So today's projection is definitely based on a bottom up projection of the numbers we already have.

Speaker 2

But if you watch very closely for the media for the especially past month or 2, everybody is mentioning LiDAR. So if you look at all the car releases And they always only mentioned now very few things, right? One of them is LiDAR, very specific. The other is the 800 volts charging. What was the other thing people talk about?

Speaker 2

I couldn't even remember. I think it's one of the top three things that is mentioned across every car release. And of course, a lot of the OEMs are now just claiming that, sure, we're going to make it a standard because this has become the symbol of the level of intelligent driving and that's not a competition I can afford losing. So I think this snowball effect, we know it will start. It starts moving and it's ramping up really quickly.

Speaker 2

So that's why I think the current best estimate today from the bottom up numbers could be on the conservative side.

Speaker 3

Tina, you know that as we move into this year, we're actually our LiDAR will become platform LiDAR for some of these top 5 or 6 OEMs in the world. So they're actually going to be volume wise. They're going to be actual and the platform which rolls out to the whole new fleet of EV cars, whether it's at the low end or the high end. Just maybe different lidar, but all from Masai. So then those that's why David said, bottom was up, but the numbers actually can be much larger, especially if it becomes standard equipment on all their EV models, which I believe will happen in the next several years to many of the top auto manufacturers.

Speaker 2

Yes. The third one, the competing factor is like aerodynamic coefficient. I remember, yes.

Speaker 1

Thank That's your question. That's really helpful and comprehensive. Yes, yes. And I do agree that it's definitely one of the top, if not the top functions that gets mentioned by the OEMs recently. And then can I have a follow-up question is in terms of the OpEx, so wondering what is our SG and A and R and D as well as CapEx budget for 2024?

Speaker 1

And also do we have like an estimated time of non GAAP net profit breakeven? Thank you.

Speaker 3

Yes. I think it's a good question. OpEx was higher in 2023 because we had a very large expansion year, right? So we went into we built Hertz Center, We built Maxwell R&D Innovation Center. And we also had rolled out a lot of new programs on the ADAS side.

Speaker 3

So our hiring went from I think we had 905 people 105 people after a set of layoffs in 2022. Phase 2020 will be a little bit over 1100 people. That was set to slow. R and D and G and A hiring will not increase much and sales and marketing will grow. But together, I think the total amount of increase in OpEx will be much lower than the revenue increase.

Speaker 3

As long as we maintain 30% to 35% gross margins, if we hit $550,000,000 to $600,000,000 we'll be profitable from a GAAP basis. And from a non GAAP basis, we should be very close to breakeven or probably in the second half of this year as volumes hit over $200,000 a quarter. And for Q4 of 2024 in a few quarters, we hope to get GAAP profitable for that quarter. Because of course Q1 in 2025 is our slowest quarter, seasonally. So that will slow down.

Speaker 3

But overall, we expect to be GAAP profitable in 2025.

Speaker 1

Thank you so much, Louis.

Operator

Thank you. Your next question comes from Jessie Lo with Bank of America. Please go ahead.

Speaker 4

Thank you management for taking my question. My first question will be related to our Xiumin orders. So apart from Lioto, could you also like shed some light on the who will be the top other 4 clients and how would the volume looks like in 2024?

Speaker 2

Yes. I think we don't have the right to mention their true names, but the auto is roughly going to be more than half of our total volume, but the rest of the top 5 customers, they will each take at least 20000 to 30000 units. And I think you probably will be able to figure out the names and as some of them are already have been disclosed, but we won't be able to associate those numbers directly with them. So essentially, this is roughly half from Li Auto and half from the rest of the top players.

Speaker 3

Jesse, without disclosing names, the top 5 automakers in China will start shipping with our LiDAR this year. That's why the numbers go up.

Speaker 1

Okay.

Speaker 4

Yes, got it. Thank you. So my second question would be related to the ASP adjustment or negotiation with OEMs. If we take this revenue guidance of US400 dollars to US450 $1,000,000 pairing with our shipment or delivery guidance. It sounds like the ADAS LiDAR ASP drop wouldn't be as much as 10%.

Speaker 4

So could you maybe share some details with how are we dealing with our clients on the ASP? And then especially we have a high concentration on Lioto and then we apart from that, we also have more shipment on FT series as well? Thank you.

Speaker 3

Yes. I think the I mean, most of the product is in the AT Series for ADAS. So it's negotiated by contract and usually it's relatively similar price for the whole year. The ASP decline for 2024 is higher than 10%. It's actually closer to 20%.

Speaker 3

But the key thing is that our cost goes down even faster. So we can still maintain the margins on a blended basis. Because remember, we still have the very high gross margin business of robo taxi and robotics. So our gross margin is still intact at 30%, 35%, but we're able to absorb any kind of negotiated price reductions better than anyone else in the market. So we have the ability to take down price even if we don't obviously don't like to do it.

Speaker 3

But the price decrease will be a little bit higher than 10%.

Speaker 4

Got it. Got it. Thank you. And just I need to follow-up.

Speaker 2

Yes, real quick. I want to quickly add my comments on this. So also remember, this is also due to a strong effect of economies of scale, right? And it is true that the ASP is declining probably faster than we expected. But more importantly, the total volume growth, it's much faster, right?

Speaker 2

And so that you have to combine those factors to figure out.

Speaker 3

I mean, Jess, you can just look at Q4 and you can see that once we start manufacturing high volume, the kinds of skills really kicks in on the gross margin.

Speaker 4

Got it. Got it. Thank you so much. So also want to follow-up on top of that 4th quarter gross margin. So previously we were still doing the transition.

Speaker 4

So how was that transition on the AT Series? And then are we having any further like product or cost upgrade or improvement in 2024?

Speaker 3

Sorry, can you The transition from AT is smooth, right? No issues. Right?

Speaker 2

AT to ET or AT128, remember from the old AT? Yes, yes, yes, right. That is close to completion. And it is a very solid upgrade. And so and also it has gone through more validation than the previous ones.

Speaker 2

So it is a very smooth transition.

Speaker 3

I think there's one for a small number of cars, 1 or 2 this year that was still shipped with the old AT because it was validated last year. But it's very low numbers. So I think AT the new AT is certainly going to be 95%, 97% of the

Speaker 2

And it has been agreed that it will finish the transition very soon. So yes, I think this is a very smooth transition.

Speaker 3

Feet is rolling out. The numbers aren't huge yet, but there is getting there it is getting some traction. And then of course, ET comes out next year in SOP form. And also AC-five twelve. Yes.

Speaker 4

Got it. Thank you so much. This is very clear. That's all from me.

Speaker 3

Thank you.

Operator

Thank you. Your next question comes from Bin Wang with Deutsche Bank. Please go ahead.

Speaker 5

Thank you. I actually got 2 question, number 1 for Darla, crude spikes because crude seems to be The second question is about the gross margin in the number 4 quarters is really high despite your product mix actually deteriorate, which means much more ADAS than in the number 4 quarter. However, you actually got more than 10 percentage margin increase. Kind of also reason for that, what's the change in the Q1, because this seems to be the similar product mix in the coming quarter? Thank you.

Speaker 3

Thank you, Wang Bin. I think we don't discuss individual customers.

Speaker 2

Yes. So I think Wang Bin is, first, again, we won't be able to comment specific on individual customers without their permission. But I think you're right that we do see a significant slowdown of the robotaxi market. And it'd be hard for us to speculate on whether it's a technical reason or economics reason, but the decline and the slowdown of some of the orders, it is true, right? So of course, the flip side is that we see actually better momentum on the ADAS side and especially the penetration rate and the unit of shipment is and also the new car models coming in and is exceeding our expectation.

Speaker 2

So they kind of canceled out each other for the year to help us to maintain our very strong growth. But again, as I said, we are not a robotaxi LiDAR company. We are not a ADAS LiDAR company. We are a LiDAR company with very strong semiconductor remote taxi was growing very fast, we captured the majority of the market. Now it's slowing down.

Speaker 2

It actually doesn't hurt us to continue to focus on the much faster growing part of the market, which is ADAS. So that's

Speaker 3

So one thing you recall, when we made our forecast for this year of $400,000,000 to $415,000,000 in revenue. At that time, our ADAS LiDAR count was about 400,000. That is now up to over 600,000 dollars And I still left the revenue intact at $400,000,000 $450,000,000 just to be conservative given the impact from the slowdown in robo taxi. So we didn't take the number up. Yes.

Speaker 3

So that shows you that as David said, it kind of evens itself out. And as your question on the gross margin for Q4, yes, remember, that's our busiest quarter and that's at a time we still had the higher pricing from 2023. And also on top

Speaker 2

of it, so the slowdown of the Robotech really is starting this year. So last Q4 was still a good quarter. So we do expect this year not to be able to ship high gross margin, large volume Robotech VLIRRs. I think that has been already factored in and disclosed to everyone. But I think last Q4 was still very strong for both of the reasons.

Speaker 3

I think robotics is still growing. So that market will still grow 30%, forty percent this year. And ADAS, of course, will grow well over 100% this year. And so together on a blended basis, we still expect very, very strong revenue growth to 50% to 70% year over year. And that and then obviously the shipping numbers keep going up.

Speaker 3

They don't go down. So it's gotten from 400,000 to 600,000 and still climbing. Does that answer both your questions, Wan B?

Speaker 5

Yes. Thank you.

Speaker 2

Thank you.

Operator

Thank you. Your next question comes from Jiang Yu with HTSC. Please go ahead.

Speaker 6

Hi, morning. Can you hear my voice?

Speaker 3

Yes. Go ahead.

Speaker 6

Thank you for taking my question. My first question is about robotaxi and robots. We noticed that the demand of the robotaxi cooldown, that's the humanoid robots are developing really fast this year. Could you give us guidance for the shipment for the robotaxi and the robots this year? Also, do we have any plans to launch a specific LIDAR for the humanoid robots in the future?

Speaker 2

So the second question is kind of a surprise because I think you're talking about a completely different industry. And this is a very exciting industry. And at some point, it will use large amount of LiDARs. I think that's one topic. And I think your question is, are we going to build humanoid robot this year?

Speaker 2

As far as I know, we don't have concrete plans to do the robot itself today. But that could benefit from using different types of our LiDAR technology. Hopefully, this answers your question.

Speaker 3

And then your first question, on the number of units for Robotax and Robotics, the actual number of total units last year for Pandar XT and QT was approximately 27,000. We expect that number to still increase. So it's not overall, it's not shrinking. But because there is price reduction, and also there may be a mix shift toward lower priced Pandora XT units. The revenue will not be grow high basically.

Speaker 3

Robotics will grow, robotaxi will not. It will actually shrink year over year. But the actual units are still going up.

Speaker 6

Okay. Thank you. May I have another question? I want to ask the cooperation with the global OEM and when should we expect to see a ramp up in the sales from the global OEMs order?

Speaker 2

Yes, depending on which one, but it's a much later volume. And so we don't have the specific numbers to announce yet. And it is slower than the rest of the China EV markets.

Speaker 3

So, Zheng, the 2 that are referenced in our earnings release will SOP in 2025. So it's not 2024.

Speaker 6

Okay. I got it. Thank you. That's all my questions. Thank you.

Speaker 3

Thank you.

Operator

Thank you. Your next question comes from Michelle Jing with Haitong International. Please go ahead.

Speaker 7

Hello. Thank you for taking my questions. I just I think I have a few questions. So the first one would be, based on your estimation for ADAS shipments, do you guys have an idea about the ADAS shipments for the whole industry in 2024?

Speaker 3

About the whole industry for ADAS shipments?

Speaker 7

Yes.

Speaker 2

Oh, the entire market? Yes, the entire market. I think you probably have to refer to the 3rd party reports because we don't have the full projection for some of the OEMs that we don't directly work with. And my very rough estimate is it's probably a little more than double of our volume. That's my guess.

Speaker 3

I mean, we have to be very close to 50% of the global market, if not even slightly. And I think if you break it down without getting into geography, I think China will roughly be 67% 60%, 70% of the global market over the next several years. So given our position as the market leader in China, we have to be close, if not higher than 50% of the global market.

Speaker 7

I got it. Okay.

Speaker 3

Thank you. For ADAS side, there's obviously other categories of life for ADAS automotive data.

Speaker 2

Yes. Got it.

Speaker 7

And my second question would be for products. So for the AT512, do you guys have any orders yet? Did you receive any orders?

Speaker 2

That will be the future Level 3 product for the global OEMs. We have I think we've openly disclosed that we have quite a significant number of RFI and RFQ, and some of them are in the very late stage.

Speaker 7

Okay. Thank you. That will be it for my question. Thank you very much.

Speaker 3

Basically, there is very strong interest for 5th 12, but there's only samples available. So orders won't come in until those samples are evaluated and contracts negotiated. But the orders will come in usually the year before or right at the year is actually ships, actually firm orders.

Operator

Thank you. Your next question comes from Rong Zhao with TF. Please go ahead.

Speaker 8

Hi. Thank you, man. Thanks for taking my questions. So I have some question regarding demand side. So apart from Link Power, have you observed any demand from other OEM for equipping vehicles priced below RMB 200,000 with lighter systems?

Speaker 8

And how much longer do we anticipate it would take for lighter product to further penetrate market for vehicles under this price point? And also with the projection that lighter sales will exceed 1,000,000 units by 2025, is it like is it taking into account that this volume will include sales driven by this category of vehicles and besides the power? Thank you.

Speaker 2

So I didn't quite get the last question, but I'll answer the first one first. So yes, we have a few models that is already in the pipeline that will be in the range or below the RMB200000 range. And we do start to see a lot more requests considering using LiDAR as the standard configuration for more car models in that range, again, as a snowball effect, right. It's in China market, it's always rolling, right. And once they see somebody doing that and the customers will always refer to the ask, so yes, why can't we have that?

Speaker 2

Does that mean this car is inferior in terms of intelligent driving than the competition? So that is becoming amplified very quickly. And we do start to see that in the next already seeing that, but definitely for the negotiations we have in the next year, which, of course, we'll be shipping in 20252026. The second question, I just didn't quite get

Speaker 3

it. Remember, yes, on the second question, remember the trend globally, EVs in China were over 8,000,000 or so last year and that's still growing. So let's say it's $10,012,000,000 over the next this year and next year. I think as we said earlier, the penetration for intelligent driving systems at level 2+3 is going to increase even into the mass market cars below RMB 200,000. 2nd trend is, as David mentioned, is people asking for intelligent driving systems with LiDAR.

Speaker 3

That will push and I think we've already had discussions with OEMs where they will make it standard equipment on all their EVs. So those two factors will cause that snowball effect and will take us easily over 1,000,000 units in 2025 based on current discussions with OEMs.

Speaker 2

Yes. So I think a year ago, this was a much more heated topic when everyone is saying that we know the competition is difficult in China. Everyone is cutting cost, what makes you think that people will take more LiDARs as opposed to less, right? And my answer stands, if price is the only differentiating factor people consider, we should all go back to Wuling Hu Wang, right, to make a bearable car with no ADAS, right. Why would we even talk about ADAS at all?

Speaker 2

The reason is that just because exactly competition, they need to use the best band for the buck. So a buck is a buck, but the band is defined differently based on the market. Used to be the big entertainment screen, now it's really the charging and the LiDAR. So everyone is asking about it, then this becomes the end of the buck. So that's why I think it's becoming more popular that people realize with this little of investment, your vehicle can stand out or at least not falling behind.

Speaker 2

So that's the rationale.

Speaker 3

And it's all similar to airbags. It's all about safety and actually making your drive more driving experience much more pleasurable where the car helps take the stress off your you having to be full attention on the road all the time. So it's safety and convenience and driving enjoyment that's pushing the LiDAR development.

Speaker 8

All right. Thank you. That's very clear.

Operator

Thank you. As there are no further questions now, I'd like to turn the call back over to the company for closing remarks.

Speaker 1

Thank you once again for joining us today. If you have further questions, please feel free to contact our IR team. This concludes today's call and we look forward to speaking to you again next quarter. Thank you and goodbye.

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Earnings Conference Call
Hesai Group Q4 2023
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