Hesai Group Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 14, 2023

There are 9 speakers on the call.

Operator

You for standing by, and welcome to the Hersai Group Second Quarter 2023 Earnings Conference Call. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. I would now like to hand the conference over to Yanting Zhih. Please go ahead.

Speaker 1

Thank you, operator. Hello, everyone, and thank you for joining Selsai Group's Q2 2023 Earnings Conference Call. Our earnings release is Now available on our IR website at investor. Fusitec.com as well as via newswire services. Today, you will hear from our CEO, Doctor.

Speaker 1

David Li, who will start the call with an overview of our recent updates. Next, our Global CFO, Mr. Louis Che, 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. 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.

Speaker 1

With that, I'm pleased to turn over the call to our CEO, Doctor. David Li. David, please go ahead.

Speaker 2

Thank you, Yandi, and thank you, everyone, for joining our call today. In the Q2, our team's dedication and hard work resulted in record breaking quarterly figures. In particular, We achieved unprecedented milestones in our quarterly net revenues, experiencing a surge of over 100% year over year. Furthermore, our total LiDAR shipments for the quarter soared to a record over 52,000 units, marking a 10 fold increase compared to the same period last Yes. Both our ADAS revenue and shipments also reached all time high with ADAS shipments growing 27 times year over year, Further reinforcing our leading position in delivering high quality lidars for passenger cars.

Speaker 2

As a result, we are delighted to report that our Strong shipments along with our unwavering focus on operating efficiency have generated a positive operating cash flow for the 2nd consecutive quarter With a 4 fold increase over prior quarter, among our 6 U. S.-listed peers, we take pride in being the sole players With a positive operating cash flow, these financial achievements underscore our commitment to sustainable and profitable growth in the long run. We are also thrilled to be named as the number one global automotive LiDAR supplier for the 2nd consecutive year in a recent report published Like You Intelligence, a world renowned independent research company in Europe, we have captured 47% of the worldwide LION market share By revenue in 2022, you report indicated astounding growth of 95% of the global automotive lidar market From 2021 to 2022. Meanwhile, we extended our leading position increasing our global LiDAR market share from 42% in 2021 To 47% in 2022, clearly surpassing the 2nd largest player at 15%. Furthermore, according to the report, Hesai is projected to be the largest shipper of 8 of LiDAR units at yan in 2023 with an anticipated volume Almost 1.5 times greater than the 2nd ranked flyer, firmly establishing us As a market leader, this prestigious leadership position is a strong testament to our exceptional capabilities in designing, Manufacturing and shipping high performance high quality lighter products at a substantial volume.

Speaker 2

We take immense pride in our unique ability To meet market demand and consistently exceed customer expectations. Now let's take a closer look at our Q2 business update. On the ADAS front, we're excited to announce that we have secured a new domestic design win for multiple series production vehicle models with STAK MOTOR. Our partnership with them now includes new intelligent multipurpose vehicles in addition to our previous collaboration on passenger vehicles And battery electric heavy duty trucks, among our 11 ADAS customers, 6 of them are scheduled to begin shipping new easy models Equipped with Hexai LiDAR by end of 2023. Also, as of Q2 of 2023, among our 11 ADAS OEM customers, We have achieved ADAS design wins for mass production across over 40 vehicle models, showcasing our commitment to providing top notch LiDAR products to our value customers.

Speaker 2

Internationally, our ADAS LiDAR products have attracted significant interest from global OEMs We acknowledge our proven track record in consistently delivering automotive lidars of the highest performance and the better quality at scale And meeting production schedules. We are making notable progress in advancing our discussions with leading global OEMs on sourcing arrangement For the next generation intelligent vehicle, in the Q2, 4 additional programs with 3 leading global OEMs Have moved forward to the RFQ phase and we anticipate final decision to be made starting in the Q4 of 2023. Among our ongoing RSU engagements, we forged 2 new strategic development programs with 2 leading global automotive OEM 1 from North America and 1 from Europe. These comprehensive programs encompass long and short range LiDAR, Enabling us to create a comprehensive portfolio of advanced LiDAR solutions that prioritize safety, development programs like these Represent a unique opportunity for us to fine tune our products around the designs of the target vehicle models and offer OEM customers a deeper level of understanding of our technical superiority and engineering capabilities before they make final decision. Moving on to the autonomous mobility market.

Speaker 2

In the Q2, we successfully commenced the volume shipments on our latest deal, Which represents the largest robo taxi Lidar contract in the company's history with a leading global robo taxi player, An order we mentioned during our last quarterly earnings call, the entire order spans the next couple of years and notably we have already secured contracts To ship LiDAR is valued at a couple of $100,000,000 for the year of 2024 alone with an improved gross margin. Next, I'd love to share an update on manufacturing and product upgrades. We remain on track to manufacture our upgraded AT series LiDARs Featuring a refined design, extended detection range and lower power consumption, full scale production is anticipated To commence in the Q3 of 2023 at Hertz Center, our in house manufacturing facility in Hangzhou, which operates at an automation rate over 90%. This new mortar manufacturing facility is designed to increase our production throughput, further reduce costs and pave the way For even more scalable production, anticipating a smooth transition, we expect to begin volume shipments of the upgraded AT1128 Early in the Q4 of this year. In the recent development, we've deepened our long standing partnership with NVIDIA, Which dates back to 2019 through a new venture that seamlessly integrates our cutting edge LiDAR sensors into their NVIDIA DRIVE And NVIDIA Omniverse Ecosystems.

Speaker 2

Now developers can leverage the NVIDIA platform For more accurate testing of the autonomous vehicle algorithms, we are significantly shortening the development cycle, facilitating a more efficient A powerful approach to autonomous driving. NVIDIA has been one of our top 10 U. S. Customers since 2019. Last but not least, safety remains at the heart of our endeavors, a commitment deeply rooted in our conviction that human life is Our unwavering dedication to spearheading advanced and comprehensive safety standards in our functional safety, Cybersecurity and product quality truly sets us apart in the industry.

Speaker 2

The pride we take in our achievement is tangible. We are Certified by SGI, the world's leading third party certification company as the very first LIDAR sector To attain ISO B product certification in our products. Furthermore, we're truly honored to lead the themed Global ISO Automotive LiDAR Working Group, where we collaborate alongside industry giants like Valeo, BMW, Bosch, Sony and Volkswagen, together we're forging a unified consensus on the test methods for automotive grade LiDAR, Showcasing our leadership role in shaping the industry's future, it brings us immersed pride To shoulder the responsibility of utilizing our technical expertise to drive the establishment of multiple safety centers for the industry, Our devotion to safety knows no bounds, and we continue to push the boundaries to empower a To quickly summarize, our Q2 was truly remarkable. Our operational accomplishments are a testament to the strides that we're making with the record breaking revenue and lighter shipments, Backed by a steady positive operating cash flow, this is just the beginning of extraordinary journey ahead. Our unwavering dedication drives us to build upon these triumphs and see long term growth opportunities In the booming ADAS and AM markets, our commitment to excellence goes beyond near worst.

Speaker 2

It's a relentless pursuit to ensure that our products are synonymous with trust and dependability to safeguard the well-being of Every end customer and to craft a tomorrow where safety is paramount and intelligence thrives. Now I'll turn the call over to Louis to share more details on the financial performance and outlook. Louis,

Speaker 3

please go ahead.

Speaker 4

Thank you, David, and hello, everyone. Let's go through our operating and financial figures for the Q2. To be mindful of the length of our earnings call today, I encourage listeners to refer to our 2nd quarter earnings press release for further details. We are delighted to see that our Net revenues exceeded our guidance, reaching an all time high of RMB440

Speaker 2

US60 $700,000

Speaker 4

this quarter, up 108.5 percent Year over year and 2.4% quarter over quarter. In the second quarter, Our LiDAR shipments saw an impressive tenfold surge year over year, 49.6 percent increase quarter over quarter, reaching a record high of 52,106 units, Reaffirming our leading position in the global LiDAR industry with cumulative LiDAR shipment now Seating 190,000 units. In addition, we attained exceptional Milestones with record high ADAS revenues for the Q2, experiencing a triple digit year over year increase And shipments of ADA's LiDAR soaring to an astounding 27 times year over year. Based on reported revenues and shipments in 2022 as well as the first half of twenty twenty three, we continue to outpace the competition With higher revenues in LiDAR shipments than our 6 other U. S.-listed LiDAR peers combined.

Speaker 4

Our gross margins for the Q2 of 2023 exceeded our earlier expectations, reaching 30%. This achievement is a result of better than expected ASPs and continuous improvement in our manufacturing Cost structure. Even though the gross margin is slightly lower quarter over quarter as expected due to the commencement of a larger a large But lower margin quarter with a leading global robotaxi company. Furthermore, our unrelenting efforts To improve revenue scalability and cost efficiency resulted in sustained positive operating cash flow For the 2nd consecutive quarter of RMB58.3 million, US8 million dollars This accomplishment, which is unparalleled in the LiDAR industry, represents a 4 fold quarter over quarter increase, underscoring Our robust financial trajectory to profitability in the long term. Turning to our financial outlook.

Speaker 4

For the Q3 of 2023, we expect net revenues to be between RMB405 1,000,000, RMB55.9 million and RMB425 1,000,000, 58.6 million Representing a year over year of approximately 21.3% to 27.3% growth. The lower than normal year over year quarterly net revenue growth can be attributable to 2 primary factors. First, net revenue in Q3 'twenty two were elevated due to a significant rebalance In Q3 'twenty two, following the Shanghai COVID lockdowns in 2Q 'twenty two, resulting in a high base year over year comparison for Q3, 2023. And second, LiDAR units totaling several $1,000,000 that were initially scheduled for delivery in 3Q 'twenty three are now anticipated to be delivered in 4Q 'twenty three instead, an adjustment That purely reflects a shift in timing. We are still on track To meet or exceed our revenue target of RMB1.8 billion, approximately US250 million It's important to highlight that the strong growth comes in the face of challenging currency backdrop, With the RMB having weakened about 8% against the U.

Speaker 4

S. Dollar over the past year, shifting from around RMB6.71 To RMB 7.25 to the U. S. Dollar. Regarding LiDAR shipments, Our original goal was to achieve 250,000 for the full year 2023.

Speaker 4

Due to some delays from our OEM customers, Particularly relating to new model releases and the product transition in our updated AT-one hundred and twenty eight, which mandates Testing and validation by our customers. We are now projecting shipments Approximately 220,000 LiDAR units for the full year 2023. With respect to gross margins, we anticipate the commencement of production of our Hertz Sichu factory in Hangzhou In the Q3 of 2023, we'll further improve our ADAS gross margins as it reaches economies of scale in manufacturing and utilization. We also expect our group level gross margins to rise in the Q4 of 2023. We are now confident We will exceed our gross margin target of 27% to 30% for the full year 2023 and expect to reach Our long term target of stabilizing the blended gross margin between 30% To 35% in this 2023 year, 1 year ahead of our previous estimate.

Speaker 4

In summary, Our full year 2023 revenues, gross margin and operating cash flow have all surpassed our expectation, Whereas our LiDAR shipment volume is slightly lower than our initial estimation made at the end of last year. Nonetheless, our business continues to make significant strides, paving a clear path to sustained growth and profitability. The above outlook is based on our current market conditions and reflects the company's Preliminary estimates of market and operating conditions and customer demand, which all are all subject to change. This concludes our prepared remarks for today. Operator, we are now ready to take questions.

Operator

Thank If you wish to ask your question in Chinese, please immediately repeat the question in English. For the sake of clarity and order, please ask one question at a time. Your first question comes from Tim Hisao from Morgan Stanley. Please go ahead.

Speaker 3

Good morning, David, Lewis and Tian. Thanks for taking my questions and congratulations on another solid quarter. I have two questions. The first one is about the delivery delay, because according to the earnings release, There will be several $1,000,000 sales of LiDAR delay from Q3 to Q4. I think I'll just briefly highlight But could you elaborate a little bit more about what caused the delay and what kind of program it is?

Speaker 3

Is it mechanical or semi solid state LiDAR? And any real cost to the impact to Hesai's 4th quarter margin? And lastly, do we expect any further delay of other projects from Q4 to sometime next year? Thank you.

Speaker 4

Thank you, Tim. As far as the delays, they relate to both ADAS LiDAR for the solid state as well as for The AT series. We won't discuss any names, but they will move to Q4. And then I don't at this point know of any delays into Q1 of next year, but you can basically expect a large Q4 That's delivery number. As basically many of our customers will ramp up for next year.

Speaker 4

Think about this year, we'll probably have 3 or 4 programs that are shipping, that are actual models shipping in ADAS. Next year by the end of next year, we expect over 30 models. So some of them will be begin to accept LiDAR and ramp up in Q4. So it's just been a shift in time, But I won't call out any specific names.

Speaker 3

Got it. Thank you, Luis. My second question is About the overseas projects, because during the presentations, I think David mentioned that The company has received several RFQs from Europe and U. S. Card makers and some would Turn to the confirmed purchase orders likely later this year.

Speaker 3

So could you please shed some light regarding the rough scale of those So projects, this is what we currently have in China. And if there is any potential SOP schedule you can share with us. Thank you.

Speaker 4

David, you want to take the overseas? Yes.

Speaker 2

Hi. Thank you, Tim. This is David Lee. So you asked about the global programs, right? So I think, first, we have moved from quite a few of the RFIs to RFQs, Which is really the last stage before they make the final decision to go usually with 1 vendor.

Speaker 2

And yes, based on the schedule we're given, they will start giving out final decisions starting in Q4 of this year and a lot of them are Q4 this year and Q1 next year. I think we also mentioned briefly that On top of this RFQ, some OEMs are taking an extra step to do a development project with us, which is One step further, meaning that for the few of the vendors who are on the short list of RFQ, they usually go with 1 or 2 of those vendors to do in-depth development first before making the decision, essentially Run load some of the work for them to further understand our capability in a development Style as opposed to just looking at and testing the units. So This is very helpful to us because if you think about Hexai's capability, we always outperform And peers, when we are our products are testing directly against specialty in an integrated way, and now we're giving this very Special opportunity to prove that. So we are in the process of the 2. 1 is with European OEM, the other with American OEM.

Speaker 3

Got it. Thank you very much, Davey and Lewis. I'm looking forward to more breakthrough in the new product wins. Thank you.

Speaker 4

Thank you,

Operator

Tim. Thank you. Your next question comes from Olivia Zhu from Goldman Sachs. Please go

Speaker 5

ahead. Thank you, David and Louis for taking my question. Congratulations on the results. My first question is about the pricing. We've seen the intensified pricing competition in the EU space in July August.

Speaker 5

How do you see the pricing pressure to lighter products into the second half this year and longer term.

Speaker 4

Thank you, Olivia. I think For Q3 or Q2, our pricing remained relatively stable. There was the large contract with a global taxi company That was that obviously lowered our prices and affected our gross margin, but that was accounted for already. We have seen the stabilization in prices For AT XT, QT and PANDAR. In fact, the pricing for other customers It's actually been better than expected, and that's why you saw the gross margin tough up.

Speaker 4

So we raised our gross margin profile. So, so far it's been relatively stable. In the Q3 and Q4, we expect that stability to continue for this year because we signed Longer term contracts, and then as far as next year goes, we will have to wait for Q4. So we are lucky so far that prices have stabilized.

Speaker 5

Got it. Yes, my second question is about the financials. We see that both Sales and marketing and also R and D expense was lower in the Q2 versus the Q1 this year. How should we expect the OpEx to turn into the 3rd Q4 this year.

Speaker 4

I think sales and marketing and G and A are certainly under control. So they will continue to trend down as a percentage of revenue. R and D, if it goes up more, it's actually a good sign. That means we're winning programs. So obviously when you win a RFQ, you must put resources into the initial phase for getting the product to SOP.

Speaker 4

So if we do increase the R and D side, it will be good. Also, Maxwell will open next quarter and that will mean R and D spending to move And to buy testing and validation and calibration equipment and moving it into the new facilities as well as additional headcount. Same thing on the Hertz side. Hertz will begin full scale operation in September. And so it will require some spending there.

Speaker 4

But R and D spending at this stage for the rest of this year is actually a good sign. That means we're winning a lot of business.

Speaker 5

Okay. Got it. That's very clear. Thank you. Thank

Operator

you. Your next question comes from Binwang from Credit Suisse. Please go ahead.

Speaker 5

Thank you. I got 2 financial questions. Number 1, can you provide a

Speaker 6

Q3 volume guidance Because you provide revenue, can you provide a volume for Lyda? That's number 1. Number 2 is about a question about service revenue. Why such a big jump in the

Speaker 4

First question on the units. We don't typically provide units guidance, but it will be lower Likely than Q2, that's why the revenue is slightly lower because of the shift in timing. Q4, the units will be quite high, But it will somewhere be my best guess would be the units will be somewhere between 45,000,48,000 units. And then on the services revenue, I didn't see any specific pop up. Do you know why, Norman, The services revenue went up in Q2?

Speaker 4

I didn't really see it. Yes. Okay. So it relates to a specific Project where we're working with to build basically it's a new software development program. So that one we haven't really disclosed yet, but that's the reason.

Speaker 2

Thank you. Okay.

Speaker 6

Thank you.

Speaker 4

It's not significant in our business yet.

Operator

Thank you. Your next question comes from Liping Huang from Huatai. Please go ahead.

Speaker 6

Okay. Thank you for taking my question. The first question is Also about the margin outlook in next few quarters. So you mentioned it's due to a one time big order from 1 major customer in second quarter. Should we what should we look at the margin outlook in next few quarters?

Speaker 6

Were it stabilized in this below 30% range? And Since we see some also related is that we see some further price cuts on the OEM side These days, how this translates into your margin? Yes, this is the first question.

Speaker 4

Yes, I think for us, Q3 we'll see a dip in margin as we've already telegraphed Everyone, I would expect Q3 gross margin to be somewhere between 20% 25% and then Q4 will bump up. Q4 with the Hertz facility running and also with the new version of AT In the market, you should see a bump up in gross margin back to 30% to 35%. So for the full year of 2023, We did 38% gross margin in Q1, 30% in Q2. Q3 will be our low point, 20% to 25%. Q4 will be back to 30% to 35%.

Speaker 4

And so for the full year, we will exceed 30% gross margins. So we will hit our target long term target 30% to 35% gross margins for the whole year and Q4 will do that because of the size and the volume shipments in Q4. For long term gross margins next year, we expect it to be in the range of 30% to 35%, because the enhanced AT will be shipping in large volume. So if we ship 220,000 total LiDAR this year, next year we'll probably expect a double on that to over 400,000. So things will be at scale.

Speaker 4

Therefore, gross margin will go up with the new enhanced AT product. 2nd is the large robo taxi business. We will also have an enhanced, Pandora product, which will begin to ship in Q1 of next year and that will also improve margins. So between the 2, with our revised and enhanced products in AT and Pendar, you will see a Gross margin stabilization between 30% to 35%. In fact, 24% should be higher than 23% in gross margin.

Speaker 4

So that's why we're moving very quickly on a clear path to profitability by the second half of twenty twenty four.

Speaker 6

Okay. So the second question is about do you have any CCEs action postpone the revenue to the Q4? So Based on the latest view on the market, do you have any visibility on your outlook for the next year for 2024?

Speaker 4

Yes, I think for Q4 of 2023 will be our biggest quarter at this point. So that's why we will hit our For the first two quarters, we've done $120 something million. Our target for the year is 250. So and don't forget, if you when we made that projection last year, the RMB6.7. So that's actually USD270 plus 1,000,000 So we'll exceed our original forecast.

Speaker 4

So if you put that in perspective, Q4 will be our largest quarter. ADAS units will ship the highest As people ramp up for 2024, so we would expect to hit that $250,000,000 mark with a strong Q4, Both in deliveries and in revenue for the quarter. For 2024, our current estimate and we'll refine it as we get closer to 2020 4 is for units to be over 400,000, so basically a double almost from this year. And revenue should easily be At least 60% to 80% growth year over year. So we're targeting somewhere between $400,000,000 $450,000,000 Which would be 60% to 75% or so growth.

Speaker 4

So we expect a strong 24%. Okay. Thank you very much.

Operator

Thank you. Your next question comes from Tim Hisao from Morgan Stanley. Please go ahead.

Speaker 3

Hi. Thanks for giving me another opportunity to ask follow-up questions. So I actually have another Related to the operation. So the first one is about the client concentration because despite the 11 ADAS customers, I think David just mentioned earlier, currently, the single largest customers to contribute a big chunk of Hosai's add as revenue. So looking forward, should we expect more diversified sales mix in 2024?

Speaker 3

Or is such sales concentration in your view might continue To be the case, given the increasing divergence in performance of wholesale gain customers, we noticed that probably 1 or 2 of them are doing very well. So this is my first question.

Speaker 4

Yes. I think for this year, you're correct, Tim. The concentration is well over 50% On the ADAS side in one customer and about 50% on the robo taxi side in one customer. We obviously expect some diversification in 2024 Because right now only 3 or 4 models are shipping SOP, by 2024, by the end over 30 models will be shipping. We have one of over 45 models in our pipeline.

Speaker 4

So you can see that obviously with more model shipping In 2024, the concentration in ADAS will also same thing on the robo taxi side. We have hundreds of customers on the robo taxi side And industrial robotics side. And so the concentration we would expect to lower in 2024, although these two customers on ADAS And robotaxi, obviously, are our biggest two customers. But we do expect some reduction in the percentage. You had a second question?

Speaker 3

My second question is about the product itself because I just want to check that on most orders of Addus, LiDARs in our order backlog Still standardized product and do we see increasing requirement of the product customizations By our clients or most OEMs or carmakers are still fine with the standardized products. So going forward, do you expect The company, if you have more co developed or bespoke projects with OEM, that could help probably companies tied up with the carmakers in the long term? Thank you.

Speaker 4

Yes. I think you're seeing a bifurcation in the standard versus optional side. So for the high end models, For the high end models in most of these OEMs, I think LiDAR will become more and more increasingly a standard feature. For cars in the mid range or lower, you will see it as an optional feature. But over time, as you will see, As the market moves to L3 and L4, LiDAR becomes a necessity.

Speaker 4

So for one of our customers, For the, NOA product, so the navigation on autopilot, it requires LIDAR. So if you want that feature, to be able The hands free driving in the city or on your commute or in parking, you're going to need LiDAR. And you'll see that as the features become writ And the functionality increases across the OEM spectrum that LiDAR will be seen as a necessity. But right now, I would say is for the high end cars, you'll see that in our largest ADAS customer and others is a standard. But for products that are not the highest level as far as their price point, you will see it as an option.

Speaker 4

Even on the option, the take up rate for us has been about 30% plus. So it's not bad.

Speaker 2

Louis, I think

Speaker 4

Tim's question might be

Speaker 2

a different I think he is asking whether we're providing a customized product or standardized product to the customer in

Speaker 4

the long run.

Speaker 2

Is that right?

Speaker 4

Most of it is standardized, the AT.

Speaker 2

I think the short answer is that we always provide the standardized product in the sense that It's the same platform, same specs. When we, for example, upgrade from the current AT128 to the Upgraded version, everyone also moves over. And in the end, it's about Economy of scale and efficiency. So we always try to provide the same product to everyone With no customization on the performance and definitely no customization on the reliability part, and the only part that might be different is The communication, because different customers probably talk to our LiDARs in a different way, I mean, on the data line, right? So that's the only part that's different.

Speaker 2

And other than that, people always we always ask them to join the same platform and so that we can focus on polishing One product for everybody and at each generation and that has always been the strategy.

Speaker 3

Got it. Super clear. Thank you very much, David and Louis. Thank you.

Speaker 4

Thank you, Kevin.

Operator

Thank you. Your next question comes from Yang Kong from CICC. Please go ahead.

Speaker 6

Thanks I'm Yang from CICC and congrats on your achievement. Would you like to share with us Your opinion about the relationship between 4 d radar and lidar because as far as I know, Liotta has used 4 d radar on its L7 model. So, would you think this will be a trend in the future and how this will impact on Lidar future volumes? Thank you.

Speaker 4

David, you want to take this?

Speaker 2

Yes. Yes, sure. We are we follow the development of Any of the new sensors on the vehicle is very costly and 4 d radar has definitely been one of the interesting options. But let's just talk about the specs, Right. So I think one of the things 4 d radar is really good at is that it doesn't have any moving parts and it's performing relatively better In the more difficult weather.

Speaker 2

But other than that, I think the biggest challenge for 4 d radar today is if you just look at the image of it, Resolution wise, when I say resolution, it's how many points per second from LiDAR, right? That's one of the Most important aspect of LiDAR or camera. 4 d radar is roughly 1% resolution Off a good LIDAR, which means that the image you see is going to be Kind of blurry because the resolution is so bad. It's like you take off your glasses and you look at what's in front of you. Yes, you get an idea of what's going on, but For safety, if you fully rely on that, it's going to be difficult.

Speaker 2

And I can name quite a few cases That 4 d radar resolution simply isn't good enough. And then for camera alone, it doesn't fully Give you the 100% confidence in detecting them. That's where really LIDARs come in, right? LIDARs are not about The 99% of the scenario and safety is always about the last 1% or maybe the 1% of the 1% of the scenario Where LiDAR performs much better than any other alternative. And I am not seeing 4 d radar to match The resolution of LiDAR anytime soon and if ever, I won't be able to comment The rationales behind why LiaoTao is using some of the 4 d radar, but I think it's sufficient to say that Even for the L7 model, the MAX version also have our lidars on.

Speaker 2

At least, we haven't seen The trend that any of the 4 d radar is replacing LiDAR at all. So this is our view. And if you just simply look at it, Whether you can use 4 d reader to do the driving and if you look at the point cloud, you get a much clearer picture.

Speaker 6

Got it. Thank you. Very helpful. Thanks.

Operator

Thank Your next question comes from Jessie Lo from BMO Securities. Please go ahead.

Speaker 7

Sure. Thank you, Mohan, for taking my question. So my first I guess it's difficult to share the news, but how is their attitude and expectation and the cooperation in terms of the launch time on the model equipped with the LIDAR, Model price range, potential end market and also their like ideal cost on adopting LiDAR in their mind. Thank you.

Speaker 4

David, do

Speaker 2

you want to take a look? Yes. First, I won't be able to give the exact names, but I could comment on the rest of the questions. First is, for the global OEMs, it's normally from late 2025 to 2026 27, which is a bit later than a typical Chinese OEM, which has a shortened development cycle. And then the second question is About this process and their attitude, it's actually very interesting because for The typical traditional global OEMs, they are normally known for being conservative and have long The vetting process and decide LiDARs earlier than or more years in advance than a typical Chinese player.

Speaker 2

And usually at least some of the OEMs have already some prior relationship with a competitor in the LiDAR space. I think what at least what I was told is that they understand the complexity of this selection and they think that It's not very easy to make the right choice. That's why they're being very careful at this time. I think I also briefly mentioned that. And During even our Q phase, now they are demanding more tangible evidence.

Speaker 2

In other words, it used to be that if you have a very nice PowerPoint and some very good samples and that's enough. And now the OEMs are like, oh, I need to see the full set of evidence, especially all the way to production, which is more than fair, right? Because now LiDAR space is entering a new era where some of the players like us are already shipping in larger volume and others are not. So and that's also one of the things they pay a lot of attention to because in the past, no one is shipping yet. You can only rely on the Sample assessment.

Speaker 2

Now they spend a lot of time auditing our factory, looking at our production capability, especially looking at The quality of the parts we shipped, right, we shipped close to 200,000 sensors so far as a company And more than 100 on the ADAS side. So and then they come to us and they say, look, we really care about The quality you shift because a lot of your peers are far away from the scale you are, but are you shifting at automotive grade quality that we need? Of course, that can only be answered by looking at the reliability of our sensors. And the quality is Interesting thing in the sense that it's impossible to predict, right? You can only know some parts are of high quality when they have Shipped enough and you can look back and look at it.

Speaker 2

So we are one of the very few competitors who can tell the OEM that we have shipped large volume and please look at We really meet your standard. So that's one of the things that makes us very unique in those discussions. And I believe that's one of the reasons we are advanced to Not only RFQ, but also the development phase. Yes, hopefully, that will yield good results in the next quarter or 2.

Speaker 4

I think also to add on that, these development agreements are for much larger Volume in the long term than the initial ones that were awarded based on PowerPoint. So those were kind of test projects to test the concept of LiDAR. The ones that are upcoming are much larger, they're platform based. So they will cut across many more models and higher volume cars. So it's a bigger game to play now Than it used to be.

Speaker 4

The price is much larger.

Speaker 7

Yes, sure. Thank you so much. So my second question would be The sensor numbers are equipped on a car. So we explained comments on cutting the sensor number by 50% and carry out their EDAS Question to these algorithm evaluation or like progress in 2024 to 2025, did we see any like related feedback and thoughts From our existing OEM clients. And on the other hand, as they started this cooperation with Volkswagen,

Speaker 4

I didn't catch the question. David, you want to handle that?

Speaker 2

Yes. I'll answer it. I'll take the question. So I don't think we can comment specifically on each of the customer. So I will focus on the previous question, which is do we see the trend of number of LiDARs going down on the vehicle.

Speaker 2

First of all, the most of the customers we work with today are using 1 LiDAR versus 2. Well, I guess it depends on their strategy. When you use 1 LiDAR, it's focusing on the long range looking Forward, more like a highway type of application. And as they evolve, Lot of people are considering putting more, especially around the vehicle. I think it's the need of the scenario, the ODDs.

Speaker 2

And my belief is that the functionality of the different ADAS Vehicles are evolving very quickly and in the end, they're going to be able to handle many different scenarios, including low speed, Urban driving, even last mile, valet parking, things like that, for that, the coverage you need is more than just Forward facing long range and that naturally require more number of lidars and that's also the trend we see. Of course, in the end, it's depending on the speed of the software deployment on the OEM side on when they can fully Deploy and release those functions to the customer. But we already see that some of the customers we work with, they already have 3 LiDARs starting this year. So we definitely see that.

Speaker 6

Thank you so much.

Operator

Thank you. Your next question comes from JPMorgan. Please go ahead.

Speaker 8

Hi. This is Lily from JPMorgan. Thanks for taking my question. I actually have two questions. The first is that could you give me more guidance regarding the delivery pipeline from 6 OEMs By end of this year, to land volumes by end of next year, because I'm actually curious if we may have some seasonal Volatility on shipment throughout the next year, if any large order from one single client and whether there will be Potential downside risk if that order got late.

Speaker 8

That's my first question. Thank you.

Speaker 4

I think for 2024, We expect 10 or 11 OEMs to be shipping by then. And what you know we have one customer is our customer. I think the risk there is not high as far as the delays or shipping. They're obviously selling very, very well. So long as they do well, we will do well.

Speaker 4

I think the overall total number of shipments for ADAS LiDAR should be in the range of 400,000 380,000 to 420,000 units for next year, and that's between 11 OEMs. And then for the robo taxi side, should be well over 30,000 units, 30,000 or 40,000 units.

Speaker 8

Okay. Did I

Speaker 4

ask your question? You want voice response? Yes.

Speaker 8

That helps. And my second question is that could you give us more updates regarding the XT series and F2 series? Any orders on that part and what is expected throughout time? Yes. Thank you.

Speaker 4

XT has done quite well. So XT is actually growing 30%, 40% a year in units and the price is Quite good. QT is also doing well. So the ones below Pandora, the whole robotaxi side is doing quite well. So the growth rates are we've sold so far in the first two quarters over 12,000 and then for the whole year We should be over 25,000 units on the non ADAS LiDAR, so the PANDA, the XT and the QT.

Speaker 4

So all 3 of them are selling quite well. XT probably better than We don't break down specific total units, Those 3 together will be about 25,000 or more units for this year.

Speaker 8

So Matt, confirm that it's about Feet better than QT?

Speaker 4

Yes. Feet is supposed to be released this quarter. To be perfectly honest, the number of units that we'll deliver is Won't be high. That's one of the ones that will miss the target. We originally forecasted 10,000 units.

Speaker 4

It will come in well short of that. So Feet, we still have a couple of customers for it, but the volume will be much lower than originally forecast.

Speaker 8

Okay. Understand. Very clear. Thank you.

Speaker 5

Okay.

Operator

Thank you. There are no further questions at this time. I'll now hand back to the company for closing remarks.

Speaker 1

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

Operator

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.

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Key Takeaways

  • In Q2, net revenues rose 108.5% year-over-year to RMB 440 million ($60.7 million), LiDAR shipments surged 10x to 52,106 units (ADAS shipments up 27x), and operating cash flow turned positive for the second consecutive quarter with a 4x quarter-over-quarter increase.
  • Hesai was named the #1 global automotive LiDAR supplier for the second straight year, capturing 47% market share by revenue in 2022 and is projected to ship 1.5x more units than its nearest peer in 2023.
  • The company secured new ADAS design wins including a multi-model production agreement with SAIC Motor, achieved mass-production on 40+ vehicle models across 11 OEMs, and advanced four programs with three leading global OEMs into the RFQ stage.
  • In the autonomous mobility segment, Hersai commenced volume shipments on its largest robo-taxi LiDAR contract, locking in several $100 million of orders for 2024 with improved gross margins.
  • On the manufacturing front, Hersai will begin full-scale production of upgraded AT-series LiDARs in Q3 at its 90%-automated Hangzhou facility and expects volume shipments of the AT128 in Q4, boosting range and reducing power consumption.
AI Generated. May Contain Errors.
Earnings Conference Call
Hesai Group Q2 2023
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