Q2 2024 Mobileye Global Inc Earnings Call

Greetings and welcome to the Mobileye 2Q24 earnings call.

Operator: At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Dan Galves.

Operator: At this time, I'll participate in any listen-only mode.

Operator: A brief question-and-answer session will follow the formal presentation.

Speaker Change: At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation.

Operator: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.

Speaker Change: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Dan Galves. Thank you, Mr. Galves. You may begin.

Operator: As a reminder, this conference is being recorded.

Dan Galves: It is now my pleasure to introduce your host, Dan Galves.

Unknown Executive: Thank you, Mr. Galves; you may begin.

Unknown Executive: Thanks, Kat.

Dan Galves: Thank you, Mr. Galves. You may begin. Cat, hello everyone and welcome to Mobileye's second quarter 2024 earnings conference call for the period ending June 29th, 2024. Please note that today's discussion contains forward-looking statements based on the business environment as we currently see it. Such statements involve risks and uncertainty. Please refer to the accompanying press release, which includes additional information on the specific factors that could cause actual results to be different.

Amnon Shashua: Hello, everyone, and welcome to Mobileye Second Quarter. 2024 earnings conference call for the period ending June 29, 2024. Please note that today's discussion contains forward-looking statements based on the business environment as we currently see it. Such statements involve risks and uncertainties. Please refer to the accompanying press release, which includes additional information on the specific factors that could cause actual results to defer materially. Additionally, on this call, we will refer to both GAAP and non-GAAP figures. A reconciliation of GAAP to non-GAAP financial measures is provided in our poses.

Dan Galves: Thanks, Kat. Hello, everyone, and welcome to Mobileye's second quarter 2024 earnings conference call for the period ending June 29th, 2024.

Speaker Change: Please note that today's discussion contains forward-looking statements based on the business environment as we currently see it. Such statements involve risks and uncertainties.

Speaker Change: Please refer to the accompanying press release which includes additional information on the specific factors that could cause actual results to differ materially.

Unknown Executive: Additionally, on this call, we will refer to both GAAP and non-GAAP figures. A reconciliation of GAAP to non-GAAP financial measures is provided in our post-determining. Joining us on the call today, as usual, are Professor Amnon Shashua, Mobileye's CEO and President, and Moran Shemesh, Mobileye CFO. Also joining today for the Q&A session is Nimrod Nehushtan, Mobileye's VP of Business Development and Strategy. Thanks, and now I'll turn the call over to Amnon.

Speaker Change: Additionally, on this call, we will refer to both GAAP and non-GAAP figures, a reconciliation of GAAP to non-GAAP financial measures as provided in our posted earnings release.

Speaker Change: Joining us on the call today as usual are Professor Amnon Shashua, Mobileye CEO and President, Moran Shemesh, Mobileye CFO . Also joining today for the Q&A session is Nimrod Nehushtan, Mobileye's Executive VP of Business Development and Strategy. Thanks, and now I'll turn the call over to Amnon.

Amnon Shashua: Hello, everyone, and thanks for joining the earnings call. Starting with the results, both Q2 and the first half were closely aligned with our outlook provided back in January. IQ volumes in Q2 more than doubled versus Q1, and based on various sources of information we have reviewed, we believe inventory levels are back to normal with potential residual in China. Supervision volumes were also aligned with our original outlook, with 70,000 units for the first half of the year. All in all, revenue for Q2 stands at $439 million, which is 84% growth over Q1, and a 3% decrease year-over-year. Adjusted operating margin also recovered significantly to 18% compared to minus 27% in Q1.

Unknown Executive: Thank you, Mr. Chairman.

Amnon: Hello, everyone, and thanks for joining the earnings call.

Speaker Change: Starting with the results, both Q2 and the first half were closely aligned with our outlook provided back in January .

Speaker Change: IQ volumes in Q2 more than doubled versus Q1. And based on various sources of information we have reviewed, we believe inventory levels are back to normal with potential some residual in China.

Speaker Change: Supervision volumes were also aligned with our original outlook, with 70,000 units for the first half of the year. All in all, revenue for Q2 stands at $439 million, which is 84% growth over Q1.

Speaker Change: and 3% decrease year-over-year. Adjusted operating margin also recovered significantly to 18% compared to minus 27% in Q1. More details on the results of the quarter will be covered by Moran.

Moran Shemesh: More details on the results of the quarter will be covered by Moran. As we look forward to the second half of the year, we face near-term volume challenges stemming from market dynamics almost exclusively related to China. This has led to a reduction in customers' outlook on both ADAS and supervision. On ADAS, we face three unexpected factors. Number one, global production forecasts have weakened, which has disproportionately impacted our core customers due primarily to continued share losses in China. Number two, we have seen a decline in orders for the second half of 2024 from Chinese OEMs compared to what these customers were indicating as of our last day. 3.

Amnon Shashua: The delay of a high-volume ADAS launch outside of China is also a meaningful headwind, although smaller than the first. Turning to supervision, despite higher conviction on a reinforced competitive position for Mobileye in China in the mid and long term, we are seeing short-term volume headwinds. Second half volumes are expected to be lower than our forecast back in January, due primarily to increased U.S. and European tariffs on Chinese-produced

Moran: As we look forward to the second half of the year, we face near-term volume challenges stemming from market dynamics almost exclusively related to China. This has led to a reduction of customers' outlook in both ADAS and supervision.

Moran: On ADAS, we face three factors. Number one, global production forecasts have weakened, which has disproportionately impacted our core customers due primarily to continued share losses in China.

Moran: Number two, we have seen a decline in orders for the second half of 2024 from Chinese OEMs compared to what these customers were indicating as of our last update.

Moran: Number three, the delay of a high-volume ADAS launch outside of China is also a meaningful headwind, although smaller than the first two.

Moran: Turning to supervision, despite higher conviction on a reinforced competitive position for Mobileye in China in the mid and long term, we're seeing short-term volume headwinds.

Amnon Shashua: Second half volumes are expected to be lower than our forecast back in January, primarily due to increased US and European tariffs on Chinese produced vehicles. We also have reduced our expectations for volumes in China itself due to uncertainties around market dynamics and reduced forecast from our customers. Overall, we see the current dynamics almost entirely as it is isolated to China, where the market is undergoing a reshuffle process and is adapting to several macro developments. We believe our long-term position in China is strong among major Chinese OEMs with diverse product portfolios and aspirations for global expansion, as illustrated by our press release.

Moran: Second half volumes are expected to be lower than our forecast back in January , due primarily to increased US and European tariffs on Chinese-produced vehicles.

Amnon Shashua: We also have reduced our expectations for volumes in China itself due to uncertainties around market dynamics and reduced forecasts from our customers. Overall, we see the current dynamics almost entirely isolated to China, where the market is undergoing a reshuffle process and is adapting to several macro developments. We believe our long-term position in China is strong among major Chinese OEMs with diverse product portfolios and aspirations for global expansion, as illustrated by our press releases that were announced today. We expect the key positives with this new development, once completed, will be as follows. A consideration of supervision enhancements and adaptation to the Chinese market through DXP.

Moran: We also have reduced our expectations for volumes in China itself due to uncertainties around market dynamics and reduced forecasts from our customers.

Moran: Overall, we see the current dynamics almost entirely isolated to China, where the market is undergoing a reshuffle process and is adapting to several macro developments.

Moran: We believe our long-term position in China is strong among major Chinese OEMs with diverse product portfolios and aspirations for global expansion, as illustrated by our press release which was announced today.

Amnon Shashua: We expect the key positives with this new development, once completed, be as follows. Acceleration of supervision, enhancement and adaptation to the Chinese market through the XP. Deaker to adopt an IQ 6-based version of supervision for the next generation of ZK001 in additional models domestically and globally and paving a path for Robotaxi collaboration.

Moran: We expect the key positives with this new development once completed be as follows Acceleration of supervision enhancements and adaptation to the Chinese market through DXP

Amnon Shashua: Zikr to adopt an IQ6-based version of supervision for the next generation of Zikr001 and additional models domestically and globally, and pave the path for RoboTaxi collaboration. Ultimately, Mobileye's long-term growth outlook hinges on our prospects to lead the path of next-generation ADAS and achieve autonomy, while offering a spectrum of product variants appealing to the broadest audience of car makers. As a final topic, I'll highlight some important details of how the IQ6 platform represents a leap forward towards these goals and helps position us as the only company in the world that can support all four consumer vehicle categories and robotaxis as well. Global OEMs are emerging from a major re-planning process. Combustion Engines vs. EV, China vs. Non-China, Buy vs.

Moran: Global, Zikr to adopt an IQ-6 based version of supervision for the next generation of Zikr 001 and additional models, domestically and globally, and paving a path for Robotaxi collaboration.

Amnon Shashua: Ultimately, mobilized long-term growth outlook hinges on our prospects to lead the path of next generation ADAS and solve autonomy while offering a spectrum of product versions appealing to the broadest audience of car makers. As a final topic, I will highlight some important details of how the IQ 6 platform represents a leap forward towards these goals and helps position us as the only company in the world that can support all four consumer vehicles' categories and Robotaxis as well. At the global OEMs are emerging from a major re-planning process, combustion engines versus the EV, China versus non-China, bi-versus build for autonomy, who are seeing increased clarity on future ADAS and AV segmentation around four distinct categories.

Moran: Ultimately, Mobileye's long-term growth outlook hinges on our prospects to lead the path of next-generation ADAS and solve autonomy, while offering a spectrum of product variants appealing to the broadest audience of car makers.

Moran: As a final topic, I'll highlight some important details of how the IQ6 platform represents a leap forward towards these goals and helps position us as the only company in the world that can support all four consumer vehicles categories and robo-taxis as well.

Amnon Shashua: Build for Autonomy, we're seeing increased clarity on future ADAS and AV segmentation around four distinct categories. Number one, the emerging market ADAS as the future growth driver for the 25 million or so vehicles sold today that don't have any ADAS. These systems will require a low price for less functionality, yet with high performance, which is where we excel. Number two, the developed market will aid us.

Moran: At the global OEMs are emerging from a major re-planning process.

Moran: Combustion engines versus the EV China versus non-China, buy versus build for autonomy. We're seeing increased clarity on future ADAS and AV segmentation around four distinct categories.

Amnon Shashua: Number one, the emerging market ADAS as the future growth driver for the 25 million or so vehicles sold today that don't have any ADAS. These systems will require low price for let's functionality, yet with high performance, which is where we excel. Number two, developed market ADAS. It's in guidance on future regulations; continue to push the envelope on performance, which is a significant positive for us. It's a key factor in the success of IQ 6 Lite, which has already been nominated for 50 million units of future business, is involved in many current RFQs and is progressing towards design wins across all major customers.

Moran: Number one, the emerging market ADAS as the future growth driver for the 25 million or so vehicles sold today that don't have any ADAS. These systems will require low price for less functionality, yet with high performance, which is where we excel.

Amnon Shashua: Recent guidance on future regulations continues to push the envelope on performance, which is a significant positive for us. It's a key factor in the success of IQ6 Lite, which has already been nominated for 50 million units of future business, is involved in many current RFQs, and is progressing towards design wins across all major, Number three, mid-trim surround ADAS. This is a brand new growth driver that fits in between regular ADAS and supervision for mass market segments. The OEMs have two goals here. First, enable price-competitive hands-off on highway functions as the next standard. Second, to prepare for the increased safety requirements that will not be satisfied with a traditional front-facing camera alone.

Moran: Number two.

Moran: Developed Market ADAs.

Moran: Recent guidance on future regulations continues to push the envelope on performance.

Moran: which is a significant positive for us.

Moran: It's a key factor in the success of IQ6Light, which has already been nominated for 50 million units of future business, is involved in many current RFQs, and is progressing towards design wins across all major customers.

Amnon Shashua: Number three, mid-trim around ADAS. This is a brand new growth driver that fits in between regular ADAS and supervision for mass market segments. The OEMs have two goals here. First, enable price competitive hands-off on highway function. As the next standard, second to prepare for the increased safety requirements that will not be satisfied with its traditional front-facing camera alone. Number four, is premium full-surround ADAS/AV supervision and shop for category, where OEMs continue to pursue aspirational technology to deliver hands-free driving all road types and maintain a path to eyes of where OEM see huge value for consumers.

Moran: Number three, mid-trim surround ADAS. This is a brand new growth driver that fits in between regular ADAS and supervision for mass market segments.

Moran: The OEMs have two goals here. First, enable price-competitive hands-off on-highway function as the next standard. Second, to prepare for the increased safety requirements that will not be satisfied with the traditional front-facing camera alone.

Moran: Number four is premium full-surround ADAS.

Moran: Thank you.

Amnon Shashua: Partners. We view the emergence of category 3 as an extremely important as a driver of significant medium-term ASP growth within the mass market segment. And the RFQ volumes are very high. We are currently already responding to four RFQs representing over 19 million future units, supported with a single IQ 6 high, with pricing that is approximately four times our current ASP, and with similar growth margins to the company average. To put this value into context, the life revenue value of these RFQs from just four OEMs is already about double the value of all the combined ADAS RFQs who are currently pursuing with more than 30 OEMs. On Supervision and Show 4 specifically, we have made substantial progress across many pre-development engagements, and we believe we are on track for major design wins by year end 2024, with a strong pipeline of more to come in 2025.

Moran: We view the emergence of Category 3 as an extremely important as a driver of significant medium-term ASP growth within the mass market segment.

Amnon Shashua: And the RFQ volumes are very high. We are currently already responding to four RFQs representing over 19 million future units. We currently have advanced product wins or are in advanced discussions with 14 OEMs representing approximately 52% of industry production. We believe that we are at the inflection point of becoming the clear market leader in these initiatives. Brain6 has been at the heart of our IQ6 product line since we began that development several years ago, and it represents a significant leap forward in autonomous driving technology.

Moran: And the RFQ volumes are very high. We are currently already responding to four RFQs, representing over 19 million future units.

Moran: Supported with a single IQ 6 high with pricing that is approximately four times our current ASP and with similar gross margins to the company average.

Moran: To put this value into context, the life revenue value of these RFQs from just 4 OEMs is already about double the value of all the combined ADAS RFQs we are currently pursuing with more than 90 OEMs.

Moran: On supervision and chauffeur specifically, we have made substantial progress.

Moran: across many pre-development engagements, and we believe we are on track for major design wins by year-end 2024, with a strong pipeline of more to come in 2025.

Amnon Shashua: We currently have advanced product wins or are in advance discussions with 14 OEMs representing approximately 52 percent of industry reduction. Within that number, two of the OEMs are currently only pursuing around ADAS category; I mentioned above, and two are pursuing both Supervision and Show 4 and around ADAS. We are also seeing accelerated interest in our drive platform, which serves the Mobility as a Service market. The Volkswagen commercial vehicle program is progressing nicely; speaker is looking to develop with us in this area, and there is an additional major OEM from Japan, where we continue to progress through pre-award testing activities.

Moran: We currently have advanced product wins or are in advanced discussions with 14 OEMs representing approximately 52% of industry production.

Moran: Within that number, two of the OEMs are currently only pursuing Surround ADOS category I mentioned above and two are pursuing both Supervision and Chauffeur and Surround ADOS.

Moran: We are also seeing accelerated interest in our DRIVE platform, which serves the mobility as a service market. The Volkswagen commercial vehicle program is progressing nicely. Zika is looking to develop with us in this area, and there is an additional major OEM from Japan, where we continue to progress through pre-award testing activities.

Amnon Shashua: We believe that we are in the inflection point of becoming the clear market leader in these initiatives, both technologically and commercially, and we want to use this opportunity to shed some more light on our recent progress, especially one of our most groundbreaking initiatives, Mobile Light Brain 6. Brain 6 has been at the heart of our IQ6 product line since we began that development several years ago, and it represents a significant leap forward in autonomous driving technology. This compound AI backbone is not just an incremental improvement; it's a transformative development designed to address the complexities and the demands of autonomy and skill.

Moran: We believe that we are in the inflection point of becoming the clear market leader in these initiatives, both technologically and commercially. And we want to use this opportunity to shed some more light on our recent progress, especially one of our most groundbreaking initiatives, Mobileye Brain 6.

Moran: Brain6 has been at the heart of our IQ6 product line since we began that development several years ago, and it represents a significant leap forward in autonomous driving technology.

Amnon Shashua: This compound AI backbone is not just an incremental improvement; it's a transformative development designed to address the complexities and demands of autonomy at scale. Let's dive into what makes Brain 6 truly exceptional. First, performance. Grand Six is powered by a sophisticated combination of state-of-the-art generative AI networks. These networks, each with a specialized focus, work in concert to tackle the inherent challenges of autonomous driving, such as the long tail problem and input.

Moran: This compound AI backbone is not just an incremental improvement, it's a transformative development designed to address the complexities and the demands of autonomy at scale. Let's dive into what makes Brain6 truly exceptional.

Amnon Shashua: Let's dive into what makes Brain 6 truly exceptional. First is performance. Brain 6 is powered by a sophisticated combination of state-of-the-art generative AI networks. These networks, each with a specialized focus, work in concert to tackle the inherent challenges of autonomous driving, such as the long-term development and input bias generalization error trade-off. By leveraging this multifaceted approach, Brain 6 ensures the level of performance and robustness that is unparalleled. During Q2, we began online testing of the IQ6 platform at scale, as well as data-driven offline simulation. We now have a line of sight to a vision-only system which we believe will be at least two orders of magnitude better than anything else available in the market today deployed in all markets.

Moran: First is performance. Grand Six is powered by a sophisticated combination of state-of-the-art generative AI networks. These networks, each with a specialized focus, work in concert to tackle the inherent challenges of autonomous driving, such as the long-tail problem and input problems.

Moran: Bias, generalization, error, trade-off.

Moran: By leveraging this multifaceted approach, Brain6 ensures a level of performance and robustness that is unparalleled.

Moran: During Q2, we began online testing of the IQ6 platform at scale, as well as data-driven offline simulation. We now have a line of sight to a vision-only system, which we believe will be at least two orders of magnitude better than anything else available in the market today, deployed in all markets.

Amnon Shashua: Moreover, IQ6 products are designed for flywheel product improvement by continuously aggregating feedback from the fleet and improving the product. Act, cost-efficiency. We understand that the path to widespread adoption of autonomous driving technology hinges on cost-effectiveness. XX has been meticulously designed to operate efficiently with a cost-effective and inference computer. This synergy between Grain Six and our IQ6 platform not only drives down costs but also maximizes value for our partners and customers. Grain six enables our customers to offer eyes off products at 50% of the MSRP compared to Tesla FSD 12 and hands off at 25% of the MSRP.

Moran: Moreover, IQ6 products are designed for flywheel product improvement by continuously aggregating feedback from the fleet and improving the product. Cost efficiency.

Moran: We understand that the path to widespread adoption of autonomous driving technology hinges on cost-effectiveness.

Moran: N6 has been meticulously designed to operate efficiently with a cost-effective and inference computer. This synergy between Grain 6 and our IQ6 platform not only drives down costs but also maximizes value for our partners and customers.

Moran: Brain6 enables our customers to offer eyes-off products at 50% of the MSRP compared to Tesla FSD-12 and hands-off at 25% of the MSRP.

Amnon Shashua: Modularity, one of the most exciting aspects of Grain Six, is its modular architecture. This design allows for the seamless creation of drive of derivative products, including separate perception layers and adaptation to various sensor configurations. Our modular approaches intended ensure that grain six can be customized to meet the diverse needs and preferences of OEMs, offering them unparalleled accessibility and adaptability. Moreover, it opens up new business models in tangential areas such as infotainment and driver experience.

Amnon Shashua: Modularity. One of the most exciting aspects of Grain-6 is its modular architecture. This design allows for the seamless creation of derivative products, including separate perception layers and adaptation to various sensor configurations.

Moran: Modularity. One of the most exciting aspects of Brain6 is its modular architecture. This design allows for the seamless creation of derivative products, including separate perception layers and adaptation to various sensor configurations.

Moran: Our modular approach is intended to ensure that Brain6 can be customized to meet the diverse needs and preferences of OEMs, offering them unparalleled flexibility and adaptability.

Moran: Moreover, it opens up new business models in tangential areas such as infotainment and driver experience. More on that on our upcoming Investor Day later in the year.

Amnon Shashua: More on that on our upcoming Investor Day later in the year. Finally, controllability in the realm of autonomous driving control and transparency is paramount. Grain six architecture incorporates robust guard rails and checkpoints, allowing for precise oversight and control of the system. This design not only imposes clear do's and don'ts, but also provides transparency and decision making processes, thereby enhancing trust and reliability in our solution. In our view, what sets brain six apart from the competition is its integration with mobilized unique assets, namely RAM, crowdsourced mapping, and our extensive data lake. While IQ 5 products RAM is used explicitly as a map in IQ 6, Grain, Grain Six leverages insights from our RAM global database, which includes data from over six million vehicles, a massive tens of millions of miles daily.

Moran: Finally, controllability in the realm of autonomous driving, control and transparency are paramount.

Moran: Rain 6 architecture incorporates robust guardrails and checkpoints, allowing for precise oversight and control of the system. This design not only imposes clear dos and don'ts, but also provides transparency in decision-making processes, thereby enhancing trust and reliability in our solutions.

Speaker Change: In our view, what sets BrainTix apart from the competition is its integration with Mobileye's unique assets, namely REM, crowdsourced mapping, and our extensive data lake.

Moran: While IQ5 products REM is used explicitly as a map, in IQ6 brain.

Moran: Brain6 leverages insights from our REMM Global Database, which includes data from over six million vehicles, amassing tens of millions of miles daily. This crowdsourced mapping not only teaches Brain6 how to interpret road conditions everywhere, but also provides invaluable driving behavior insights.

Amnon Shashua: This crowdsourced mapping not only teaches Grain six how to interpret road conditions everywhere but also provides invaluable driving behavior insights. Furthermore, grain six is backed by hundreds of petabytes of data collected through years of collaboration with OEMs around the world. This deep reservoir of real world data is intended to ensure that grain six is not only advanced in its current capabilities, but that it is also continuously evolving to meet challenges and scenarios in autonomous driving. With uniform performance everywhere on the planet.

Moran: Furthermore, Brain 6 is backed by hundreds of petabytes of data collected through years of collaboration with OEMs around the world.

Moran: This deep reservoir of real-world data is intended to ensure that Brain6 is not only advanced in its current capabilities, but that it is also continuously evolving to meet new challenges and scenarios in autonomous driving with uniform performance everywhere on the planet.

Amnon Shashua: In summary, in the past six months, we managed to successfully advance mobilized position as the leading technology provider across four growth categories, as evidenced by one being the only company with design wins across all four segment categories mentioned above. And secondly, significant increase in the amount of business engagements toward nomination. We view Brain Six and IQ 6 system on chip as the technology link pins that enables us to efficiently execute and deliver products across all four segments, providing ultimate versatility to our customers and synergies from delivering across all segments from the same technology backbone. As evidenced, we are we are on track to deliver production hardware in vehicle prototypes and supervision of four and drive in our production program with Volkswagen Group by the end of the year. In parallel, while at the same time leveraging the synergetic architecture of our IQ 6 products.

Moran: In summary, in the past six months, we've managed to successfully advance Mobileye's position as the leading technology provider across four growth categories, as evidenced by

Moran: One, being the only company with design wins across all four segment categories mentioned above. And secondly, significant increase in the amount of business engagements toward nomination.

Moran: We view Brain6 and IQ6 system-on-chip as a technology linchpin that enables us to efficiently execute and deliver products across all four segments, providing ultimate versatility to our customers and synergies from delivering across all segments from the same technology backbone.

Moran: As evidence, we are on track to deliver production hardware and vehicle prototypes and supervision chauffeur and drive in our production program with Volkswagen Group by the end of the year

Moran: In parallel, while at the same time leveraging the synergetic architecture of our IQ6 product family.

Amnon Shashua: Assembly. We are excited about the potential of rank six and will provide more details in the moment that our Capital Markets Day planned for December this year.

Amnon Shashua: We are excited about the potential of Grain 6 and will provide more details and demonstrations at our Capital Markets Day planned for December this year. Number one, higher single cheap IQ revenue as a percentage of the total as inventory normalized. You're also seeing whether that's having any sort of impact, and if it is, what's the thought process around that, and then I have a follow-up as well. In order to be an effective player, you need to have technology on the road, not just, you know, development and testing. And this is one of the big advantages of Mobileye.

Moran: We are excited about the potential of Grain 6 and will provide more details and demonstrations at our Capital Markets Day planned for December this year. I now turn the call over to Moran.

Moran Rojansky: I now turn the call over to Moran.

Moran Rojansky: Thank you, Amnon, and thanks for joining me. Call everyone. Before I begin, please be aware that all my comments on profitability will refer to non-GAAP measurements. The primary exclusion in mobilized non-gap numbers is a motivation of intangible assets, which is mainly related to inter the acquisition of mobilized in 2017. We also exclude stock-based compensation, starting with Q2 results. They were closely aligned with that Q2 outlook we provided back in January. IQ volumes more than doubled versus Q1, as we projected. Our significantly higher volumes in Q2. As of the end of Q2, we believe inventory level that our customers are almost fully back to normal based on customer discussions and inventory reporting from larger T1.

Moran: Thank you, Amnon, and thanks for joining the call, everyone.

Moran: Before I begin, please be aware that all my comments on profitability will refer to NANGAP measurements.

Moran: The primary exclusion in Mobileye's non-GAAP numbers is amortization of intangible assets, which is mainly related to Intel's acquisition of Mobileye in 2017. We also exclude stock-based compensation.

Moran: Starting with Q2 results, they were closely aligned with the Q2 outlook we provided back in January .

Moran: IQ volumes more than doubled versus Q1, as we projected. Our Tier 1 partners digested most of the excess inventory in Q1, and that resulted in significantly higher volumes in Q2.

Moran: As of the end of Q2, we believe inventory levels at our customers are almost fully back to normal, based on customer discussions and inventory reporting from larger tier 1, our own analysis of supply and demand, and the large increase of volume in Q2.

Moran Rojansky: Our own analyses of supply and demand and the large increase of volume in Q2. Supervision volume volumes were 31,000 Q2 as expected. As compared to Q1, gross margin recovered significantly based on three factors. Number one, higher single cheap IQ revenue as a percentage of the total as inventory normalized. Number two, normalization of regional mix within IQ of most of the access inventory at our T1 customers was in North America and Europe where prices and margins tend to be higher than China. Number three, supervision gross margin rose to slightly above 40% due to conversion to the next generation domain controller, which is lower cost.

Moran: Supervision Volume

Moran: Volumes worth $31,000 in Q2, as expected.

Moran: As compared to Q1, gross margin recovered significantly based on three factors. Number one, higher single cheap IQ revenue as a percentage of the total as inventory normalized.

Moran: Number two, normalization of regional mix within IQ of most of the exit inventory at our Tier 1 customers was in North America and Europe , where prices and margins tend to be higher than China.

Moran: Number three, supervision gross margin rose to slightly above 40% due to conversion to the next-generation domain controller, which has lower cost.

Moran Rojansky: Adjusted operating margin also recovered significantly to 18% versus minus 27% in Q1 due to gross profit conversion on higher revenue, partially offset by essentially higher operating expenses. On a year-over-year basis, operating margin remains well below Q2, 2023, due to approximately 14 million higher operating expenses across a similar revenue base.

Moran: Adjusted operating margin also recovered significantly to 18% versus minus 27% in Q1 due to gross profit conversion and higher revenue, partially offset by sequentially higher operating expenses.

Moran: On a year-over-year basis, operating margin remains well below Q2 2023, due to approximately $40 million higher operating expenses across a similar revenue base.

Moran Rojansky: Before moving to guidance, I'll make an overarching statement on operating expenses. It's important to note that our R&D expenses and sales and marketing as well are primarily related to technology development, promotion, and program execution of our IQ6-based hardware platform and Brand-Six software that supports advanced solutions like surround data, superficial fur, and drive. All evident points to significant scaling of this product starting in mid-2026 with the IQ6-based program and growing with many other customers beyond that. We must continue to execute now on the core technology platform in general and customer programs specifically. Therefore, our operating expenses will not flex based on changes to the current revenue level.

Moran: Before moving to guidance, I'll make an overarching statement on operating expenses.

Speaker Change: It's important to know that our R&D expenses and sales and marketing as well are primarily related to technology development, promotion, and program execution of our IQ6-based hardware platform and Brain6 software that support advanced solutions like Surround Data, Supervision, Chauffeur, and Drive.

Moran: All evident points to significant scaling of these products starting in mid-2026.

Speaker Change: We must continue to execute now on the core technology platform in general and customer programs specifically.

Speaker Change: Therefore, our operating expenses will not flex based on changes to current revenue levels. However,

Moran Rojansky: However, after the accelerated pace of development over the last several years, we do expect the trajectory of OPEG's role to slow down, which will enable significant operating leverage at the advanced product being to scale. In particular, I see the rise of the news around data segment and important to operating leverage as it adds strong contact to vehicle drivers in addition to supervision and chauffeur.

Speaker Change: After the accelerated pace of development over the last several years, we do expect the trajectory of OPEC's growth to slow down, which will enable significant operating leverage as the advanced products begin to scale.

Speaker Change: In particular, I see the rise of the new surround data segment as imported to operating leverage as it adds strong contact per vehicle growth driver in addition to supervision and chauffeur.

Moran Rojansky: Turning to updated guidance. At the midpoint, we are reducing the outlook for both full-year 2024 revenue and adjusted operating income. The adjustments are almost exclusively volume-related for the reason that I'm not going through. Our IQ volume guidance is reduced to 28 million to 29 million from 31 million to 33 million previously, and supervision volumes are reduced to 110,000 to 130,000 as compared to 175,000 to 195,000 previously. In terms of proportion, the lower IQ volume offset by some ASP improvements accounts for approximately 70 percent of the lower revenue expectation; we're super counting for demander. A bit more detail on our volume expectation.

Speaker Change: Turning to updated guidance.

Speaker Change: At the midpoint, we are reducing the outlook for both full-year 2024 revenue and adjusted operating income. The adjustments are almost exclusively volume-related for the reasons that Amnon went through. Our IQ volume guidance is reduced to $28 million to $29 million.

Speaker Change: from 31 million to 33 million previously and supervision volumes are reduced to 110,000 to 130,000 as compared to 175,000 to 195,000 previously.

Speaker Change: In terms of proportion, the lower IQ volume, offset by some ASP improvements, accounts for approximately 70% of the lower revenue expectation, with supervision accounting for the demander.

Moran Rojansky: At the midpoint, IQ volumes are expected to total to about 17.5 million in the second half of 2024. We're the little below 50 percent of that expected in Q3. Supervision volumes are expected to total approximately 50,000 in a back half, with a little above 50 percent expected in Q3. The higher level in Q3 versus Q4 reflects uncertainties and conservatism related to market dynamics in China and respect to tariffs.

Speaker Change: A bit more detail on our volume expectations. At the midpoint, IQ volumes are expected to total to about $17.5 million in the second half of 2024, with a little below 50% of that expected in Q3.

Speaker Change: Supervision volumes are expected to total approximately 50,000 in the back half.

Speaker Change: with a little above 50% expected in Q3. The higher level in Q3 versus Q4 reflects uncertainties and conservatism related to market dynamics in China with respect to tariffs.

Moran Rojansky: In terms of adjusted operating expenses, we've looked at everything we consider discretionary and reduced our full forecast by about 20 million. We now expect year-over-year approximately 23 percent as compared to our prior outlook of 25 percent growth. With respect to operating cash flow, the 70 million we generated in the first half was higher than adjusted net income. We expect this dynamic to continue in the second half. Lastly, in terms of tax rate, we assume a non-GAAP effective tax rate of between 17 and 19 percent for 2024 in comparison to our prior expectation of 15 to 17 percent.

Speaker Change: In terms of adjusted operating expenses, we've looked at everything we consider discretionary and reduced our full-year forecast by about $20 million. We now expect year-over-year growth of approximately 23% as compared to a prior outlook of 25% growth.

Speaker Change: With respect to operating cash flow, the $70 million we generated in the first half was higher than adjusted net income. We expect this dynamic to continue in the second half.

Speaker Change: Lastly, in terms of tax rate, we assume a non-gap effective tax rate of between 17 and 19 percent for 2024 in comparison to our prior expectation of 15 to 17 percent.

Moran Rojansky: We have some tax items that do not adjust based on pre-tax profit levels. The tax rate for 2024 is being mathematically pushed up due to the reduced profit outlook.

Speaker Change: We have some tax items that do not adjust based on pre-tax profit levels, so the tax rate for 2024 is being mathematically pushed up due to the reduced profit outlook. Thank you, and we will now take your questions.

Moran Rojansky: Thank you, and we will now take your question. Thank you.

Operator: We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants who speak to the equipment, it may be necessary to pick up your handset before pressing the star keys. At this time, we are limiting participants to one question and one follow-up question. One moment, please, while we pull for questions. Thank you.

Speaker Change: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

Speaker Change: You may press star 2 if you would like to remove your question from the queue.

Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker Change: At this time, we are limiting participants to one question and one follow-up question. One moment, please, while we pull for questions.

George Gianarikas: Our first question comes from George, Gianarikas, from Canada Court Genuity. Please proceed. George, are you there? My apologies.

Speaker Change: Thank you. Our first question comes from George Gianaricas from Canada Accord Genuity. Please proceed.

George: George, are you there?

Ananda Baruah: It looks like it's a Nanda Barua from Loop Capital Market. Please proceed. Thanks for taking the question.

Speaker Change: My apologies. It looks like it's Ananda Baruah from Loop Capital Markets. Please proceed.

Amnon Shashua: I can do one of the follow-up here. Just for regards to the China dynamic, could you provide me context to the degree to which, I guess, lower level Chinese competition, you are seeing also, is that having any impact? And if it is with the thought process around that, and then I have a follow-up as well. Thank you. I think China automotive is a very volatile market. The dynamics are currently different from global markets, large. All of which serve as tailwind for increased content, multi-camera requirements, higher performance bar, which is a mobile eye shine. We believe that our stable ground in China in the near term is primarily amongst major Chinese audience with global sales and which seek a global solution.

Ananda Baruah: Oh yeah, thanks guys, thanks for taking the question.

Ananda Barua: Yeah, I guess I could I can I can do one in a follow-up here. So just with regards to the China dynamics Could you could you provide me context the degree to which? I guess like lower level Chinese competition

Speaker Change: You're seeing also and is that having any sort of impact and if it is what's the Thought process around that and and then I have a follow-up as well. Thanks

Speaker Change: Okay, thank you. I think China automotive is a very volatile market.

Speaker Change: The dynamics are currently different from global markets at large.

Speaker Change: For one, the balance between cost and performance trade-off is skewed mainly due to lack of testing governance for clear and testable KPIs of base ADAS functions like AEB.

Speaker Change: This is opposite to the ongoing trend in the US and Europe , where we see a considerable sustained expansion.

Speaker Change: of ADA safety requirements, such as the GSR mandate in Europe .

Speaker Change: Global, FMV SS-127 in the U.S., new criteria for Euro NCAP ratings in 2026-2028, all of which serve as tailwind for increased content, multi-camera requirements, higher performance bar, which is where Mobileye shines.

Speaker Change: We believe that our stable ground in China in the near term is primarily amongst major Chinese OEMs with global sales and which seek a global solution.

Amnon Shashua: On top of that, I think that we see current volatility as short-lived. Eventually, we believe regulatory governance will follow the trends we see in the global markets. So our focus is to prepare the ground for when the market will stabilize. This includes further localization of our technologies in China by establishing strong collaboration with local industry players like the PR. We announced this morning with Zika. This would enable us to build long-lasting infrastructure in China that will not only promote our solutions for China, but will also support our global OEM customers that are selling cars with our solutions into China.

Speaker Change: On top of that, I think that we see current volatility as short-lived. Eventually, we believe regulatory governance will follow the trends we see in the global markets.

Speaker Change: So our focus is to prepare the grounds for when the market will stabilize.

Speaker Change: This includes further localization of our technologies in China by establishing strong collaborations with local industry players, like the TR we announced this morning with Zikr.

Speaker Change: This would enable us to build long-lasting infrastructure in China that will not only promote our solutions for China, but will also support our global OEM customers that are selling cars with our solutions into China.

Amnon Shashua: In addition, we're also preparing entry-level IQ chips for emerging markets with just the right compute for the most basic ADAS requirements. So I think all in all this volatility is short-lived and we are doubling down on investments of China because it is very important also for other customers, Western customers selling into China. And we'll come up with the lower cost solutions down the road somewhere around the beginning of 2020. That will also take the right compute. Yes.

Speaker Change: In addition, we're also preparing an entry-level IQ chip for emerging markets with just the right compute for the most basic ADAS requirements.

Speaker Change: So I think, all in all, this volatility is short-lived, and we are doubling down on the investment of China, because it is very important also for other customers.

Speaker Change: Western customers selling into into China. And we'll come up with the lower cost solutions, down the road, somewhere around the beginning of 2022.

Ananda Baruah: That's super helpful, Amnon. So you actually touched on what my follow-up was going to be just, you know, context this morning that we should be aware of, around the Zika collaboration that was announced. That we read the press release, but we just love to get your additional context on the structural importance of that announcement. Thanks.

Speaker Change: That will also cater just the right compute. Yes.

Speaker Change: That's super helpful, Amnon, and you actually touched on what my follow-up was going to be.

Speaker Change: You'll be just, you know.

Speaker Change: We've read the press release, but we'd just love to get your additional context on the structural importance of that announcement. Thanks.

George Gianarikas: Our next question, our next question comes from George Gianarikas, from Canacorn Genuity, please proceed. Hi, good morning. Can you hear me? Yes, yes, we can hear you, George. Sorry about that. Thank you for taking my questions.

Speaker Change: Our next question.

Speaker Change: Our next question comes from George Gianaricas from Canaccord Genuity. Please proceed.

George Gianaricas: Hi, good morning. Can you hear me?

George Gianaricas: Yes, yes, we can hear you, George. Sorry about that. Thank you. Thank you for taking my questions. So maybe if you could please...

George Gianarikas: So maybe if you could please just give us a little bit of a timeline ran for some of the RF cues that you discussed about the third emerging segments. When do you suspect that could start hitting the PNL and maybe we could see some win announcements? Thank you. Thanks, George.

George Gianaricas: Just give us a little bit of a timeline, Ram, for some of the RFQs that you discussed about the third emerging segment. When do you suspect that could start hitting the P&L and maybe we could see some win announcements? Thank you.

Amnon Shashua: So maybe just to recap this category. So what we have seen in the past couple of quarters is a development of a new category and the passenger vehicle segment. Traditionally, OEMs are looking for solutions for three different categories at that. Entries for low cost solution that kind of have regulation certified and known performance. Premium is high end functionality, which we what we see today is hands off everywhere or eyes off in highways. And recently, there is a push for new generation for the mid-room. This is the high volume, but still affordable prices segment.

Ram: Thanks, George.

Speaker Change: Maybe just to recap this category, so what we've seen in the past couple of quarters is a development of a new category in the passenger vehicle segment.

Speaker Change: Traditionally, OEMs are looking for solutions for three different categories that they have. Entries for low-cost solution that kind of have regulation certified and known performance.

Speaker Change: Broadcasting, Premium is high end functionality, what we see today is hands off everywhere or eyes off in highways. And recently there is a push for a new generation for the mid-trim. This is the high volume, but still affordable prices segment.

Amnon Shashua: Now, there are two driving forces for this category development. Number one is the push from OEMs that want to simplify architecture, consolidate and improve their cost structure in the car, but still offer a new generation of comfort features and data. The second driving force is the pull from regulation. So seeing the latest roadmap from NCAP and NHTSA really drives the industry to add more sensors and more sophisticated software to be at the top of the line in terms of safety ratings and all the global standards. Now, these two driving forces, really in combination with latest technology that we've been able to demonstrate to automakers, that are truly unique to mobile line.

Speaker Change: Now, there are two driving forces for this category development. Number one is the push from OEMs that want to simplify architecture, consolidate and improve their cost structure in the car, but still offer a new generation of comfort features in ADAS.

Speaker Change: The second driving force is the pull from regulation.

Speaker Change: So, seeing the latest roadmap from NCAP and NHTSA really drives the industry to add more sensors and more sophisticated software to be at the top of the line in terms of safety ratings and all the global standards.

Speaker Change: Now, these two driving forces really in combination with latest technology that we've been able to demonstrate to automakers.

Amnon Shashua: Really open the door in a very short amount of time. We've been able to generate our skills from four car makers only in the process of one or two quarters. These are excused target end of 26 or 2027 SOPs. So the ramp up will most likely start at the second half of 26 and early 2027. As mentioned by Amman earlier, the volumes of these are excusers significant and combined with the tailwind in the ESP, the revenue potential is significantly higher than our entry aid us today. Important to say that the OEMs are considering this as an expansion of the entry level as opposed to a kind of a down a derivative of the supervision segment.

Mobileye: That are truly unique to Mobileye Really opened the door and in a very short amount of time we've been able to generate RSQs from four car makers only in the process of one or two quarters

Mobileye: These RFQs target end of 26 or 2027 SOPs, so the ramp-up will most likely start at the second half of 26 and early 2027. As mentioned by Amnon earlier, the volumes of these RFQs are significant.

Amnon: and Combined with the tailwind in the ASP, the revenue potential is significantly higher than our entry ADAS today.

Amnon: Important to say that the OEMs are considering this as an expansion of the entry level as opposed to a derivative of the supervision segment. So these are living side by side with supervision and chauffeur and not instead of supervision and chauffeur.

Amnon Shashua: So these are living side by side with supervision and chauffeur, and instead of supervision and chauffeur. And one of these two of the RFQs that we have are with customers who are in parallel continuing to work with us on supervision as well. So we consider this to be an expansion of our entry level as opposed to cannibalizing potentially from supervision, which is a very, very important development. Committee for us.

Amnon: And one of, or at least two of the RFQs that we have are with customers who are in parallel continuing to work with us on supervision as well. So we consider this to be an expansion of our entry level as opposed to cannibalizing potentially from supervision, which is a very, very important development for us.

George Gianarikas: Thank you.

Amnon Shashua: And maybe as a follow-up, you mentioned in the press release that you have significant wins to announce for supervision and chauffeur in the second half of this year. I'm curious as to what the appetite is from particularly Western OEMs to adopt advanced autonomy solutions, given what would appear to be sort of subdued take rates from FSD from Tesla's FSD offering so far. Thank you. So, as we mentioned at the beginning of this call, we continue to make progress across all of our business development activities with OEMs. These include OEMs from all markets practically. The driving forces for them are, I think, it's evident today that the next big differentiator will be intelligent driving.

Speaker Change: Thank you. And maybe as a follow-up, you mentioned in the press release that you have

Speaker Change: Significant wins to announce for supervision and chauffeur in the second half of this year. I'm curious

Speaker Change: As to what the appetite is from...

Speaker Change: Particularly Western OEMs to adopt advanced autonomy solutions, given what would appear to be sort of subdued take rates from FSD, from Tesla's FSD offering so far. Thanks.

Speaker Change: Thank you.

Speaker Change: So, as we mentioned at the beginning of this call, we continue to make progress across all of our business development activities with OEMs. This includes OEMs from all markets.

Speaker Change: probably, the driving forces for them are… I think it's evident today that the next big differentiator will be intelligent driving.

Amnon Shashua: And you see this in China, where some of the, or at least the most innovative Chinese OEMs are continuing to make progress and invest more and better and more advanced intelligence by driving offer offerings and in Tesla as well. Now, I think OEMs understand that two to three years from now, performance will continue to improve potentially if they can get to the right price point, which is what mobile I can offer. They can offer this function to consumers at the very attractive price point and very reliable and high level of performance, which will then have a high take rate as opposed to having maybe not optimal performance at a high price, which is mostly what you see today that can have a negative impact on take rates.

Speaker Change: And you see this in China, where some of the, or at least the most innovative Chinese OEMs are continuing to make progress and invest more in better and more advanced intelligent driving offerings, and in Tesla as well.

Speaker Change: Now, I think OEMs understand that two to three years from now...

Speaker Change: will continue to improve, potentially if they can get to the right price point, which is what Mobileye can offer.

Speaker Change: They can offer this function to consumers at a very attractive price point and very in a reliable and high level of performance, which will then have a high take rate as opposed to having maybe not optimal performance at a high price, which is mostly what you see today that can have a negative impact on take rates.

Amnon Shashua: So still, even though today you might have some data on Tesla take rates, there is a realization that two to three years from now, which is where OEMs would like to launch these systems. Because as performance continues to improve and as reliability of these systems continue to improve and prices can go lower, which is where mobile is unique, there will be a very, very good demand from consumers to these systems. Just to give you an evidence to this, one of our engagements with these OEMs is actually with one of the OEMs that did not the business with us for the next generation, and we reached out to them and did some demonstrations.

Speaker Change: So it's still, even though today you might have some, you know, some data on Tesla take rates, there is a realization that two to three years from now, which is where OEMs would like to launch these systems.

Speaker Change: As performance continues to improve and as reliability of these systems continue to improve and prices can go lower, which is where Mobileye is unique, there will be a very, very good demand from consumers to these systems.

Speaker Change: just to give you an evidence to this one of our engagements with these OEMs

Speaker Change: is actually with one of the OEMs that did not have a business with us.

Amnon Shashua: And during the course of these demonstrations, they really opened the new opportunities that was not planned for them for 2022 because they realized that there is a path for very affordable high level of performance in two years and they have to compete in the United States that to compete in China. And they consider mobilized the only global solution that has the best price versus performance ratio. I will also add to what in what said is that in order to be an effective player, you know, need to have technology on the road, not just development and testing.

Speaker Change: for the Next Generation, and we reached out to them and did some demonstrations.

Speaker Change: International. And during the course of these demonstrations, they really opened the new opportunities that were not planned for them.

Speaker Change: for 2027, because they realized that there is a path for very affordable high level of performance, you know, in two years. And they have to compete in the United States. They have to compete in China, and they consider Mobileye as the only global solution that have the best price versus performance ratio.

Amnon Shashua: We are the only Western supplier that has, So this experience is something that takes time. Now, you cannot just sit in the lab and develop a cool algorithm and expect that on day one, when you launch a system, everything will be perfect. And this is a great advantage of Mobileye's supervision, that it's on the road.

Speaker Change: I'll also add to what Nimrod said, is that

Speaker Change: In order to be an effective player, you need to have technology on the road, not just, you know, development and testing. And this is one of the big advantages of Mobileye. We are the only Western supplier that has...

Amnon Shashua: And this is one of the big advantages of a mobile. We are the only western supplier that has this category of supervision in China, and we are gaining a lot, a lot of experience. That experience will be translated into the global market. So this experience is something that takes time. Now you cannot just sit in the lab and develop a cool algorithm and expect that on day one, when you launch a system, everything will be perfect. And this is a great advantage of mobilizing the supervision that it's on the road today. We are gaining a lot of experience.

Speaker Change: this category of supervision in China, and we're gaining a lot of experience.

Speaker Change: Experience will be translated into the global into the global markets.

Speaker Change: So this experience is something that takes time. Now, you cannot just, you know, sit in the lab and, and, you know, develop a cool algorithms and, and expect.

Speaker Change: That on day one, when you launch a system, everything will be perfect. And this is a great advantage of Mobileye's supervision that it's on the road. Today, we're getting a lot of experience.

Amnon Shashua: Today, we're getting a lot, a lot of experience. And I think, just to add one last comment to this question, to support with evidence, just by seeing the number of engagements that we have today compared to a year ago, there is an obvious progression in the market towards these technologies, and not just the quantity, but also who are the OEMs that we're engaged with. We are talking about, let's say, global OEMs, incumbents in the top 10 in vehicle production that now have, this is not just niche OEM startups that want to create a differentiating angle.

Amnon Shashua: And I think just to add one last comment to this question, as Justice supports with evidence, just by seeing the number of engagements that we have today compared to a year ago, there is an obvious progression in the market towards these technologies and not just the quantity, but also who are the OEMs that we're engaged with. We are talking about, you know, the, let's say, global OEMs, incumbents in the top 10 in vehicle production that have, you know, this is not just, you know, niche OEM startups that have want to create a differentiating angle. So the pragmatist OEM incumbents are looking for these technologies, and we see a growing number of those that are approaching us and investing a lot of resources into promoting the, you know, the nomination for these.

Speaker Change: And I think, just to add one last comment to this question,

Speaker Change: [inaudible]

Speaker Change: and Justice Supports with Evidence.

Speaker Change: Just by seeing the number of engagements that we have today compared to a year ago,

Speaker Change: Business, and There Is An Obvious Progression In The Market Towards These Technologies. And not just the quantity, but also who are the OEMs that we're engaged with.

Speaker Change: We are talking about the, let's say, global OEMs, incumbents in the top ten in vehicle production that have, you know, this is not just a...

Amnon Shashua: So the pragmatic OEM incumbents are looking for these technologies, and we see a growing number of those that are approaching us and investing a lot of resources into promoting the nomination for these. So we believe that this volatility is short-lived, but it would likely sustain into 2025. So the fact that it takes a few months or a year, but in some cases more than a year, to converge these activities is natural given the magnitude of the decision. At the same time, having made these decisions, it's very likely that the selected solution will continue to be the backbone of this OEM for many years to come. Hi, this is Gabriel. I'm for Joe.

Amnon Shashua: and Amnon Shashua.

George Gianarikas: Systems. Thank you, George.

Operator: Next question, please. Thank you.

Amnon Shashua: Thank you, George. Next question, please.

Antoine Chkaiban: Our next question comes from Antoine Chkaiban from New Street Research. Please proceed. Hi, thank you very much for taking my question. So, yeah, I believe you lowered your supervision 2024 shipments projections by 70,000 at the midpoint.

Speaker Change: Thank you. Our next question comes from Antoine Chikaibin from New Street Research. Please proceed.

Antoine Chikaibin: Hi, thank you very much for taking my question. So yeah, I believe you you lowered your supervision 2024 shipments projections by 70,000 at the midpoint. So could you maybe provide some more color on how that splits?

Moran Rojansky: So, could you maybe provide some more color on how that splits between the various customers impacted by the terrorists and how this lowered 2024 baseline will impact the ramp of supervision system in 2526, maybe by telling us what proportion of the systems that you expected to ship in those years are impacted by the terrorists. Thank you. And I have a follow up. Look, our ability to make accurate forecasts for supervision is being challenged by the volatility in China. You know, some of our platforms like Polestar 4 and Zika 001 are being exported to global markets, but the ramp app is taking longer than we initially forecasted, partly due to the recently imposed tariffs in the US and Europe.

Speaker Change: between the various customers impacted by the tariffs and how this lower 2024 baseline will impact the ramp of supervision systems in 2025-2026, maybe by telling us what proportion of the systems that you expected to ship in those years are impacted by the tariffs. Thank you and I have a follow-up.

Speaker Change: Look, our ability to make accurate forecasts for supervision is being challenged by the volatility in China.

Moran Rojansky: Additionally, when anticipated down the road, our supervision solution on Zika model may not necessarily be standard. Although no indication of that is baked into the forecast from Zika, we still believe that taking this conservative approach would be prudent. So, we believe that this volatility is short-lived, but would likely sustain into it 2025. And until we see more supervision models launched in global markets. So, this volatility is really inherent in two things. One is that we have a small number of models with supervision. So, everything is volatile. Second, China, automotive is very, very volatile. It's very difficult to make forecast accurate forecast.

Speaker Change: Additionally, we anticipate that down the road our supervision solution on ZCOR models may not necessarily be standard. Although no indication of that is baked into the forecast from ZCOR, we still believe that taking this conservative approach would be prudent.

Speaker Change: [inaudible]

Speaker Change: China Automotive is very, very volatile.

Moran Rojansky: This is why we took the conservative approach. So, we took what would be the worst case for 2024 so that we don't need to again change guidance throughout this year. So, our guidance does not reflect our optimistic view. It reflects our worst case, worst case view of supervision because of this heightened volatility that most of it is not in our control. Thanks a lot. So, maybe on the 14th, we end that that you're working with. I believe the number was the same last quarter. Can you maybe update on the likelihood of conversion with those 14.

Speaker Change: So, our guidance does not reflect our optimistic view, it reflects our worst case view of supervision because of this heightened volatility that most of it is not in our control.

Moran Rojansky: How has that changed over the last 90 days? Thanks. Yeah. So, I think what we have in all of these programs, we continue to make progress and we move in the right direction on the access towards nomination. As we mentioned in previous calls, the process of nominating this system is relatively complicated and involves many different activities, starting from technically evaluating the system, building prototypes, doing global expedition and performance evaluations, reviewing the architecture changes that are needed by the OEM, etc. In addition to this, there is obviously the commercial part that needs to be negotiated and discussed and agreed, get to the right price point, the investments needed in order to build this program.

Speaker Change: Starting from technically evaluating the system, building prototypes, doing global expedition and performance evaluations.

Speaker Change: Solutions, Reviewing the Architecture Changes that are Needed by the OEM.

Speaker Change: International, etc. In addition to this, there is obviously the commercial part that needs to be negotiated and discussed and agreed to get to the right price point.

Moran Rojansky: And especially when we talk about in conventional ways that have dozens or even hundreds of different vehicle models, it also incorporated into their plans to launch cars in the future, which inserts another challenge or at least another question that any to answer. Yeah, I should say. Strategic. So the fact that it takes a few months or a year, but in some cases more than a year to converge with activities, I think it's natural given the magnitude of the decision. At the same time, having made the decision, it's very likely that the selected solution will continue to be the backbone for this OEM for many years to come.

Speaker Change: The investments needed in order to build this program.

Speaker Change: And especially when we talk about incumbent that have dozens or even different vehicle models, it also incorporated into their plans to launch cars in the future, which inserts another challenge or at least another question that they need to answer, I should say.

Speaker Change: Day. So the fact that it takes a few months or a year, but in some cases more than a year to converge these activities, I think is natural given the magnitude of the decision. At the same time, having made these decisions, it's very likely that the selected solution will continue to be the backbone for this OEM for many years to come.

Moran Rojansky: So we believe that we are now in the process of acquiring these OEM partners for next generation platforms, but once we do this in the next few months as we have announced, we believe that will give us stability for years to come afterwards in terms of locking ourselves as the technology provider for a very good portions of the, you know, out of the top 10 OEMs in the world today.

Speaker Change: But once we do this in the next few months, as we as we have announced, we believe it will give us stability for years to come afterwards in terms of locking ourselves as the technology provider for very good portions of the, you know, out of the top 10 OEMs in the world today.

Moran Rojansky: So, in terms of likelihood and the quantified into percentages, I think it's a little bit complicated, but what we've seen in the past quarter are only positive developments towards nomination.

Speaker Change: So in terms of likelihood and to quantify this into percentages, I think it's a little bit complicated, but what we have seen in the past quarter are only positive developments towards nomination.

Moran Rojansky: Thanks a lot.

Speaker Change: Thanks a lot.

Gabriel: Our next question comes from Joe Spock from UBS. Please proceed. Hi, this is Gabriel on for Joe. Thank you for taking my question. So I think you just mentioned that the supervision light RF cues are incremental to the base business. So customers are not choosing this over supervision, but again, the 14 OEM number hasn't changed from the prior quarter, and now two of those 14 are only saying supervision light. So did those two OEMs drop off and were replaced by the two new supervision light wins, or was the last 14 OEMs inclusive of these two as well?

Speaker Change: Our next question comes from Joe Spak from UBS. Please proceed.

Unknown Attendee: Thank you for taking my question. So I think you just mentioned that the supervision light RFQs are incremental to the base business, so customers are not choosing this over supervision. But again, the 14 OEM numbers haven't changed from the prior quarter, and now two of those 14 are only saying supervision light.

Speaker Change: But again, the 14 OEM number hasn't changed from the prior quarter, and now two of those 14 are only saying Supervision Light.

Amnon Shashua: So did those two OEMs drop off and were replaced by the two new supervision light winds? Or were the last 14 OEMs inclusive of these two as well? Okay, and just to follow up on the Zika question, what does this accelerated integration of your technology exactly entail? You know, what's the timeframe for getting these vehicles on the road? And I know you mentioned earlier your confidence to win further business with domestic Chinese OEMs, but are you still seeing a large focus on in-house developments within that?

Speaker Change: So, did those two OEMs drop off and were replaced by the two new Supervision Lightwinds? Or was the last 14 OEMs inclusive of these two as well?

Gabriel: So the last 14 was inclusive of these two, and it's more of a, we now have having, you know, defined this category more explicitly and more precisely. We wanted to also line the, you know, the number that we're disclosing to be consistent with this definition. Okay, and thank you. You call it the supervision light.

Amnon Shashua: Okay, and just a follow-up on the Zeaker question. What does this accelerated integration of your technology exactly entail, you know, what's the timeframe to getting on these vehicles? And I know you mentioned earlier, your confidence to when further business with domestic Chinese OEMs, are you still seeing a large focus on in-house developments within that region? I first just as a background launching supervision was Zeaker in China was was really a critical for us because it was a proof point for global OEMs to see our capacity, our capability and the key factor in winning, for example, the false again group deal and which led to many other, you know, current development engagement.

Speaker Change: And we don't call it Supervision Bytes.

Speaker Change: Okay, and just to follow up on the Zikr question...

Speaker Change: What does this accelerated integration of your technology exactly entail? You know, what's the time frame to getting on these vehicles? And I know you mentioned earlier your confidence to win further business with domestic Chinese OEMs, but are you still seeing a large focus on in-house developments within that region?

Speaker Change: I'll first suggest as a background, launching Supervision with Zikr in China was really a critical moment for us because it was a proof point.

Speaker Change: for Global OEMs to see our capacity, our capability and the key factor in winning, for example, the Volkswagen Group deal and which led to many other, you know, current development engagements.

Amnon Shashua: So we are continuing to double down on investments in China because it's super, super important to have a global solution, right? It's not just the Chinese market. It's the fact that we have a global solution. Now, we are the only Western supplier of a system in this category, and this says a lot about the challenges in operating in China. So we believe that, you know, if you bolster our relationship with Zeaker and the Julie group as a whole, it will benefit both parties. It will allow them to be more standardized. It will allow helping localizing our solution because complying with the Chinese data regulation is very, very challenging.

Amnon Shashua: We are continuing to double down on investment in China because it's super, super important to have a global solution. It's not just the Chinese market, it's the fact that we have a global solution. So we believe that, you know, if we bolster our relationship with Zikr and the GILI group as a whole, it will benefit both parties.

Speaker Change: Now, we are the only Western supplier of a system in this category, and this says a lot about the challenges in operating in China.

Speaker Change: So we believe that, you know, if you bolster our relationship with Zika and the GILI group as a whole, it will benefit both parties.

Amnon Shashua: It will allow RAMP to be more standardized. It will allow help in localizing our solution, you know, because complying with the Chinese data regulation is very, very challenging. So if we can get help in that area, in terms of localizing the solution, I think it will benefit both parties. There are also some, you know, commercial details, but they're not material to mobilize operations when we test.

Speaker Change: It will allow RAM to be more standardized, it will allow help in localizing our solution because complying with the Chinese data regulation is very, very challenging.

Amnon Shashua: So if we can get help in that area in terms of localizing the solution, I think it will benefit both parties. There are also some, you know, commercial details, but they're not material to mobilize operations. And of course, we announced that we are targeting together also activity on Robotaxi, kind of the extension of what we're doing with the Volkswagen ID bus. We will also be going to collaborate with the Zika on this kind of technology. It will also help us to expand considerably the amount of vehicle sending us data. So it's all positive both in terms of upgrading the supervision solution we have in localizing it into China and both storing our global solution.

Speaker Change: that were targeting together also activity on RoboTaxi.

Speaker Change: We're also going to collaborate with Zikr on this kind of technology.

Speaker Change: It will also help us to expand considerably the amount of vehicles sending us data. So it's all positive, both in terms of upgrading the supervision solution we have and localizing it into China.

Amnon Shashua: I'll just give you an anecdote. You know, when we look at one of the metrics, meantime between critical critical events, when we test, and this we did, but by the way, with the one of our partners, OEMs, when we test our supervision vehicle in the UK, with where we have very, very good coverage of our red maps, the meantime between critical event is about 50 hours in China. It's much less than that. So, and this is because we haven't yet finished the localization that the red coverage is not as good as we have outside of China.

Speaker Change: and bolstering our global solution. I'll just give you an anecdote. You know, when we look at one of the metrics, mean time between critical events,

Speaker Change: When we test

Speaker Change: And this we did, by the way, with one of our partner OEMs. When we test our supervision vehicle in the U.S., where we have very, very good coverage of our REM maps, the mean time between critical events is about 50 hours.

Speaker Change: In China, it's much less than that.

Speaker Change: So, and this is because we haven't yet finished the localization, the RAM coverage is not as good as we have outside of China. So if we can localize our solution more effectively.

Amnon Shashua: So, if we can localize our solution more effectively, we can get a system that is really unparalleled. And this is with the old technology of IQ 5 Technology. Imagine what we will do when we'll start launching IQ 6 technology.

Speaker Change: We can get a system that is really unparalleled, and this is with the old technology of IQ 5 technology. Imagine what we will do when we'll start launching IQ 6 technology.

Aaron Rakers: Our next question comes from Aaron Rakers from Wells Fargo. Please proceed. Thanks for the question.

Speaker Change: Thank you.

Jake: This is Jake on for Aaron. I was wondering if you could talk about progress you're making on the supervision to main controller and just maybe the trajectory of the gross margin uplift you're expecting to see from that. So, we have considerably reduced the cost of our main controller with the IQ 5 chip; kind of the goal. We always said that the goal is to reach a 50% gross margin on the entire solution, and we're close to it. We're about 44% now, something like that. And there's more to optimize the IQ 6 system that we're building now for the Volkswagen Group and for all the engagements that we are working on for nomination will not be more expensive.

Amnon Shashua: So we have considerably reduced the cost of our main controller with the IQ5 chip. Kind of the goal, we always said that the goal was to reach a 50% gross margin on the entire solution. And we're close to it. We're about 44% now, something like that.

Speaker Change: We always said that the goal is to reach a 50% gross margin on the entire solution. We're close to it. We're at about 44% now, something like that. There is more to optimize.

Amnon Shashua: And there's more to optimize, and that's also aligned with industry trends. So it's important to mention also for our non-Chinese OEMs, it was very much focused on where we saw the market trend going down for them, like it was in sharing China. Recently, this has changed how much capital Mobileye feels it needs to allocate towards compute. For example, developments like Brain Sick. Does that change the quantum of CapEx investment needs at Mobileye in a material way that you'd like to communicate? Well, yes, indeed.

Speaker Change: The IQ6 system that we're building now for the Volkswagen Group and for all the engagements

Amnon Shashua: So, it's really highly optimized and will even have a better gross margin. It's more optimized in terms of gross margin. But I think that the 50% 55% gross margin on a tier 1 position is really achievable.

Speaker Change: working on nomination will not be more expensive, so I think this is a really, high amount of gross margin and we will even have better gross margin .I think that 50–55% gross margin

Speaker Change: on a Tier 1 position is really achievable.

Moran Rojansky: Great. Thanks.

Amnon Shashua: And then maybe just going back to the traditional ADAS business. Have you seen any change, any significant change in adoption rates on lower level ADAS over the last few quarters, especially at Chinese OEMs? Yes, indeed. And this is what we reported the second half. We see a decline in terms of shipments of the second half of the year. Now, it could come from multiple sources. One of them is some residuals of inventory that you know we don't have 100% visibility to what is going on in inventory. Some of it could be a market share, a market share loss where we get a desourced and with the local solution instead of instead of hours.

Speaker Change: Yes, indeed. And this is what we reported. The second half...

Speaker Change: We see a decline in terms of shipments of the second half of the year.

Speaker Change: It could come from multiple sources. One of them is some residuals of inventory. We don't have 100% visibility.

Speaker Change: It could be a market share loss where we get de-sourced and with a local solution instead of ours. As I mentioned in the opening,

Amnon Shashua: As I mentioned in the opening, you know, the cost performance optimization is quite skewed in China because of lack of testing governance. Development, which is really opposite to what's going on in the West. In the West, the testing governance is increasing. The envelope is increasing. Today's system that has 5 star rating and 2026, 2027 will not have 5 star ratings. You need to add either more sensors, more compute; the bar is rising. In China, there is still no governance of testing. Believe it, it's temporary. I believe that they will align with the global markets in terms of testing.

Speaker Change: which is really opposite to what's going

Speaker Change: The testing governance is increasing, the envelope is increasing. Today's system that have five-star rating in 2026-2027 will not have five-star ratings. You need to add either more sensors, more compute. The bar is rising.

Speaker Change: In China, there is still no governance of testing. I believe it's temporary. I believe that they will align with the global markets in terms of testing and by doing that, the cost optimization trade-off would be balanced.

Amnon Shashua: By doing that, the cost optimization trade-off would be balanced. Therefore, we'll regain market share. The bolstering of localization we're doing with Zika, I think will also help our AIDAS. Once REM is completely with full coverage, it helps also our cloud enhanced AIDAS. A few months ago, we announced that with the cherry in China, we have a program where launching cloud enhanced AIDAS. This could increase and expand our position in AIDAS in China in the midterm. We're also coming up with lower-cost chips, which are dedicated to emerging markets. They have much less compute, but good enough to do that.

Speaker Change: görew electronic marketing events, and therefore will regain market share. The bolstering of localization we're doing with Zico I think will also help our ADAS. Once REM is completely with full coverage, it helps also our cloud enhanced ADAS. You know, a few months ago.

Speaker Change: We announced that with the CHERI in China, we have a program, we're launching cloud-enhanced ADAS. So this could...

Amnon Shashua: They're really basic AIDAS that is needed in those emerging markets. I believe that the volatility we are seeing now, of course it's real, but it is short-lived.

Speaker Change: that is needed in those emerging markets.

Amnon Shashua: I just want to add to this that globally, in terms of AIDAS, what we have seen, which is a very positive development. There is a pool from the market, from consumers, in markets that today have very low, almost zero AIDAS adoption rates. Areas like South Korea and India and some countries in Asia are really picking up in terms of increasing AIDAS AIDAS. These are today 25 to 30 million cars per year, which is our third of vehicle production, that today have no AIDAS at all. We see this number will continue to drop, and AIDAS adoption rates will continue to increase.

Speaker Change: Areas like South Africa and India and some countries in Asia are really picking up in terms of increasing ADA stake rates.

Amnon Shashua: We are very well positioned to benefit from this increase and to have higher adoption rates of AIDAS. In developed countries like Europe and the United States, we don't see, again, that the take rates are almost 100% today because of regulation, and the trend in regulation is only to add more content and to increase the requirements.

Speaker Change: and we are very well positioned to benefit from this increase.

Amnon Shashua: There is another component that I missed in terms of China AIDAS. Our legacy customers, Western customers, some of them are losing share in China. This also affects us. This also affects the volume of shipment of chips into China because of lots of market share of Western OEMs. For the non-Chinese OEMs, the gap we are seeing from initial indications from the beginning of the year to the new order is very much consistent with industry trends. It was pretty focused on specific OEMs, but for the rest of the non-Chinese OEM, more than half of them didn't have any reductions.

Speaker Change: And there is another component that I missed in terms of the China ADAS.

Speaker Change: Our legacy customers, Western customers, some of them are losing share in China. This also affects us. So this also affects the volume of shipment of chips.

Speaker Change: We are seeing from initial indications from the beginning of the year to the new order is very much consistent with the industry trend.

Speaker Change: It was pretty focused on specific OEMs, but for the rest of the non-Chinese OEMs, more than half of them didn't have any reductions.

Amnon Shashua: That also aligns with industry trends. For the mention of the non-Chinese OEMs, it was very much focused on where we saw the market trend going down for them. It was in China. Example.

Speaker Change: and that's that's also aligned with industry trends so it's important to mention also for our non-Chinese OEMs, it was very much focused on where we saw the market trend going down for them and sharing China.

Stephen FOX: Right, thank you.

Speaker Change: For example.

Stephen FOX: Our next question comes from Adam Jonas from Morgan Stanley. Please proceed. Thank you, everybody.

Speaker Change: Our next question comes from Adam Jonas from Morgan Stanley . Please proceed.

Amnon Shashua: Hi, I'm Non. So, mobilized CAPX investments are kind of running around $100 million a year right now. Some of your competitors in autonomy are investing many billions a year, particularly on compute. And I'm wondering, do the developments in AI and machine learning recently change how much capital Mobileye feels it needs to allocate towards compute? For example, developments like Brain Six, does that change the quantum of CAPX investment needs at Mobile I in a material way that you'd like to communicate today? Well, yes, indeed, it's not in the billions of dollars. I don't think we need those billions of dollars of investments, but definitely, we're spending close to $100 million on cloud compute just to be kind of transparent.

Adam Jonas: Thank you everybody. Hi Amnon. So Mobileye's CapEx investments are kind of running at around a hundred million dollars a year right now.

Speaker Change: Some of your competitors in autonomy are investing many billions.

Speaker Change: Recently, change how much capital Mobileye

Speaker Change: Fields It Needs to Allocate Towards Compute.

Speaker Change: For example, developments like Brain 6, does that change the quantum of CapEx investment needs at Mobileye in a material way that you'd like to communicate today?

Amnon Shashua: It's not in the billions of dollars. I don't think we need those billions of dollars of investments, but definitely, So we're spending close to $100 million on cloud compute, just to be kind of transparent. But recently, in the past six months, we have been investing much more in prem. So we are investing in what we need in terms of generative AI models that, at the end of the day, fit into a limited capacity chip, no matter how strong your chip is.

Speaker Change: Well, yes, indeed. It's not in the billions of dollars. I don't think we need those billions of dollars of investments, but definitely.

Speaker Change: We're spending close to $100 million on cloud compute, just to be kind of transparent. But recently, in the past six months, we have been investing in much more on-prem.

Amnon Shashua: But recently, in the past six months, we have been investing much more on-prem, the H-100 and A-100 nodes. We have been investing quite a lot there. And we're investing for what for our needs, not just say that we're buying tens of thousands of H-100 and who knows what we're with them. We're not going to be a cloud provider. So, we are investing what we need in terms of the generative AI models that, at the end of the day, they fit into a limited capacity chip. No matter how strong it is in a car, it's still limited capacity.

Speaker Change: So, we are investing what we need in terms of the generative AI models that, at the end of the day, they fit into a limited capacity chip. No matter how strong your chip is, in a car, it's still limited capacity. So this drives the size of the networks.

Amnon Shashua: In a car, there's still limited capacity, so this drives the size of the network. And as I mentioned before, if you look at our old technology, the IQ5 technology, which does not yet have generative AI there, if you look at the mean time between critical events that we have tested in the US, it's about five times better than the latest version 12.5 that I see. So, yes, we have increased our investments, but I don't see the need to invest billions of dollars. That's incredible!

Amnon Shashua: So, this drives the size of the networks. And as I mentioned before, if you look at our old technology, the IQ5 technology, which does not yet have generative AI there, if you look at the mean time between critical events that we have, testing in the US, it's about five times better than the latest version 12.5 that I see in the small amount of data that has been released so far. So, it's not that we are trailing behind, and we need to catch up. And we have, with the IQ6, with the brain six, where we have lots of generative AI components. All our testing, online and offline testing, so far show that we'll get two orders of magnitude improvements.

Speaker Change: And as I mentioned before, if you look at our old technology, the IQ5 technology, which does not yet have generative AI there.

Speaker Change: If you look at the mean time between critical events that we have testing in the U.S., it's about five times better than the latest, you know, version 12.5 that I see in the U.S.

Speaker Change: and the small amount of data that has been released so far.

Speaker Change: So it's not that we are trailing behind and we need to catch up. And we have

Speaker Change: with the IQ 6, with the Brain 6, where we have, you know, lots of generative AI components. All our testing, online and offline testing so far, show that we'll get two orders of magnitude.

Amnon Shashua: So, we're talking about just the camera belt system, more than 1,000 hours of mean time between critical events. So, yes, we have increased our investments, but I don't see the need to invest billions of dollars. Thanks, NON, two orders of magnitude. That's incredible. Mobile I is at the cutting edge, a bleeding edge, of computer vision and AI, clearly. And you've been doing this for decades. As you know, NON, there are obvious dual use. Ex-military applications for these technologies, and you're also aware that autonomous weapon systems is increasingly gaining a lot of momentum due to the evolution of the types of technologies that you and your company are driving forward.

Speaker Change: We're talking about just a camera built system, more than 1,000 hours of meantime between critical events.

Speaker Change: So, yes, we have increased our investments, but, you know, I don't see the need to invest billions of dollars. Thanks, Amnon. Two orders of magnitude.

Amnon Shashua: Mobileye is at the cutting edge, the bleeding edge. Military applications for these technologies, and you're also aware that autonomous weapon systems are increasingly gaining a lot of momentum. [inaudible] Media, and others from selling leading-edge chips into China. Do you not see a risk of similar intervention in the types of technology that you provide to China? I mean, really advanced hundred X improvements on 50 60, right? So we're not talking about the same league in terms of high-performance computing, so I don't think that there is any need to kind of ban a chip of this category in terms of terror operations per second.

Speaker Change: As you know, Amnon, there are obvious dual-use.

Amnon Shashua: Military Applications for these technologies and you're also aware that autonomous weapon systems is increasingly gaining a lot of momentum.

Amnon Shashua: It does seem that targeting objects may be easier than avoiding objects, one could argue. The US has banned Nvidia and others from selling leading-edge chips into China, and do you not see a risk of similar intervention to the types of technology that you provided China? I mean, really advanced 100x improvements on AI and physical applications, and considering that you're a controlled US entity. Is that a stupid question, Amnon? No, it's not a stupid question; not at all. I don't think that anything stupid could come out of you, but I would disagree, actually. But let's put things in context.

Speaker Change: Nvidia and others from selling leading-edge chips into China. Do you not see a risk of similar intervention to the types of technology that you provide to China? I mean really advanced 100x improvements on

Speaker Change: AI and Physical Applications, considering that you're a controlled U.S. entity. Is that a stupid question, Amnon?

Speaker Change: It's not a stupid question. Not at all. I don't think that anything stupid could come out of you. I would disagree, actually. But let's put things in context. You know, an NVIDIA Orange chip...

Amnon Shashua: You know, and Nvidia, or in chip, is about 250 tops, terror operations per second, and IQ 6 is 5060, right? So we're not talking about the same league in terms of high performance computing. So I don't think that there is any need to kind of ban a chip of this category, terms of terror. I think what we excel in is embedding software and hardware. We can provide, we can solve autonomy without a brute force in terms of terror operations per second. So I believe that this really puts us, you know, not in the short list of chips that should be banned by the US because it's not really high performance computing when you measure the metrics of what high performance computing is.

Amnon Shashua: is about 250 TOPs, terror operations per second, and IQ6 is...

Speaker Change: 50-60. We're not talking about the same league in terms of high-performance computing.

Amnon Shashua: I think what we excel at is this embedding software and hardware. We can provide, we can solve autonomy without a brute force in terms of terror operations per second. So I believe that this really puts us, You know, not on the short list of chips that should be banned by the U.S., because it's not really high-performance computing when you measure the metrics of what high-performance computing is. That's helpful.

Speaker Change: a chip of this category in terms of terror operations per second. I think what we excel is this embedding software and hardware.

Speaker Change: We can solve autonomy without a brute force in terms of terror operations per second. So I believe that this really puts us...

Speaker Change: You know, not in the short list of chips that should be banned by the U.S. because it's not really high-performance computing when you measure the metrics of what high-performance computing is.

Stephen FOX: Our next question comes from Stephen Fox, from Fox Advisors. Please proceed. Hi, thanks for taking my question.

Amnon Shashua: Thanks, Amnon.

Speaker Change: Our next question comes from Stephen Fox from Fox Advisors. Please proceed.

Stephen FOX: I think I had a little bit more of a here and now type of thing, which is the multinationals that are losing share in China. It seems like it's becoming a bigger and bigger risk factor for the business, and given your relative lens. Can you sort of isolate in on that a little bit more? How much should we worry about it? Not just for how you adjusted numbers this year, but beyond this year. Like if that becomes a bigger trend, how do you offset that? Thank you.

Stephen FOX: Hi, thanks for taking my question. I think I had a little bit more of a here and now type of thing, which is the multinationals that are losing share in China, it seems like it's becoming a bigger and bigger risk factor for the business and given your relative wins.

Stephen FOX: I sort of isolate in on that a little bit more. How much should we worry about it? Not just for how you adjust the numbers this year, but beyond this year, like if that becomes a bigger trend, how do you offset that? Thank you.

Amnon Shashua: Yeah, so it is a trend that we're closely monitoring, as with other indicators that we keep track of. It's important to say that in China, our presence is comprised by our footprint in the joint ventures that Western have with the Chinese entities, by our presence in Western OEMs that sell directly in China, and by our presence in the Chinese OEMs. Our presence in the Chinese OEMs, although we have disclosed today some headwinds, still remains stable among some of the OEMs, especially the bigger ones that have global needs. The look for a uniform solution, and we still have strong relationships with some of the local Chinese OEMs when it comes to the competitiveness of the Westerns.

Speaker Change: It's important to say that in China, our presence is comprised by our footprint in the joint ventures that Western have with Chinese entities, by our presence in Western OEMs that sell directly in China, and by our presence in the Chinese OEMs.

Speaker Change: Still remains stable among some of the OEMs, especially the bigger ones that have global needs.

Amnon Shashua: You can assume that they also are aware of this challenge, and they work very hard to improve their competitiveness, and we don't currently see a trend that can further exacerbate compared to what it is today.

Speaker Change: You can assume that they also are aware of this challenge and they work very hard to improve their competitiveness.

Speaker Change: We don't currently see a trend that can further exacerbate compared to what it is today.

Amnon Shashua: But, you know, what we what we are doing is to improve our presence in China, as disclosed in the press release, to make sure that our products are as competitive as possible in China so that we can be the best solution for who any like all entities in China, Chinese OEMs and Western OEMs, so that we can have a good business in China, regardless of its Western or Chinese. Louise, that's helpful.

Speaker Change: But, you know, what we what we are doing is to improve our presence in China, as disclosed today in the press release to make sure that our products are as competitive as possible in China, so that we can be the best solution for who any like all entities in China, Chinese OEMs and Western OEMs.

Speaker Change: So that we can have a good business in China, regardless if it's Western or Chinese.

Amnon Shashua: Any chance you could give us a sense for the new wins that you want, what percentage of units is tied to Western OEMs built in China? So we don't have these numbers exactly from our customers. We don't really know because the OEMs don't really know themselves how many cars they're going to sell in China and globally, as it can vary.

Stephen FOX: Any chance you could give us a sensor on the new wins that you want. What percentage of units is pie to Western OEM built in China? Just so we can maybe get an idea on that risk going forward.

Speaker Change: That's helpful. Any chance you could give us a sense for on the new wins that you want, what percentage of units is tied to Western OEM builds in China?

Moran Rojansky: So we don't have these numbers exactly from from from our customers. We don't really know because they don't really know themselves how many cars they're going to set in China; it is globally as it can vary. But the but you know, generally, you know, our customer base and you can, you know, the numbers are public and you can do the math in terms of their market share and our derivative market share as a consequence. Share now. Thank you.

Speaker Change: So we don't have these numbers exactly from our customers. We don't really know because they don't really know themselves how many cars they're going to sell in China and globally.

Speaker Change: Generally you know our customer base and the numbers are public and you can do the math in terms of their market share and our derivative market share as a consequence.

Moran Rojansky: Our next question comes from Lu, Missiocia from Daiwa; please proceed. Hey, thanks for getting me in there. I guess I have one final answer question and maybe one strategic or visionary one. Can you sort of help paint us a picture for what 2025 is going to look like? You know, you've already commented about 2026 about the second half ramp. But then you know, there is a lot of questions that continue to push out to just maybe not guidance, but give us some thought about how things will improve for you all in 2025, 2026 and maybe even into 2027 as you comment about that.

Speaker Change: Our next question comes from Lou Maciasio from Daiwa. Please proceed.

Unknown Attendee: But generally, you know our customer base, and the numbers are public, and you can do the math in terms of their market share and our derivative market shares. Hey, thanks for getting me in there. Um, I guess I have one financial question and maybe one strategic or visionary one. Can you sort of help paint us a picture of what 2025 is going to look like? You know, you've already commented about 2026, about the second half ramp.

Lou Maciasio: Can you sort of help paint us a picture for what 2025 is going to look like? You know, you've already commented about 2026, about the second half ramp, but then, you know, there is a lot of questions about continued pushout, so just maybe not guidance, but give us some thought about how things will improve for you all in 2025, 2026, and maybe even into 2027 as you comment about that, and then I have one follow-up.

Unknown Attendee: But then, you know, there are a lot of questions about continued pushout. So maybe not guidance, but give us some thought about how things will improve for you all in 2025, 2026, and maybe even into 2027 as you comment on that.

Moran Rojansky: And then I have one follow up. I guess so regarding 2025; we cannot say much now because our planning process is only beginning, but we can say that we believe that the China volatility would persist during next year. We believe that inventory levels will be normalized. So all the shipments that we lost this year, we will see them next year. So inventory will be normalized, and we are closing monitoring the ramp up of supervision platforms, and we will have more to say closer to the end of the year for 2025. 2026 and 2027 is a completely different picture because then now Western OEMs with supervision are coming out, and also Chinese OEMs with the global exports are with supervision are also coming out.

Speaker Change: Okay, so regarding 2025, we cannot say much now because our planning process is only beginning.

Speaker Change: But we can say that we believe that the China volatility would persist during next year. We believe that inventory levels will be normalized. So all the shipments that we lost this year, we will see them next year.

Speaker Change: We are closely monitoring the ramp-up of supervision platforms and will have more to say closer to the end of the year for 2025. 2026 and 2027 is a completely different picture because then Western OEMs

Speaker Change: with supervision.

Speaker Change: are coming out and also Chinese OEMs with the with the global exports are with supervision are also a coming out. I think 2026.

Moran Rojansky: So I think 2026 would be completely different in terms of reducing volatility of provision forecast, much higher volumes of supervision compared to 2025 and 2027 even further ramp up of programs that started in 2026 and additional programs that will come in 2027. Assuming that we will get the nominations, but we are very hopeful that hopeful that we will get those nominations in the coming months. So it's really the next six months and 2025, which is quite volatile, and the volatility is exclusively focused in China.

Speaker Change: And 2027 even further, ramp up of programs that started in 2026 and additional programs that will come in 2027.

Speaker Change: Assuming that we'll get the nominations, but we are very hopeful that we'll get those nominations in the coming months. So it's really...

Speaker Change: The next six months and 2025, which is quite volatile, and the volatility is exclusively focused in China.

Moran Rojansky: Okay, and then my follow-up, and that's very helpful. Thank you. When you look at the adjusted operating margin cut on a full year basis that you have in your press release, can you just help us understand, you know, where is that being hit the most? is gross margin is really being impacted the most and op-ax is sort of flat on a going basis or is op-ax going up to just trying to understand as we model this out how the new numbers are going to impact how we model this. Yes, I think that's for you too. I mentioned that having a similar revenue base, erronear with a much larger operating expenses, that's the bigger driver for operating margin being lower and not we haven't changed our estimation on gross margin in this update.

Speaker Change: Okay, and then my follow-up and that's very helpful, thank you. When you look at the adjusted operating margin cut on a four-year basis that you have in your press release, can you just help us understand, you know, where is that being hit the most? Is it gross margin is really being impacted the most and op-ex is sort of flat on a going basis or is op-ex going up too? Just trying to understand as we model this out how the new numbers are going to impact.

Speaker Change: University, how we model.

Speaker Change: Yes, I think for Q2, I mentioned that

Speaker Change: You know, having a similar revenue base.

Speaker Change: Euronear with much larger operating expenses.

Moran Rojansky: So gross margin is aligned with our expectations from the beginning of the year. The operating margin is just an outcome; we reduced the beta operating expenses 20 million, but revenue reduction was much higher. So that's the reason for operating margin, and I also take for 2025 this year we have 23% growth in operating expenses; we will not have that meaning for growth in 2025 in terms of OPEC to kind of balance it out with, you know, the revenue. So we had a significant OPEC increase in 2024 in order to meet all the programs that we have won, you know, becoming a tier one supplier for some of the programs, all the investments that we are doing to meet the new technology launch that will be in 2026.

Speaker Change: undependent in this update, so above margin is great.

Speaker Change: So that's the reason for operating margin and I also say for 2025, this year we have 23% growth in operating expenses, we will not have that meaningful growth in 2025 in terms of OPEX.

Amnon Shashua: We had a significant OPEX increase in 2024 in order to meet all the programs that we have won, becoming a Tier 1 supplier for some of the programs, and all the investments that we are doing to meet the new technology launch that will be in 2026. We don't see this happening in 2025. I think we have what we need. Any meaningful, as Moran said, meaningful OPEX increase in 2025?

Speaker Change: New number. Yeah, so we had a significant OPEX increase in 2024. In other words, all the programs that we have won, you know, becoming a tier 1 supplier for some of the programs, all the investments that we are doing to meet

Moran Rojansky: So we did a major increase in OPEC in 2024. We don't see this happening in 2025. So I think we have what we need to go forward to execute and see any meaningful, as Moran said, any meaningful OPEC increase in 2025.

Speaker Change: This is a new technology launch that will be in 2026. So we did a major increase in OPEX in 2024. We don't see this happening in 2025. I think we have what we need.

Unknown Executive: Okay, thank you. Best of luck if you're in the rest of the year. Thank you very much. Bye bye.

Speaker Change: Okay, thank you. Best of luck in the rest of the year.

Dan Galves: This concludes our question and answer session.

Dan Galves: I would like to turn the floor back over to Dan Gals for closing comments. Thanks, Kat, and thanks to the executive team and all the audience for participating in this call.

Speaker Change: This concludes our question and answer session. I would like to turn the floor back over to Dan Galves for closing comments.

Operator: Thanks, Cat. And thanks to the executive team and all the audience. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation. [inaudible] Business, Microsoft Office Word Microsoft Word 97-2003 Document MSWordDoc Word. Document.8, ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ??

Dan Galves: Talk to you next quarter.

Dan Galves: Thanks, Cat. And thanks to the executive team and all the audience for participating in this call. We'll talk to you next quarter. Thank you.

Operator: Thank you.

Operator: This concludes today's teleconference.

Operator: You may disconnect your lines at this time. Thank you for your participation. Thank you very much. .

Speaker Change: www.thevenusproject.com www.thevenusproject.com

Speaker Change: ♪ ♪ ♪ ♪ ♪ ♪ ♪ ♪ ♪

Speaker Change: Ratan Kishang, Amnon Shashua, Moran Rojansky Amnon Shashua, Moran Rojansky, Moran Rojansky Amnon Shashua, Amnon Shashua, Moran Rojansky Amnon Shashua, Moran Rojansky, Moran Rojansky Amnon Shashua, Moran Rojansky, Moran Rojansky

Professor Shalev, Chris McNally, John Dr. Dr. Dr. Dr. Dr. Dr. Dr. Dr. Dr. Dr. Thank you so much for joining us today, thank you so much for joining us today, thank you so much for joining us today, thank you so much for joining us today, thank you so much for joining us today, thank you so much for joining us today, thank you so much for joining us today, thank you so much for joining us today, thank you so much for joining us today, thank you so much for joining us today, thank you so much for joining us today, thank you so much for joining us today, thank you so much for joining us today, thank you so much for joining us today, thank you so much for joining us today, thank you so much for joining us today, thank you so much for joining us today, thank you so much for joining us today, thank you so much for joining us today, thank you so much for joining us today, thank you so much for joining us today, thank you so much for joining us today, thank you so much for joining us today, thank you so much for joining us today, thank you so much for joining us Thank you so much for joining us Thank you so much for joining us today, thank you so much for joining us today, thank you so much for joining us today, thank you so much for joining us today, thank you so much for joining us today, thank you so much for joining us today, thank you so much for joining us today, thank you so much for joining us today, thank you so much for joining us today, thank you so much for joining us today, thank you so much for joining us today, thank you so much for joining us today, thank you so much for joining us today, thank you so much for joining us today, thank you so much for joining us today, thank you so much for joining us today, thank you so much for joining us today, thank you so much for joining us today, thank you so much for joining us today, thank you so much for joining us today, thank you so much for joining us today, thank you so much for joining us today, thank you so much for joining us today, thank you so much for joining us today, thank you so much for

Speaker Change: [inaudible]

Speaker Change: www.globalonenessproject.org