Hesai Group Q3 2024 Earnings Report

Hesai Group EPS Results

• Actual EPS: -$0.05
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Hesai Group Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Hesai Group Announcement Details

• Quarter: Q3 2024
• Date: 11/25/2024
• Time: After Market Closes
• Conference Call Date: Monday, November 25, 2024
• Conference Call Time: 8:00PM ET

Hesai Group (NASDAQ:HSAI) is a lidar technology company that develops three-dimensional sensing solutions for automotive and non-automotive applications. Its products use laser-based detection to measure the surrounding environment, helping vehicles and machines identify objects, assess distances and support navigation, perception and safety functions.

The company offers lidar sensors for autonomous driving and advanced driver-assistance systems, including solutions designed for passenger vehicles, robotaxis, delivery vehicles and other commercial applications. Hesai also develops lidar products for robotics, industrial automation and smart infrastructure, with applications that can include mapping, security and traffic management.

Hesai was founded in 2014 and is headquartered in Shanghai, China. The company serves customers and partners in China and international markets, including the United States, Europe and other regions. Hesai Group became a publicly traded company on the Nasdaq under the symbol HSAI in 2023. David Li is the company’s co-founder and chief executive officer.

Hesai Group Q3 2024 Earnings Call Transcript

Key Takeaways

• In Q3, the company delivered net revenue of RMB539.4 million and shipped over 134,000 LiDAR units, marking nearly 50% sequential growth.
• The company has reduced its GAAP net loss for four consecutive quarters and is targeting a Q4 revenue of $100 million with an estimated $20 million net profit, driving full-year non-GAAP profitability for 2024.
• Major OEM wins include supporting Li Auto’s one-millionth vehicle, securing an exclusive LiDAR deal with Leapmotor, and partnering with a leading EV manufacturer to deploy next-generation Level 3 and cost-effective ATX LiDAR in 2025 models.
• Global expansion progressed with B-sample deliveries for a leading global OEM, a strategic LiDAR framework with SAIC Volkswagen, and proof-of-concept programs with top Japanese automakers.
• The flagship OT128 360° mechanical LiDAR was unveiled for autonomous mobility, has over 90 secured clients, and has entered production and deliveries, underscoring growth in the AM market.

Presentation

[Operator]

Hello, ladies and gentlemen. Thank you for standing by. Welcome to Hesai Group's third quarter 2024 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, Yuanting Shi, the company's investor relations director. Please go ahead.

[Yuanting Shi, Director of Investor Relations at Hesai Group]

Thank you, operator. Hello, everyone, and thank you for joining Hesai Group's third quarter 2024 earnings conference call. Our earnings release is now available on our IR website at investor.hesai.com, as well as via newswire services. Today, you will hear from our CEO, Dr. David Li, who will provide an overview of our recent updates. Next, we would like to welcome our new CFO, Mr. Andrew Fan, who 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 under GAAP in our earnings release and the SEC filings.

[Yuanting Shi, Director of Investor Relations at Hesai Group]

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

[David Li, CEO at Hesai Group]

Thank you, Yuanting, and thank you, everyone, for joining our call today. Let's start with an overview of this quarter's progress. First, we surpassed the high end of our revenue guidance for the third quarter, delivering net revenue of RMB 539.4 million and maintaining a strong growth trajectory. We also continue to accelerate LiDAR adoption among our customers. We delivered a total of over 134,000 units during the third quarter, marking our second consecutive quarter of nearly 50% sequential growth. This trend underscores a growing recognition of the value that LiDAR brings to autonomous driving systems, and we're confident that this momentum will carry into the remainder of 2024 and next year. Second, our strong commitment to operational efficiency and financial discipline has enabled us to consistently reduce our GAAP net loss for four consecutive quarters.

[David Li, CEO at Hesai Group]

Fueled by powerful trends and exceptional financial performance, we're moving full speed ahead towards a monumental goal: a projected revenue of $100 million, with an estimated net profit of $20 million for the fourth quarter alone. We couldn't be more excited as we're now projecting full-year profitability on a non-GAAP basis for 2024, making us the first automotive LiDAR company worldwide to reach this remarkable milestone. This puts us on a path to close the fiscal year with an unprecedented overall financial performance. Looking at the broader industry landscape, LiDAR technology is increasingly recognized as a key driver in the advancement of autonomous driving. According to recent data from Gasgoo, a leading automotive industry information service platform, approximately two-thirds of the models with highway NOA are now equipped with LiDAR, and the city NOA models have achieved 100% LiDAR adoption.

[David Li, CEO at Hesai Group]

Moreover, a recent research report projected a strong increase in Level 2 and Level 2+ ADAS adoption in China, estimating a 40% penetration rate for 2024 and a 50% by 2025. A key turning point is anticipated in 2026 with the introduction of Level 3 autonomous driving solutions, which will demand even higher standards for perception and safety capabilities. This evolution marks an exciting phase of market expansion and technological progress in the autonomous driving sector, as the analysis indicates that not only will more advanced vehicles adopt LiDAR technology, but they will also likely employ multiple LiDAR units to create a 200-300-meter safety buffer, significantly enhancing overall safety standards. A recent U.S. safety investigation highlights the critical role of LiDAR technology in vehicle safety systems.

[David Li, CEO at Hesai Group]

The National Highway Traffic Safety Administration (NHTSA) has launched a probe into around 2.4 million vehicles equipped with vision-only ADAS systems after collisions occurred in low-visibility conditions like fog and glare. These incidents have exposed the limitations of relying solely on a camera-based system for vehicle safety, raising a critical question: Is a vision-only approach truly sufficient for autonomous driving? While future AI and vision language models will undoubtedly enhance vision-only systems, they will still require extensive training and remain vulnerable in low-visibility scenarios. In contrast, LiDAR generates its own light and offers a real depth measurement without depending on vision algorithms, which may struggle in poor visibility conditions or with irregular objects. With LiDAR becoming more affordable and scalable, it directly addresses the limitations of vision-only systems.

[David Li, CEO at Hesai Group]

We believe that adopting LiDAR, which functions like an active seatbelt or airbag alongside cameras, is essential for improving safety in autonomous driving, making it as safe, if not safer, than human drivers. Now, let's shift our discussion to our roster of ADAS clients who are strong advocates for integrating LiDAR into their systems. Li Auto, our largest ADAS client, achieved a remarkable milestone by producing its one millionth vehicle in October, which also marked a proud moment for us, showcasing our success in supporting Li Auto's rapid growth as well as maintaining a leading share of the LiDAR market in China. We're confident that this momentum will continue as our OEM partners pursue new goals, further cementing our role as a key supplier in the ADAS sector.

[David Li, CEO at Hesai Group]

We also recently secured a new platform win with Leapmotor, a leading EV maker in China, and facelift of two flagship models with a premium EV brand backed by a leading Chinese automotive group. Production of these models is expected to commence in 2025. Hesai will be serving as the exclusive main LiDAR supplier for these new wins. This exclusivity reflects the trust and confidence that these manufacturers place in our technology, while broadening our presence in the rapidly growing EV market. What's more, we're thrilled to announce a new collaboration with a leading EV manufacturer in China. As one of our top customers by shipment volume and a leader in the EV industry, this pioneering OEM has also exclusively selected our next-generation Level 3 Ultra High-Performance LiDAR alongside the cost-effective ATX LiDAR to power their upcoming models slated for release in 2025.

[David Li, CEO at Hesai Group]

Building on this momentum, our ATX LiDAR is rapidly approaching its SOP phase. Its innovative integrated design and exceptional cost efficiency have already sparked significant interest, with multiple customers planning to adopt it as a standard feature in their 2025 lineups. The future of scalable intelligent driving is here, and we're proud to lead the way. This quarter's success extends beyond the domestic ADAS market, with new progress in expanding our global reach. First, our worldwide shipping programs with a leading global automotive OEM have advanced through several critical phases to the successful delivery of these sample units, a key step in validating our technology's performance and ensuring that it aligns with our partners' rigorous standards. These samples are essential for assessing how our LiDAR solutions perform under real-world conditions and verifying their integration into the OEM's vehicle platforms.

[David Li, CEO at Hesai Group]

Our progress also enhances our position as a vital contributor to the global automotive ecosystem, helping shape the next generation of vehicles that will define the future of mobility. Furthermore, we recently signed a collaborative framework with SAIC Volkswagen for an automotive LiDAR program, marking a new chapter in our partnership and elevating our position to a strategic supplier for the top-selling automotive joint venture in China by sales volume. Together, we aim to innovatively integrate advanced LiDAR technology into vehicles, enhancing safety and automation features while propelling the OEM's vision for smart vehicle innovation. To date, we have secured the design wins with five prominent global OEMs, including four joint ventures in China with two Americans and two European automotive companies. These joint venture collaborations enable us to leverage our partners' established networks, resources, and expertise.

[David Li, CEO at Hesai Group]

Their guidance has been instrumental in enhancing our collaborative capabilities, helping us streamline operations and meet global standards more effectively. We believe our strategic alignment will position us to capitalize on emerging opportunities and pave the way for our participation in the global supply chain. Our efforts to expand our global footprint across the broader Asia market have also yielded promising results. We're delighted to announce two newly secured development projects, both proof-of-concept (PoC) programs with a top-three OEM in Japan. These programs cover both Level 2+ passenger vehicles and Level 4 robotaxi applications, highlighting our growing influence and capabilities in diverse segments of the ADAS and AM markets. Securing these PoC projects with a leading OEM in Japan underscores the trust placed in our technology and expertise, while providing a valuable opportunity to showcase our LiDAR system's functionality across various scenarios.

[David Li, CEO at Hesai Group]

Currently, we have four PoC programs underway with three global OEMs, and we're excited about the potential of these partnerships as they move into the next phase. Over the past two years, both Hesai and the broader LiDAR industry have largely concentrated on the ADAS sector, which has seen substantial growth driven by rapid advancements in intelligent driving, particularly in China. While the ADAS sector will remain a key focus, we're also committed to exploring the opportunities in the broader autonomous mobility market, where we have traditionally held a significant global share. As a market that prioritizes performance over price sensitivity, autonomous mobility offers exciting growth opportunities as new valuable use cases continue to emerge. In September, we unveiled our latest flagship 360-degree mechanical automotive-grade long-range LiDAR, OT128, at the 2024 IAA Transportation Fair in Germany.

[David Li, CEO at Hesai Group]

Inheriting 95% of the key components from Hesai's best-selling AT128 ADAS LiDAR, OT128 boasts a point rate of 3.45 million per second and a 200-meter detection range at 10% reflectivity. This high-performance 360-degree perception LiDAR, with a market-proven vertically integrated architecture, makes OT128 an ideal solution for scalable applications, including robotaxis, industrial robotics, smart factories, and logistics. OT128 also integrates Hesai's proprietary all-weather perception system, the Intelligent Point Cloud Engine, to enable effective detection of rain, fog, exhaust fumes, and water splashes, distinguishing it as a unique and innovative mechanical LiDAR offering in the market. Since its debut, OT128 has made a strong impression in the market, emphasizing our technology's potential across diverse application scenarios and autonomous systems. We have already secured contracts for OT128 with 90-plus global and domestic clients, such as WeRide, Westwell, Embotech, and EasyMile, and the production and delivery have already begun.

[David Li, CEO at Hesai Group]

Notably, our OT128 LiDAR played an instrumental role in the success of the Champion Autonomous Race Car at Formula Student Germany 2024, the world's largest competition for electric and driverless vehicles. These early successes highlight the growing recognition of our advanced LiDAR solutions across a wide range of industries. We remain committed to exploring new use cases and engaging new customers in both the ADAS and AM sectors, leveraging our lineup of versatile LiDARs. Last but not least, I would like to introduce Mr. Andrew Fan, who has recently joined Hesai as our new CFO. With over 18 years of expertise in accounting and corporate finance, we're confident that he will further strengthen our financial management, enhance our engagement with the investor community, and help us create sustainable value for Hesai and our shareholders. Welcome, Andrew.

[David Li, CEO at Hesai Group]

At this point, I will now turn the call over to Andrew to share more details on our financial performance and outlook. Andrew, please go ahead.

[Andrew Fan, CFO at Hesai Group]

Thank you, David, and hello everyone. Let's go through our operating and financial figures for the third quarter of 2024. To be mindful of the length of our earnings call today, I encourage listeners to refer to our third quarter earnings release for further details. Starting with numbers, in the third quarter, we achieved quarterly revenues of RMB 539.4 million, or $76.9 million, surpassing the high end of our revenue guidance. The robust momentum across our revenue streams was supported by strong LiDAR shipments of over 134,000 units this quarter, marking our second consecutive quarter of nearly 50% sequential shipment growth.

[David Li, CEO at Hesai Group]

Shipments this year are distributed more broadly across a diverse range of customers, reflecting a significant increase in customer diversification compared to the previous year. Meanwhile, our blended gross margin remained robust at approximately 47.7%, thanks to effective cost management and our flywheel approach to cost and scale optimization. The margin was further bolstered by NRE revenues from our L4 LiDAR, which is being prepared for potential large-scale deployment by a leading global robotaxi player in the coming years. As a result, our quarterly GAAP net loss has narrowed for four consecutive quarters. This consistent improvement reflects our commitment to operational efficiency and financial discipline, enabling us to better manage resources while focusing on sustainable growth. Looking ahead, we are expecting a record-breaking fourth quarter, with LiDAR shipments projected to reach 200,000 units and astounding volume nearly matching our total shipments in 2023.

[David Li, CEO at Hesai Group]

Based on our current estimates, fourth quarter net revenues are expected to soar to nearly $100 million, delivering an estimated net profit of $20 million and a positive operating cash flow. Additionally, we anticipate achieving full-year profitability on a non-GAAP basis for 2024, positioning us to become the first automotive LiDAR company worldwide to reach this notable milestone. This anticipated explosive growth underscores our unstoppable momentum as we drive towards a landmark fiscal year finish. We would like to remind you that this outlook is based on the current market conditions and reflects the company's preliminary estimates of market and operating conditions and customer demands, which are all subject to change. In conclusion, our strong market acquisition capabilities, robust financial performance, and commitment to operational excellence have positioned us for a successful close to 2024.

[David Li, CEO at Hesai Group]

We are proud of the progress we have achieved and are enthusiastic about the opportunities ahead. Thank you for your continued trust and support as we work to build a stronger future for Hesai and the global industry. This concludes our prepared remarks today. Operator, we are now ready to take questions.

[Operator]

Thank you. If you wish to ask a question, please press star one on your telephone keypad and wait for your name to be announced. For the benefit of all participants on today's call, if you wish to ask a question to management in Chinese, please immediately repeat your question in English. For the sake of clarity and order, please ask one question at a time. Management will respond, and then feel free to follow up with your next question. Your first question comes from Cindy Huang with Morgan Stanley. Please go ahead.

[Cindy Huang, Analyst at Morgan Stanley]

Hi, thanks for taking my question. This is Cindy from Morgan Stanley. So my first question is, what's the latest development of the contention between Hesai and U.S. DOD? And while the dispute involves no ban, when do you expect the overhang to be fully removed? And are all projects scheduled for 2025 launch in the United States still on track?

[David Li, CEO at Hesai Group]

Hi, Cindy. Thank you for the question. This is David Li. I want to give you some updates on the 1260H list progress. Well, first, we're glad to see that the DOD actually removed Hesai from the 1260H list in October. And this delisting was undoubtedly a win for us, as the DOD has acknowledged and corrected their erroneous and baseless decisions from January by removing us from the list. We believe it's also validated the truthfulness of our position, which has remained consistent throughout this entire process.

[David Li, CEO at Hesai Group]

However, we are disappointed that DOD relisted us on a different basis. After acknowledging that its original evidence was insufficient, we had hoped that the DOD would correct its mistakes and move on, but instead, it has continued to falsely accuse us of associating with the Chinese military. This is especially frustrating because the government never really asked us a single question or tried to confirm any facts with us before it made the decision to relist us. The government did share with us the new basis of our relisting. Though due to the ongoing nature of the lawsuit, we're currently limited in what we can discuss. From our first reading, we immediately realized that DOD's "new evidence" and its "rationale" are just as faulty and flawed as the original listing was.

[David Li, CEO at Hesai Group]

We can state definitely that DOD has not accused Hesai of being owned or controlled by any military bodies, selling products to any military bodies, or otherwise directly supporting any military bodies. The DOD instead puts forward vague claims that Hesai somehow supports Chinese military civil fusion, and protecting the interests of our shareholders remains our top priority. We've been very transparent and consistent in sharing these facts, but the moment when the DOD relisted us, it challenged our integrity. It also caused confusion for our customers and investors, and they were concerned that we might be hiding something. We will continuously seek open dialogue with the DOD so that we could correct those errors. We look forward to proving that the government's new analysis is unlawful in court in the coming month, and these are the current status of the 1260H situation.

[David Li, CEO at Hesai Group]

Cindy, do you believe this is helpful?

[Cindy Huang, Analyst at Morgan Stanley]

Yeah, that's very helpful. Thanks for the colors. I think in the prepared remarks, yeah, you also mentioned Hesai will achieve GAAP net profit in full Q4. Should we expect 2025 to be the first full-year GAAP profita

[Andrew Fan, CFO at Hesai Group]

ble as well? Thank you, Cindy. This is Andrew, and let me take this question. Before I address this question, let me express my gratitude for your continuous support to Hesai, and I look forward to all of you in the future together with Hesai's IR team. For this question, we are happy to share that we are on a steady path towards profitability in the fourth quarter of this year, a major milestone for us. Q4 is set to be our peak season every year, with projected revenues approaching $100 million and deliveries reaching 200,000 units, an unprecedented achievement since our inception.

[Andrew Fan, CFO at Hesai Group]

Besides, our cost management remains robust, ensuring financial strength as we scale up mass production. To our knowledge, no other player in the global LiDAR industry matches our financial resilience while operating at such an impressive delivery schedule. As highlighted in our financial statements, our Q3 gross profit nearly doubled year-over-year, while operating expenses grew by only 10% year-over-year, showcasing our exceptional operating leverage. We also anticipate the blended gross margin for Q4 to exceed 40%, with operating expenses remaining stable quarter over quarter. Additionally, our average quarterly other income and interest income typically are around RMB 30 million, positioning us well to reach break-even in Q4. Taking it to the next level, we have received additional payments from a leading customer, propelling us toward an estimated $20 million net profit in Q4.

[Andrew Fan, CFO at Hesai Group]

This is an incredible achievement and a testament to the solid financial foundation we are building as we continue to drive growth and scale our success. Hopefully, that covers your question.

[Yuanting Shi, Director of Investor Relations at Hesai Group]

And for 2025, I think what's relevant to your question, Cindy, so our top-line growth will be very solid because more and more customers are automatically and internationally adopting the LiDAR. We see the penetration rate has been ramping up very fast. And on the other side, cost is well controlled. Expense will be well controlled. So for full-year 2025, we'll be targeting for profitability as well.

[Cindy Huang, Analyst at Morgan Stanley]

Thank you. That's very helpful.

[Operator]

Your next question comes from Tina Hou with Goldman Sachs. Please go ahead.

[Tina Hou, Analyst at Goldman Sachs]

Thanks, management, for taking my question. So the first question is regarding our 2025 volume revenue as well as margin guidance since we're onboarding more OEMs.

[Tina Hou, Analyst at Goldman Sachs]

But at the same time, there might be more mix of the ATX product. So just wondering what we should think about in terms of 2025 overall. And also for third quarter 2024, wondering excluding the NRE project impact, what is our more normalized LiDAR gross margin? Thanks.

[David Li, CEO at Hesai Group]

Okay. Let me take this question. Looking forward to year 2025, we believe that we have already secured significant design wins for new car models, which are achieving SOP in year 2025 and beyond. Some of our major customers' best-selling modules, including those from the world's largest EV manufacturer, are expected to begin production with our LiDAR solutions very soon. Additionally, some of our clients are adopting LiDAR as a standard configuration starting next year. This positions us to ship millions of units throughout 2025 and 2026 based on our customers' forecasts.

[David Li, CEO at Hesai Group]

As of now, we have two manufacturing facilities in operation, one in Shanghai and one in Hangzhou, and are expanding with new production lines to meet our clients' needs for the coming year. Revenue-wise, by our year-end earnings next March, we'll have a clear view about that. As of now for year 2025, we will have three different modules of AT in production. The first one is the current AT128, which will experience a moderate annual decline in ASP in terms. The second module is the ultra-high-performance AT512 designed to meet L3 standards, which will enjoy a much higher price tag. Lastly, the cost-effective compact ATX will begin production in year 2025, with some flagship series cars' modules adopting it as a standard configuration. I expect that the revenue contribution from ATX will start to increase relatively quickly in year 2025. Second question about Q3 margins.

[David Li, CEO at Hesai Group]

If we exclude that NRE revenue, I would expect that this will be largely the same as our normalized quarters, which is about 40% plus gross margins.

[Tina Hou, Analyst at Goldman Sachs]

That's very clear. Thanks.

[Operator]

Your next question comes from Zhang Yu with Huatai Securities. Please go ahead.

[Operator]

Hi, David, Yuanting. Thanks for taking my question. My first question is about robotics. I want to know currently what's the main LiDAR product for the customer in robotics. And in the long term, what are the technology differences between the robotics and ADAS area and the difference in ASP? Thank you. 我想问一下，就是我们现在是哪款雷达主要给机器人领域用，然后长期来看不知道机器人领域的雷达在技术上和ASP上和车载领域是不是有差异？谢谢。

[Andrew Fan, CFO at Hesai Group]

Let me address this question in English first. For the industrial robotics applications, e.g., in logistics and hub operations, they are rapidly growing, and we have successfully secured some new orders from both domestic and international clients.

[Andrew Fan, CFO at Hesai Group]

Regarding the product series that we are selling to these segment markets, I think Pandar, OT, XT, etc., these all have their own clients. Whether through autonomous vehicles or robotic platforms, our goal is always to deliver superior services and experiences to our users in alignment with our mission to empower robotics and elevate lives. Regarding the ASPs, I think we have to monitor the development of the revenue contributions from different clients from different segments. We'll have to give you a clearer forecast when we see more visibilities from the revenue contributions.

[David Li, CEO at Hesai Group]

This is David Li, and I wanted to give a few more remarks regarding the robotics industry. First, let's define robotics. I think it's pretty much everything we cover that's not ADAS and not strictly robotaxi. Okay. So a few direct comparisons.

[David Li, CEO at Hesai Group]

First, the robotics LiDARs, the ASP is much higher than ADAS because of the volume, right? When we talk about ADAS, we're talking about close to a million units a year volume and even bigger very soon. And for robotics, it's still in the tens of thousands at the most optimistic side. And secondly, it's about application on the technical side. And for ADAS, as we clearly see, it needs extremely miniaturized packaging as well as a forward-looking, like a box looking forward, right? For most of the robotics applications, that is not the highest priority. The priority is to cover wider FOV, hopefully with better resolution. It does not need to see longer range. So as a result, for longer range, we have OT, and for shorter range, we have XT and QT. And it's a different type of product.

[David Li, CEO at Hesai Group]

Having said that, they share a great level of similarity in terms of Hesai's fundamental capabilities of semiconductors, our manufacturing capability, and on the very strong capability of our quality system, especially on the integrated design of the ASICs. And you might think that the ADAS LiDAR and the robotics LiDAR are very a great deal in terms of functions and performance, etc. The truth is that if you boil down to the different parts of robotics, all robotics LiDAR, it's really in the end, the laser, the receiver, the driver, and the signal processing unit, the computational units, the backboard and power, etc. If you break down them into each of them, a lot of them will already have a proprietary chip that can support both ADAS and robotics.

[David Li, CEO at Hesai Group]

So in other words, the great strength and the capability we develop from ADAS, especially China ADAS, we leverage them to go after extreme cost and quality and performance and use those technologies on robotics. It's like a Jiangwei Daji. All right? That's why we are extremely competitive and remain high profitable, especially our extremely high gross margin on robotics LiDARs compared to ADAS for that reason. Thank you.

[Zhang Yu, Analyst at Huatai Securities]

Thank you, David. Thanks very much. It's very clear. And my second question is about the ADAS area. Just now, you mentioned that the ATX will grow rapidly next year. And I want to know what's the estimated shipment proportion of the new production and the AT128 in next year, and also in the long term. 我想问一下，就是明年我们有两款，这个有一款经济型的和一款高性能的激光雷达上市以后，明年我们这个三个不同产品的出货量比例大概是怎么样的？那长期来看，这个出货量比例大概是怎么样的？谢谢。

[Andrew Fan, CFO at Hesai Group]

Okay. Let me take this question.

[Andrew Fan, CFO at Hesai Group]

Again, if we look at year 2025, I believe that the total shipment in year 2025 will exceed millions of units in that year. However, regarding the detailed breakdown between ATX and AT128, we have to share. We can only share more details as we go along, probably till, say, March next year. But no matter how the mix turns, we are still confident with our long-term blended gross margins, which will stay healthy thanks to the effective cost management and our flywheel approach of cost and scale optimization.

[Zhang Yu, Analyst at Huatai Securities]

Thank you. Thanks very much. That's all my questions.

[Operator]

Your next question comes from Olivia Zhang with HTI. Please go ahead.

[Olivia Zhang, Analyst at HTI]

Hi. Thanks for taking my question. This is Olivia from Haitong. My question is, you know, Huawei has become an important role in the intelligent driving market.

[Olivia Zhang, Analyst at HTI]

I want to know, I know we have established cooperation with some OEM brands in the Huawei ecosystem. So how do we see the cooperation going forward? 我的问题是，华为在国内自家市场影响力逐步增强，我们公司如何定位与其他这些合作的品牌厂商的合作关系？我们后面该如何预期他们的一个销售量？谢谢。

[David Li, CEO at Hesai Group]

Thank you, Olivia. This is David Li. Yeah, sure. Let me try to clarify our view on the collaboration/competition with Huawei, right? First, the Huawei is a very competitive player, right? As of now, I use a Huawei tri-fold phone and a Huawei watch, which are very good products. So they build very good products. And having said that, I feel like our competition against Huawei is a clear situation in the sense that as far as what we see today, and the people who use Huawei LiDARs are within the Huawei ecosystem, namely the Wenjie, Xiangjie, Zunjie of the world. And they not only use Huawei's components, they use Huawei's solution at a system level.

[David Li, CEO at Hesai Group]

So they essentially use everything from Huawei. And we believe for that reason, it's unlikely that we will become an individual component supplier within the Huawei ecosystem today because we only sell components, right? We don't sell solutions. And so that's why today the market has been sort of divided between the Huawei's brand and their own supply chain and the rest of the world. And so far, it seems to be very clear for both sides. Our goal, of course, is to hopefully maximize our market share in our own world. So that has been our strategy. Of course, having said that, there are overlaps. There are brands who have their Huawei cars and have their own branded cars. We have a few of OEM customers are like that. But in my mind, it works the same way. The car models, they work with Huawei system.

[David Li, CEO at Hesai Group]

It's very likely it will have only Huawei LiDAR. No one else's LiDAR. That has been their strategy. The cars that OEMs build with their own effort will have very little or zero Huawei components. That's the market we're going after. And we have been fairly successful in working with those customers when they don't use Huawei solutions. And our belief is that in the end, Huawei would continue to have a significant share as an OEM. But the rest of the world is still much bigger. And we'll also continue to work with our global customers who are not working with Huawei today.

[Olivia Zhang, Analyst at HTI]

Thank you, David. That's super clear. That's all my questions. Thank you.

[David Li, CEO at Hesai Group]

Thank you.

[Operator]

Your next question is a follow-up from Cindy Huang. Please go ahead.

[Cindy Huang, Analyst at Morgan Stanley]

Hi. Thank you for taking my question. I have a follow-up question on OT128.

[Cindy Huang, Analyst at Morgan Stanley]

Who will be the first batch of customers adopting this new product? And also, can we also get some update regarding our partnership with Cruise?

[David Li, CEO at Hesai Group]

Okay. Let me take this question. Regarding OT, yes, this new flagship mechanical LiDAR is built for scalable applications like robotaxi, industrial robotics, smart factories, and logistics. It has already got deals locked in with over 90 clients worldwide. Financials, around 95% of its key components come from our best-selling ADAS LiDAR, which keeps costs down. Also, thanks to vertical integration like our ADAS products, we can scale production and take advantage of economies of scale. For clients, this means it can be priced more competitively, especially for large volume orders. Its gross margin is comparable to our typical L4 products or even slightly higher. With large orders, the gross margin can improve even further.

[David Li, CEO at Hesai Group]

We have already started production and deliveries, and it has already brought in over $10 million in revenues so far. The AM sector is more about performance, less on price, and it's full of exciting growth opportunities with new use cases popping up. We are thrilled about what's ahead. Your other question regarding GM Cruise updates. Based on public information, Cruise has made significant progress this year. Its group has invested additional funds into Cruise to support its ongoing operations and strategic initiatives. Following a temporary halt in operations since late 2023, the NHTSA closed its investigation into Cruise vehicles in August 2024. Recently, Cruise has resumed supervised autonomous driving tests in cities like Phoenix, Dallas, and Houston. Cruise is clearly making efforts to overcome challenges and solidify its position as a leader in autonomous vehicle technology.

[David Li, CEO at Hesai Group]

As you see, we recorded NRE revenues in Q3 from our L4 LiDAR, which is being prepared for potential large-scale deployment by a leading global robotaxi player in the coming year. International robotaxi players are expanding. Zoox and Nuro were also recently reported to be actively scaling their testing operations, making strides towards the commercial deployment of their autonomous vehicle technologies. We remain optimistic about the business opportunities in L4 autonomy and beyond as the industry continues to evolve and grow. That's my answers to this question.

[Olivia Zhang, Analyst at HTI]

Yeah, that's very clear. Thank you.

[Operator]

Your next question comes from Jeff Chung with Citi. Please go ahead.

[Jeff Chung, Analyst at Citi]

Hi, this is Jeff from Citi. Excellent result and the guidance. Thank you, sir, for the good work. And my question is number one. We recognize the OpEx for each quarter. For the third quarter, it's around RMB 350 million.

[Jeff Chung, Analyst at Citi]

And in order to approach a 20% net margin level into the fourth quarter, the OpEx into the fourth quarter will be around RMB 250 million. So could you let us know what should be the normalized OpEx going forward into Q2 to Q4? Number one. Number two is about the low season impact into first quarter Q2 to Q4. As we all know, there should be a potential pre-buying happening in the fourth quarter this year, resulting in a sloppy demand growing into the first quarter potentially. So could you give us the margin guidance into first quarter and also the normalized GP margin guidance for all the Q2 to Q4? Those are my first two questions. Thank you.

[Andrew Fan, CFO at Hesai Group]

Your first question regarding OpEx.

[Andrew Fan, CFO at Hesai Group]

Yes, on a full year basis, 2023, our OpEx on a non-GAAP basis is about RMB 1 billion, out of which 65% is R&D, 15% is sales and marketing, and the rest goes to G&A. On a full year basis, we believe that 2024, the OpEx will grow by less than 5% on GAAP basis and 10%-15% growth on non-GAAP basis. For year 2025, we have committed to take more active expense management to ensure a better efficiency and financial discipline. That actually is my response to your question for OpEx. Regarding the guidance on Q1, typically, due to the seasonality reasons, Q1 tends to be weaker than Q4 on a quarter-over-quarter basis. But in order to give you a clearer guidance for Q1, probably we have to wait till end of this year.

[Jeff Chung, Analyst at Citi]

Okay. Thank you. I have no more questions. Thank you.

[Operator]

Your next question comes from Cherry Lu with J.P. Morgan. Please go ahead.

[Cherry Lu, Analyst at JPMorgan]

Yeah, thanks for taking my questions. I actually just have one question about the ATX. I'm wondering, among your 75 design wins, how many of them are kind of pending SOP and how many of that will be for ATX and also for the secured design wins? I'm wondering, do you see any clients willing to kind of switch from the AT128 to ATX for a better cost structure? And how do you think of that potential trend? Thank you.

[David Li, CEO at Hesai Group]

Thank you. Thank you for the question. So maybe I'll first give you a more fair comparison of the product ATX versus AT, right? So the AT started its journey of SOP in July of 2022, right? So which means that ATX is two to three years behind AT.

[David Li, CEO at Hesai Group]

It has an equally competitive performance, and some parts are optimized, sometimes are slightly worse than AT. But overall, it's a highly competitive product, but it's a much more affordable one, right? It's in the $200 range, so which means that for people who are looking to do similar level, which is the level two plus driving with AT, it's a natural and a rational choice. By the way, it's also smaller, right, so it's a natural and a rational decision to switch from AT to ATX as long as they can accommodate the change design, and it's really because the ATX is our fourth generation semiconductor. It has a lot of new innovations in making sure that we process a large amount of point cloud with very low power and low cost.

[David Li, CEO at Hesai Group]

On top of it, it has additional features like the IPE, the Intelligent Point Cloud Engine to analyze different weather conditions, etc. That has a lot of great features. That's why the takeaway is that for anybody who's looking at the similar level of performance of AT, it's kind of a no-brainer to switch over as long as you can accommodate the engineering changes and you can enjoy the saving. However, if you look at the direction the industry is moving towards, especially the fact that for the past year, we see great trends of adoption of LiDAR. To me, it's not only a signal of the increased demand of LiDAR and intelligent driving, it's also a statement on the value of such a system creates.

[David Li, CEO at Hesai Group]

Naturally, when it creates more value, people want more and a better version of it, which is what we call Level 3, right? If you look at the global Level 3 market, we already announced we have a global design win as one of the most famous automotive brands in the world. That's a Level 3 system that is a much higher price, much more powerful in terms of everything, in terms of distance, resolution, capability. That will be a much higher ASP product. And that is in the AT512 Family. That's why it is true that a lot of the customers will be using ATX while they already use AT.

[David Li, CEO at Hesai Group]

They will also have a premium trim line with strictly level three functions with a much more powerful LiDAR to handle the different conditions with close to 10 times of the resolution and roughly 50% of the distance increase, so that's the situation we're facing, and are there more to it? Yeah. Hopefully, this answers your question. Yeah, that's very helpful. May I just follow up that? Could you share a bit color in terms of the price gap between your ATX and also this advanced AT product? Thank you. So without disclosing the actual numbers, because it's always case by case depending on the volume and SOP time, and ATX is a $200 range LiDAR depending on the configuration, could be higher or lower. The AT512 family, which will remain at the AT range, which is more than double of that, it's a much, much more expensive LiDAR.

[David Li, CEO at Hesai Group]

But again, it handles Level 3 functions. So the value proposition is a completely different equation.

[Cherry Lu, Analyst at JPMorgan]

Yeah, very helpful. Thank you, David.

[Yuanting Shi, Director of Investor Relations at Hesai Group]

And we are hoping to ship the ultra high performance LiDAR, which is in the family of AT512 starting from 2025 or 2026. And shipping overseas will enjoy a better margin as well.

[Cherry Lu, Analyst at JPMorgan]

Okay. Understood. Thank you, Yuanting.

[Yuanting Shi, Director of Investor Relations at Hesai Group]

Thank you.

[Operator]

There are no further questions. I'd like now to turn the conference back over to the company for closing remarks.

[Yuanting Shi, Director of Investor Relations at Hesai Group]

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 and goodbye.

[Operator]

This concludes today's conference call. You may now disconnect your line. Thank you.

Participants

Executives

• Yuanting Shi, Director of Investor Relations
• Andrew Fan, CFO
• David Li, CEO

Analysts

• Jeff Chung, Analyst at Citi
• Tina Hou, Analyst at Goldman Sachs
• Olivia Zhang, Analyst at HTI
• Zhang Yu, Analyst at Huatai Securities
• Cindy Huang, Analyst at Morgan Stanley
• Cherry Lu, Analyst at JPMorgan