Heritage Commerce Q1 2024 Earnings Call Transcript

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Provided by Quartr
May 20, 2024

There are 10 speakers on the call.

Operator

Hello, ladies and gentlemen. Thank you for standing by for Herseis Group's First Quarter 2024 Earnings Conference Call. At this time, all participants are in a 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, and thank you for joining Fisai Group's Q1 2024 Earnings Conference Call. Our earnings release is now available on our IR website at investor. Heusetech.com as well as via newswire services. Today, you will hear from our CEO, Doctor.

Speaker 1

David Li, who will provide an overview of our recent updates and address our financial results before we open the call for questions. Before we continue, I refer you to our Safe Harbor statement in our earnings press release, which applies to this call as we will make forward looking statements. 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 on the GAAP in our earnings release and SEC filings. With that, I'm pleased to turn over the call to our CEO, Doctor. David Li.

Speaker 1

David, please go ahead.

Speaker 2

You, Yuanxi, and thank you, everyone, for joining our call today. We demonstrated great financial resilience in the Q1, navigating typical seasonal factors as well as slower demand in our robotaxi business compared with the previous year, as guided. Despite the challenges, our dedicated effort yielded 1st quarter net revenue and total LiDAR shipment exceeding our earlier forecast. Moreover, our effective cost management endeavors and the flywheel strategy we have implemented brought us closer to achieving profitability in the Q4 of this fiscal year. As automotive industry landscape continues to evolve, it's essential to understand the development trajectories and strategies that will shape our future progress.

Speaker 2

Let's start with a brief review of the LiDAR industry in recent years. The past decade has been pivotal period for the lighter industry marked by significant growth. Lidar applications have expanded from robotaxis to ADAS transitioning from prototype to product and presently to merchandise, where customers now seek a balanced blend of price and performance. Looking closely at 2024, we believe it's likely to be a decisive year for the lighter industry's leap to mass market popularity. According to ggii, a renowned automotive research and consulting firm, the lighter adoption rate among EVs priced above RMB 150,000 is projected to surpass 16% this year, barreling towards 50% in alignment with the famous Crossing the Caisson Innovation Adoption model.

Speaker 2

Given this industry's inflection point, we need a flexible and competitive product roadmap to support Hassai's future development. To better explain our dual strategy approaches for ADAS LIDAR development, I'll refer to Moore's Law, which delineates 2 pathways for technological advancements: ultimate performance and ultimate value to cost. First, a quick comment about ultimate performance. The trend towards more advanced ADAS function is clearly gaining traction among OEMs, particularly global players, driving demand for high performance LiDAR with significantly enhanced specifications to power advanced features for Level 3 autonomous driving. In response, Hexai has leveraged its technical know how to define the next generation of groundbreaking LIDARs with products such as AT512.

Speaker 2

This 5 12 channel ultra high performance lidar sets new industry standards by pushing the boundaries of every core performance metric for long range lidars, boasting a detection range of over 300 meters at 10% reflectivity and image quality with a point rate of 12,300,000 points per second. We designed AT512 to provide our OEM partners with the necessary components to craft autonomous driving solutions with the highest level of safety. In terms of ultimate value to cost, LiDAR technology's expansion to mass market is an inevitable trend poised to reshape the landscape. As mainstream consumers increasingly appreciate LiDAR's intrinsic value through its integration into autonomous driving systems and its pivotal role in enhancing safety, LiDAR is playing a great role in decision making for car buyers. On the OEM side, LiDAR has become a necessity as it enables OEMs to quickly and affordably elevate their autonomous driving features.

Speaker 2

Current market dynamics support this view. LiDAR technology, once exclusive to premium car models, is now being integrated into more affordable vehicles. The growing demand for mass market LiDAR presents a golden opportunity for us, revealing an enormous market with a potential tens of 1,000,000 level shipment volume. We've implemented a flywheel strategy to capitalize on these prospects. By leveraging our strong capabilities in vertical integration, our higher value to cost products will empower us to crack larger lighter market and elevate shipment volume.

Speaker 2

Economies of scale will further dilute cost per unit, creating a self driven virtuous cycle. This flywheel strategy derived from our deep understanding of the industry's competitive landscape has been steadily gathering momentum since the inception of our ADAS business and will be the driving force behind our future triumphs. By the end of Q1, Hesai has cumulated to be shipped over 380,000 lidars since our establishment. Our leading edge technology and the proven track record create tailwinds that propel our success and amplify the long term benefit of scale. We are beyond thrilled to unveil recent collaborations with esteemed new customers, including 2 additional top 10 global automotive OEMs by revenue to provide ADAS lidars for their upcoming series production programs.

Speaker 2

We have now secured the design wins with 4 prominent global OEMs, including 3 global OEMs joint ventures and most importantly, 1 global automotive OEM with worldwide shipping programs. These partnerships are landmark commercial wins for us, showcasing the trust we have diligently established with esteemed global OEMs renowned for its highest standard in vehicle safety and the performance. Notably, some of those customers had prior engagement with our peers, but have now chosen to partner with us for the first time. We are genuinely excited to receive their most confidence in our LiDAR technology, and we couldn't be more thrilled to play an integral role in the next phase of this global OEM's autonomous journey. Domestically, we forged a partnership with another new customer, GAC, one of China's leading OEMs, to jointly develop and integrate our next generation lighter products into their forthcoming line of passenger vehicles.

Speaker 2

These global and domestic partnerships reflect a substantial and steady stream of opportunities ahead. As our market share and delivery volumes continue to climb, our production cost per LIDAR will decrease, boosting our competitive edge in terms of value to cost and making our value proposition to partners even more attractive. While our flywheel strategy has already produced the tangible positive outcomes, they are just the beginning of our journey. Our latest innovation, the ATX, a cutting edge ultra compact high performance long range ADAS lidar embodies the next phase. This groundbreaking innovation where the X symbolizes endless possibilities for every vehicle is priced competitively among similar products, while offering better performance across key metrics, representing a significant leap forward in our commitment to excellence and scalable safety.

Speaker 2

The ATX inherits the main capabilities of our best selling 8128 LiDAR, retaining its market validated 1 dimensional scanning architecture while featuring a broad array of technological advancements. First, leveraging our state of the art 4th generation technology platform, the ATX demonstrated our mastery in seamlessly integrating internally developed core components, in a long range ADAS LIDAR, the 80x set a new standard for mass market LIDAR. With its 7x optical zoom capability, the 80x maximum detector range can be extended even further, reaching 500 meters with a more concentrated FOV. This versatile feature enables ATX to flexibly provide either a wide view of complex road conditions, such as the nearby vehicles and pedestrians or ultra long range visibility depending on the situation's needs. Additionally, the ATX optimized optical and mechanical design makes it 60% smaller and 50% lighter than AT1-128.

Speaker 2

Its active bid structure not only optimizes BOM cost, but also simplifies several manufacturing processes. This makes scale manufacturing significantly more efficient, boosting our flywheel strategy. In addition, the ATX's delicate and compact design coupled with its ultra low power consumption of only 8 watts enables ATX's versatile installation in various locations within a vehicle. Whether mounted on a car's roof, behind the windshield or integrated into headlamp, the ATX offers unparalleled flexibility. On a related note, we're proud to announce the strategic collaboration with the Marelli, a global leader in automotive lighting to integrate the ADX into Marelli's innovative headlight designs.

Speaker 2

This ingenious placement provides vehicle with extraordinary environmental protection capabilities, significantly improving safety. On top of that, it saves cost without altering vehicle's appearance and aerodynamic performance. Last but not least, the ATX is equipped with Hassett's proprietary first of its kind intelligent point cloud engine, IPE, which integrated 256 waveform processing cores and features a high sampling frequency of 24.6 1,000,000,000 per second. This innovation enables the ATS to intelligently mitigate the impact of rain, emitted gas, dust, etcetera, effectively filtering out 99.9% of the environmental noise. It also ensures reliable recognition and minimizes false triggers, providing all weather safety perception for intelligent vehicles.

Speaker 2

Moreover, the IPE alleviates pressure on the OEM to develop algorithms with similar functions showcasing our deep understanding of customers' need and pain points. With this cutting edge features and robust design, the ATS has already received the design wins and the collaborative programs from 4 leading global domestic OEMs, including a leading domestic traditional OEM, a top tier EV manufacturer in China, a leading new EV maker in China and a major global OEMs joint venture. These partnerships reflect industry wide recognition of the ATX potential to revolutionize intelligent vehicle technology and capitalize widespread adoption of LiDAR across various vehicle types. The ATX is expected to enter production in the Q1 of 2025, further propelling our flywheel strategy. Now let's briefly go through our operating and financial results for the Q1 of 2024.

Speaker 2

To be mindful of the length of our earnings call today, I encourage listeners to refer to our Q1 earnings press release for the details. We delivered a resilient performance for the Q1 with a net revenue of RMB359.1 million, US49.7 million dollars at the higher end of our forecast, in line with our expectations, factoring in typical seasonal effects. Strong growth in domestic ADAS adoption drove quarterly total LiDAR shipment over 59 1,000 units, a 70% year over year increase, offsetting slower demand in our robo texting business compared to the previous year. Particularly noteworthy is our progress towards achieving profitability by the Q4 of this fiscal year, driven by effective cost management and our flywheel approach to cost and scale optimization. Now moving to our financial outlook.

Speaker 2

For the Q2 of 2024, we expect net revenue to be between RMB440 1,000,000, 60,900,000 and RMB460 1,000,000, $63,700,000 representing a year over year increase of approximately 2024, we anticipate annual revenue to be within the range of RMB 2.5 billion to RMB 2,800,000,000, roughly US350 million dollars to US400 million dollars as compared to our previous guidance of $400,000,000 to $450,000,000 an adjustment around 10%. In terms of shipment, we expect total LiDAR shipments to reach approximately 90,000 units in the Q2 of 2024 and over 500,000 units for the entire year of 2024. This updated forecast reflects our prudence in light of fluctuation in downstream EV sales during this year. With this adjustment, the contribution from high margin robotaxi business is expected to increase to roughly half of our total revenue in 2024, pushing our blended gross margin guidance towards the higher end of 30% to 35% range. Meanwhile, we anticipate that the proportion of the revenue derived from the U.

Speaker 2

S. Will be less than 20% of the total revenue in 2024, driven by increasing demand outside the U. S. This outlook is based on the current market condition that reflects the company's preliminary estimate of market and operating conditions and customer demand, which are all subject to change. The automotive industry worldwide is undergoing a significant revolution, driven by the rapid advancement of autonomous driving solutions.

Speaker 2

We're thrilled to be recognized as a pioneer leader in this transformative way. To date, we secured ADAS design wins with a total of 18 OEMs and Tier 1 suppliers globally across approximately 70 vehicle models. With the robust pipeline of SOP, we eagerly anticipate an exhilarating second half of the year and beyond. As we look to the future, we remain committed to leading through innovation, using our technological capabilities to enhance safety, save lives and create a more intelligent global transportation system. We'll continue to bust fostering our financial strength and global competitiveness as we progress towards profitability by the Q4 of this year.

Speaker 2

Thank you for your steadfast support and trust in our vision. We're excited about what lies ahead and remain confident in our ability to maintain our leading position and achieve sustained growth in our dynamic automotive industry. This concludes our prepared remarks today. And operator, we're now ready to take questions.

Operator

Thank The first question today comes from Stanley Wang from Morgan Stanley. Please go ahead.

Speaker 3

Thank you for the opportunity. So my first question is on Li Auto. Would Hecai be the sole supplier to Li Auto's upcoming BEV model launches? And if so, what would be the latest impact following their delay of some of those launches to first half twenty twenty five? Thank you.

Speaker 2

Thank you. This is David Li, the Co Founder and CEO. First, as far as we are concerned, we are the only supplier moving forward. Of course, in the end, it's Li Auto's decision. And so the answer is yes.

Speaker 2

And the second question is how does the fluctuation on the auto's volume change our shipment. Of course, it does impact us, but I just wanted to point out the fact that we have quite a few major EV makers we're shipping with and Li Auto is only one of them. And I tend to think that the aggregated amount tend to be stable, especially given the fact that the China EV is growing very fast and the adaptation rate of the LiDARs are increasing very rapidly. So overall, we are we remain long term optimistic about the volume.

Speaker 3

Great. Thank you. Very clear. Second question is on the recent global OEM project wins. Could you elaborate a bit more on the scope and timing of these design wins?

Speaker 3

And when will mass production begin for them? And whether they will start from China or take place overseas initially? Thank you.

Speaker 2

Thank you. I'd like to be a little more careful as we have a very strict agreement on what we can or cannot disclose on this program. What we could tell is that it is a program that shifts globally, and it's not a China only program. And so and the second thing is, I wanted to point out the development we have recently, we explained that we have 2 additional top 10 global OEMs. And when we say top 10 is ranked by revenue and we have 2 additional programs.

Speaker 2

So now and if you look at the total top 10 global OEMs by revenue, we have 6 of them. 4 is true global OEM in total. And out of the 4, 3 are with the joint ventures. The other one is a pro web platform that shifts globally. And of course, this and it's either directly or through their entity in their group.

Speaker 2

And those are design wins selected by the customer. Actually, some of these customers have engaged with our peers previously. So we're not the 1st LiDAR company they work with, but they have concluded that we are the better fit for the programs. And they recognize our outstanding track record of delivering on time with the highest quality as well as the high performance and robust pipeline of the future advanced technologies. I like to think that securing its 1st worldwide shipping program is a landmark achievement for Hesai as a LIDAR company, given that these global OEMs have renowned for their stringent standard of sourcing and verification, and we remain very hopeful that we will continue to work with more and more global OEMs.

Speaker 3

Got it. Thank you. Thank you for the question. Thank you for the answer, David. Thanks.

Speaker 2

Thank you very much.

Operator

Thank you. The next question comes from Geoff Chung from Citi. Please go ahead.

Speaker 4

Hi, David. Thank you for taking my questions. This is Geoff. I have two questions. First is the excellent GP margins that was achieved in the Q1.

Speaker 4

So could you give us a little bit more breakdown on the GP margin in Spark products? And compared with the peers, I think our ASP seems to be much higher. So is it going to be sustainable going forward? This is my first question. And the second question is about the 2nd quarter volume and the margin trend guidance.

Speaker 4

And last but not least, could you give us some more update on the overseas achievement? Thank

Speaker 2

you. Thank you, Jeff. Two questions. One is the breakdown. Unfortunately, we don't provide additional information on the breakdown between ADAS and the robo taxi.

Speaker 2

I do want to point out the fact that robo taxi is a smaller volume, much higher ASP, relatively higher margin business that we have always had as a very important part of our business. And the ASP, even for the robo taxi, has gone down, but it still remains at a much higher level than the ADAS, again, also as a gross margin. That's one of the key reasons that we are we have the opportunity to have a reasonable blended gross margin. I think the second question is on the global OEM. I think I have just mentioned that we have 6 out of the 10 global by Fortune 500 revenue.

Speaker 2

And was there additional question you want to ask on this topic?

Speaker 1

About the 2Q guidance. The 2Q? So for the 2Q, we are guiding total shipments to reach approximately 90 ks units in the second quarter. So and also we prudence in light of fluctuations in the downstream EV sales. However, on the other side, I think we are adjusting our gross margin guidance as well because the high margin robo taxi business will reach around half of the total revenue in 2024, which will bring our blended gross margin of 2024 to the higher end of our guidance before, which is 30% to 35%.

Speaker 1

And we will reach the higher end of the guidance, which is 35%. So in light of this, I would say like the flywheel strategy we are having now will help drive the benefits of economies of skills. And on the other side, our high margin robotaxi, they still contribute a lot to our total gross profit as well. And we are very confident that we will reach our GAAP level profitability by the Q4 of this year.

Speaker 2

And then on the global side, I think one piece of information we didn't specifically mention for this call is that we now have 12 RFI RFQs with 9 leading global OEMs. And of course, with the recent design win, one has been converted, but most of them are expected to conclude in the less than following less than 12 months. And we definitely believe having a top tier OEM picking us is very helpful for the rest to understand our capabilities in developing, delivering products to the car platforms are shipping globally as a Chinese company. So we're super excited to continue to rise the momentum to hopefully add a few more to the list by this year.

Speaker 3

Thank you, David. Thank you.

Operator

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

Speaker 5

Well, thank you management for your time. And I have two questions. So the first one is in terms of ATX, it's a very exciting new product. So just wondering in the like steady state, what kind of volume contribution would ATX be considering it's much more economical and then more of mass market models is able to adapt that? So that's the first question.

Speaker 5

The second question is in terms of like volume from the customers. So if there is any like fluctuation or the customers turn out their volume is lower than expected, do we have any like pricing protection in place for us because we need to prepare the inventory and production lines for the customers. So just wondering, would we get like higher price if there is less volume than expected from some of the customers? Thank you.

Speaker 2

Thank you, Tina, I will probably do the second question first because that's kind of an easier question. So it's always a step pricing. So normally, when we have a design win and a production contract with OEM, it usually has tied to 2 conditions. 1 is, of course, timing by year. The other is volume because normally when we offer a competitive price, it's under the condition of they will take this many units by this year.

Speaker 2

And then if they don't, they always have to renegotiate with us on a higher price or just fit back into the original stepping price, which is a slightly higher price if it's a lower volume. That's the standard for the industry. And the other question is, you wanted to explain more about the volume and some of the transitions of the 128b and ATX. So the ATX start production in 2025, but AT128P accounts for the majority in the volume. The 128P annual decline is in the 10ths of the TINX.

Speaker 2

And the AT price ATX is a very competitive price competitive for the price among the similar product in the category and we expect more than 1,000,000 units in the year 2025. And in the year 2026, we expect the ASP for the rest of the product also remain stable. I want to point out the difference between the two products. It's very clear that the ATX is designed for a mass market adoption. Actually, a lot of those customers are expecting AT X to be a standard configuration, standard meaning that they're going to ship ATX with every car they ship, which is a bold move, but I think it's the right choice.

Speaker 2

Here's how we look at it. Historically, the AT128 Series was mostly on the relatively higher end trim of the car with more advanced ADAS functions. We call them the functional parts, meaning that if you pay for the price, you get even more functions. But now with the penetration rate and the public awareness of the AEB function, automatic emergency break, what's happening is that people see that more as like airbag seat belt type of a product as opposed to something that with additional function. Now it's something with additional safety.

Speaker 2

This is a very pivotal moment for the industry because look, if you're buying LiDAR because you believe and it's true that you're getting additional safety, it's a pretty difficult decision when you decide not to take a LIDAR. It's like when you have a airbag that you decide not to take because of the price reason. So that's the biggest reason. A lot of the people are expecting the ATX to be a much more affordable product than AT120 AP, which is, of course, the case. And also a lot of people are expecting the penetration rate dramatically increase as we ship.

Speaker 1

And in response to your question, Tina, I understand like many analysts would be interested to explore more information about the ASP and volume of our ADAS product. So let me share some more insights on this. So in 2023, our ADAS LiDAR ASP around $500 And in 2024, as we guided before the AT series lidar, which is the ADAS lidar, their ASP will be below $3,000 as we guided and that shares the same view as we want to make the LiDAR business as a long term and sustainable business. So our ASP is in a very healthy range. And in 2025, because we have we are going to start production of our ATX product, which is a more value to cost product.

Speaker 1

But we still expect that in 2024, it would be just the beginning production of the ATX product, which means that the original AT120AP product will still account for the majority of the shipments in 2025 and the total LiDAR shipments we expect in 2025 will be over 1,000,000 units. And in 2026, I think the ATX product, which is the higher value to cost product will account for the majority of ADAS LiDAR shipments. And in 2026, we expect the total LiDAR shipments will be over 2,000,000 units. So hopefully that will answer your question. Also we are seeing a very I would like to say something about the industry trend.

Speaker 1

So we are witnessing a very rapid increase in the adoption of LiDAR. So the business is driven by the swift development of the intelligent driving functions and a growing awareness of 50 among the consumers. So both factors actually significantly contribute the widespread acceptance of the LiDAR. And while cost remains a very crucial consideration for these OEMs, I would like to say that it is not the sole determinant. I think the paramount or the priority of the OEMs are still due to get the optimal value to cost ratios, where the value in campus is not only the product they get, but also the performance, the reliability and the mass production capability we have.

Speaker 1

And these are the areas where we order Hexa XL. And a good example is our customer's latest car model. So the car model was even priced below 150 ks, but it now features a lighter configuration. I think that is a good trend and we are very confident that in the next year or 2, more and more of our OEMs will go into SOP phase and that will bring our shipment of the LiDARs to go to the next stage of development.

Operator

Yandi. The next question comes from Bin Wang from Deutsche Bank. Please go ahead.

Speaker 6

Okay. My question is about assumption for your breakeven in the number 4 quarter. Can you provide, for example, the volume assumption in the number 4 quarter and the gross margin? Is that breakeven been driven by the huge amount of the Noble Taxi Lighter? So that's number one question.

Speaker 6

And number 2 is about products. You mentioned it's 18 OEM and the Tier 1. So I can handle is 17 OEM and 1 Tier 1 or is 18 OEM with another additional Tier 1. And especially for the minority, right, if you go to Beijing Ruudu show, we found that minority life actually is based on a BMW vehicle. Can you assume you actually indirectly supply to BMW via Meredy?

Speaker 6

Thank you.

Speaker 2

I will answer the second again, the second question first. So we do work with Mirelli as a publicly announced collaboration in which we put in a lot of innovation to try to integrate the LiDAR into a headlamp. And it's actually very smart in the sense that you can do multiple configurations at the headlamp 1 or 2, looking at a forward or tilted sideways and that it has the benefit of ease of cleaning and installation. It just makes a lot of things easier, especially for Western like European American OEMs not having a lighter sticking at the top of your vehicle is actually helpful. I would argue the China market probably thinks a little differently.

Speaker 2

But for the European and American traditional carmakers, they do it by not having to deal with the roof mounted LiDAR for the ease of installation reasons. But it was just a demo kit, the Marelli builds. And I would not over read that because the headwind has to be installed on any car and it does not necessarily mean that this will be the decision and the OEMs that we already have contract with. So I would not over read that.

Speaker 1

And let me clarify that Mirelli is not currently counted in the number of 18 OEM and Tier 1s. So when we talk about 18 OEM Tier 1s, they are largely customers of us who we have to deal with. And also in response to your question about the Q4, so for the Q4, we are expecting more than 200 ks units of LiDARs to be shipped with a very healthy gross margin level. So we guided for the full year, the gross margin will reach in the high end of 30% to 35% range and that will be applying to that will be applied to Q4 as well. And by Q4, we are expecting to reach the GAAP level profitability.

Speaker 1

Adopting very effective expense management on this. Adopting very effective expense management on this. So we are expecting conservatively guiding, we will be having 10% to 15% of operating expense increase. And that will be coming from around 10% to 15% increase on the R and D. I think G and A will be relatively stable as sales and marketing account for another 10% or 15% of increase.

Speaker 1

So by the Q4, because the Q4 will be our largest quarter during the year because of the seasonality, So we're expecting the profitability will be achieved in the 4th quarter.

Speaker 3

Thank you.

Operator

Thank you. The next question comes from Jessie Lo from BofA. Please go ahead.

Speaker 7

Thank you, David, and thank you for taking my question. So first question, we'd like to ask about our other clients that are supposed to SOP this year because understand that we are lowering the number because of our large clients, but then how about the other clients such as BYD, SAIC, Xiaoming, Chang'an, Limota, Great Water, etcetera? That's my first question.

Speaker 2

Yes. Thank you. So again, I want to quickly remind people that we're really shipping with a large number of OEMs this year, especially next, right? And a few of them, we didn't have the permission to mention their names, but you have Li Auto, you have Xiaomi, Chang'an, Great Wall, LiPomotor, Lotus, Netan Lejia and Rocks, Jishi and SAIC, GAC, FAW, so and quite a few other JVs that we haven't announced yet. So this is the aggregate amount for this year is pretty stable, especially for I think it's public info that quite a few OEMs, especially like Xiaomi, is getting a lot of tractions and we definitely expect significant volume from Xiaomi as well this year.

Speaker 2

And we're also very hopeful for like Chang'an and Great Wall and they're all shipping this year. And so again, when you add them up, we are pretty confident that we will deliver the number we expected.

Speaker 1

Yes. And on top of that, for the full year 2020 4, I think for the volume guidance, Li Auto will still take the majority of our ADAS shipments in 2024. And for the Tier 2, there are several companies, including Xiaomi, Changan, Brickwall, Leaf Motor and also the large TV maker.

Speaker 2

There is also another large EV maker that we didn't specify the name for, right?

Speaker 1

And each of the companies in the Tier 2, as we just mentioned, will account for around 20 ks to 100 ks units each. And the Tier 3 companies, as David mentioned as well. So added up together, I think these ADAS clients will deliver around 450,000 units ADAS LIDAR in 2020 24 and adding another around 30 ks to 40 ks or some number around that, we will have total 2024 to reach over 500 ks units of LiDAR to be shipped.

Speaker 7

Got it. Thank you. And then also my second question is about is there any update on the DoD list and our lawsuit? And then how much of the lawsuit expense are we expecting right now?

Speaker 2

Sure. So you're talking about the 1260H, right? So I have an answer for you. Following the company's inclusion on the CMC list, Hexai has faced significant challenges. Additionally, Hexai has been the focus of intense media scrutiny, which has, at times, inaccurately portrayed our business activities.

Speaker 2

These development highlights the urgency and the importance of addressing and rectifying the situation to mitigate the impact on our operation and the stakeholder confidence. It's clear the misinformation spread by some of the competitors before on their way to the government agencies. With our continuous effort to clear the facts, we have successfully convinced the US government and its agencies to revise their evidence containing certain misinformation about Hezai. And it has also been those revisions have been updated publicly. We'd like to clarify and emphasize again that Hezai has strictly operates within the civilian sector and has no connections or affiliation with any military.

Speaker 2

Our products are designed exclusively for civilian applications and are not designed or validated for military use. We remain undoubted in our commitment to developing market leading LiDAR technologies that reduce accidents, save lives and make global transportation safer for everyone. Protecting the interest of our shareholder remain our top priority. We filed a lawsuit to defend ourselves. We seek to open dialogue with EOD to better understand why they added us to the list.

Speaker 2

Ultimately, we want to understand their concerns, are very willing to find a mitigation solution together. The lawsuit is ongoing because we are because of that, we are limited in what we're able to discuss at this time. We'll continue to keep our shareholders and investors updated on any significant development. I hope this answers your question.

Speaker 7

Okay, got it. Thank you.

Speaker 3

Yes, thank

Operator

you. The next question comes from Shang Yu from Huay Thai Securities. Please go ahead.

Speaker 8

Thank you for taking my question. My first question is about the RoboTaxi era. We noticed that Tesla is about release the global tax on August. What do we feel about the global tax in that? Is it warming up in the 3rd quarter or the 4th quarter?

Speaker 2

Sorry, you asked about Tesla, right? And can you repeat the second part of your question?

Speaker 8

My first question is what do we feel about your global tax industry? Is it warm up in the Q3 or the Q4?

Speaker 1

Excuse me, Johnny, would you mind if you repeat your question in Chinese and we can answer in English? I think as of now, we didn't guide specifically for the robotaxi business in the second half of the year. But overall, for the entire year of 2024, we believe that the robotaxi business over will account around roughly half of our total revenues in 2024. And in the robo taxi business, we are seeing a very fast ramp up of the non U. S.

Speaker 1

Business that includes some of our leading level 4 players such as Baidu and Pony AI. I think for one of the largest U. S. Clients we had, I think for them we are seeing a good positive update seeing that they are opening their testing rights. I think that's a good sign.

Speaker 1

But as of now, we didn't account the potential upside in our current guidance.

Speaker 2

So I would answer in a slightly different angle. First is that the fact that Tesla is spending effort in trying to bring RoboTaxi to more general public and even possibly in China is a good sign. And it's been consistent with what Elon has said and their strategy of believing that in the end, the biggest product biggest productivity boost is coming from Robo Taxi, right? So and they're maximizing that. It does not necessarily mean that we will use LiDAR, but it's pretty clear that they believe there is enormous amount of value being created in this industry.

Speaker 2

And we are seeing steady development, not the exponential growth for the robo taxi industry globally as people were expecting a few years ago, but it's a steady development. What I do want to point out is that when we talk about robo taxi, it's a fluid concept in the sense that if you're only talking about steering wheel less people mover, that type of Robo Tech, that's really just one kind of the application. What we see today across the globe on the industry is that you can really just do quite a few level 4 applications without using the strict concepts. For example, there is Robo Truck, there is Robo Sweeper, there's robo grocery delivery box. And if you use that more stretch the definition of robo taxi, Those are all growing steadily.

Speaker 2

We're actually seeing a lot of volume increase this year on those type of applications in which you need a slightly lower performance lighter, more affordable, but they have bigger volume and the practicality of those technological products are much more tangible than the most challenging application, which is a people mover. So if you look at Robotech as a whole, we're actually pretty optimistic that this market will steadily grow. But I don't I wouldn't necessarily say we're counting on Q3 or Q4 because we're the biggest player in this industry already. We expect the industry to steadily grow.

Speaker 8

We see the performance of AT512 is really strong. Is this possible to replace the QT in the robotaxi?

Speaker 2

Yes. I think the answer is clearly yes, right? So if you're saying that, do I always expect RoboTaxi to only use Biniliner, I don't think we ever said that. The truth is that if you look at the latest product launch of the Baidu Robotaxi, Baidu is also a long term partner and had been the investor, They actually use our AT128 series, right? So and then I think they publicly said that they are expecting to deliver over 1,000 robotaxi vehicles.

Speaker 2

So first, I think I hope this helps your assessment of the situation. Then AT512 is a much more powerful product than 128 in two regards. One is it has 8 more times of resolution going from right? And the second one is and it is expecting to exceed 300 meter range. I think what's more interesting as we see is that if you look at the name, it's 80 because it's the similar architecture of 1D scanning.

Speaker 2

So the beauty of our architecture is that we could go with a more affordable model, which is ATX from the AT128 platform and we go the other direction of AT 512, which is a much more powerful product, also with the same platform. So I think the takeaway is that I publicly said this, everybody wants to ride on a wave of the Moore's Law. But if you carefully read what's in the Moore's Law, there are really 2 ways to do that. 1 is you keep similar performance and over every 18 months or even shorter amount of time, you can half the price or you can keep the similar price level and then you can greatly enhance your performance, as I said, 8x resolution with a similar price range, which is, of course, 8512. And then we expect the higher end AT512 platform to be widely adopted for the Western, the European, American OEMs for their Level 3 application.

Speaker 2

And we expect the ATS to be the affordable model, its little brother to be widely used by the COEM's level 2 plus plus application And we're very glad that for both assumptions, we already have enough data points as design wins, both globally and especially in China. There are many customers have already decided to pick us for the ATX. So I think the Moore's Law implementation in both paths are already being fully validated.

Operator

The next question comes from Michelle Jing from HTI.

Speaker 9

This is Michelle. I'm so excited and impressive to hear our wonderful performance and also our innovation. And my question is kind of based on the questions from the previous analyst. As you talked about penetration rate increased tremendously and we expect more later product that's going to be used in 100 ks to 150 ks price and products, so vehicle models, I mean. So as you previously talked about the price expectation, can you please share how does the company view and respond to the future competition?

Speaker 9

And on top of the competition, can you please talk more about your future cost and scale optimization strategy and just strategy in general? Thank you.

Speaker 2

So your question is on the price competition becoming more intense as we dive into the category of below RMB150,000, how do we fight this competition as a company strategy wise, right? So I think the biggest strategy we have on this is in the internalization and in house ASICs as we always explained, right? So China market is very interesting in the sense that it's almost relentless in wanting something that is even slightly cheaper. There is no secret on that and we have to address that and we have, right. So and instead of just losing money to win business, we work on innovation to own our supply chain and the semi and to continue to have better integration and the internal development to reduce the cost to return to the reasonable margin that we expect to be at.

Speaker 2

I think it's I'm pretty confident to say that we are on the right path and we were the earliest one in trying to do that in the industry and we've gone the furthest in the internalization rate of our product as well as just the sheer amount of development on the number of semiconductors we have as a company. And on the other side, I do want to point out that price isn't the only factor in any competition anywhere else, even in China, because if you only want something that's extremely cheap, you really just don't have to use LiDAR. Why do people use LiDAR at all? So I think the reason for most OEMs is that they want to build a car that is either really smarter or at least perceived to be smarter, so and as intelligent driving. For that reason, being able to tell your customer the OEMs being able to tell your customers that we are equipped with HOSAI LIDAR with the highest performance in the industry with the biggest brand and this is also the similar platform that most of the world renowned carmakers are using.

Speaker 2

As we said, 6 we have collaborations with 6 out of the 10 players in different forms. That is actually very helpful to Chinese customers. So instead of asking the OEM to pay for it without the justification, we try to see as a way to help promoting the OEMs product. The money they pay on LiDAR is supposed to give them a ROI of multiple apps because they can recruit the investment by having a much better vehicle volume sales. So I think that's the goal.

Speaker 2

And for that reason, we need to control our costs first and in the same time, continue to build our brand and continue to expand globally to make this product the go to LIDAR for every vehicle. And then in the end, we will be able to penetrate hopefully to all of the passenger vehicles.

Speaker 9

Thank you.

Operator

Thank you. That does conclude the question and answer session. I'll turn the call back over to the company for any closing remarks.

Speaker 1

Thank you once again for joining us today. If you have any 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

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Heritage Commerce Q1 2024
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