Q2 2024 Hesai Group Earnings Call
Isn't only mode.
Please note that today's conference call is being recorded.
Speaker Change: I'll now turn the call over to our first speaker today young things shape, the company's Investor Relations Director. Please go ahead.
Hello, everyone and thank you for Chinese contract Group second quarter 2024 earnings conference call are.
Speaker Change: Earnings release is now available on our IR website at came after that.
Speaker Change: Tom.
Speaker Change: We announced last services today, you will hear from OSA I'll I'll take David Lee, who will provide an overview of our recent updates and address our financial results before we open the call for questions. Before we continue I refer you to the Safe Harbor statement in our earnings press release, which applies to this call as we will make forward looking statements.
Speaker Change: Also note that the company will discuss non-GAAP measures today, which are more thoroughly explained and reconciled to the most comparable measures the pocket on the gas in this release and SEC filings.
David Lee: With that I'm pleased to turn over the call tell us that they really Davis. Please go ahead.
Thank you again and thank you everyone for joining our call today.
Speaker Change: With an overview of the later market trends and some recent business highlights before moving onto our second quarter financial and operational results.
Speaker Change: We are thrilled to announce that because that has been recognized as the number one.
Speaker Change: <unk> Lidar company by market share for the third consecutive year. According to the latest Lidar for automotive reports from your intelligence a war right now in European Independent research firm.
Speaker Change: 223 was a stellar year for <unk> marked by record breaking revenues as shipment strategic design wins and expanded product lineup and new partnerships.
Speaker Change: Our expertise in both passenger cars is robot taxis enabled us to capture 37% of the global light market and.
Speaker Change: Impressive 74% sure of.
Speaker Change: The global robot taxi by the market in 2023, demonstrating a clear leadership of the global automotive market.
Speaker Change: Youth recognition inspires us to a even higher as we continue to deliver the most advanced and powerful lighter product.
Speaker Change: Any further growth and innovation in the dynamic automotive industry.
Speaker Change: A brief update on our autonomous mobility business.
Speaker Change: One of the most exciting development in China is a thriving rule. It has the market, which is scaling and commercializing at an impressive pace.
Speaker Change: We are delighted to witness this momentum and proud of her key role in promoting this choice.
Speaker Change: Baidu Apollo goal and autonomous driving travel service platform has recently launched operations in Wuhan one of China's largest cities.
Speaker Change: This launch has garnered significant market interest and numerous orders highlighting with a clear development path and the tremendous potential of the robo taxi business.
Speaker Change: According to media reports Apollo has provided over six Amelia Robo taxi rising 11 Chinese cities since 2019 will be serving as Baidu Apollo exclusive supplier for their vehicles main perceptual ita.
Speaker Change: With their sixth generation Rolling out this year. Each vehicle is equipped with four of our 80 128, Adas layers, marking the first large scale application of Adas Lidar solution, a robo taxis and China.
Speaker Change: Our collaboration with Baidu as a whole our goal is a prime example of how our advanced Lidar solution.
Speaker Change: Tractor price point can provide a comprehensive object perception accelerating the adoption and the commercialization of driverless vehicles globally.
Speaker Change: Now turn our attention to the EBIT market.
Speaker Change: In the last quarterly update we.
Speaker Change: Underscoring the significance of 'twenty going forward as a defensive year for the Lidar industry leap two mass market popularity. According to <unk>, a renowned automotive research and consulting firm Lidar adoption rate among EV price above RMB 150000 is project.
Speaker Change: It surpassed 16% this year.
Speaker Change: Turning towards 50% in alignment with our famous crossing the chasm innovation adoption model.
Speaker Change: We are pleased to note that this critical 16% inflection points when it reached earlier than the market anticipated.
Speaker Change: According to the latest data our overall lighter per penetration rate and try to reach an impressive 22% in June of this year driven by consistent monthly increases of approximately 2% over the past three months.
Speaker Change: Additional June statistics also reflected strength, revealing that average lighter adoption rate among the top 10, best selling new EV makers in China exceed 60% of the toll.
Speaker Change: Sales and volume.
Speaker Change: In the first half of the year lighter installations increased remarkably by approximately 250% year over year outpacing the growth rate of other sensor installations by almost 10 times.
These figures highlight lidar accelerated acceptance and its critical role in the offense in vehicle safety and comprehensively improving autonomous driving capabilities, we anticipated that lidar will continue to drive innovation across automotive industry and shape the future of smart.
Speaker Change: Transportation.
Speaker Change: In light of these lighter market trends, our strategic approach of offering both ultimate performance and ultimately value to cost of products has positioned us to have definitely address the diverse needs of our extensive client base.
Speaker Change: Our next generation flagship products, such as the Ats and 80 512 are gaining significant traction among Oems competing intelligent driving functions maintain.
Speaker Change: Maintaining a flexible and competitive part of roadmap has also enabled us to secure crucial design wins for new car models scheduled for Sop in 2025 and beyond.
Speaker Change: In the second quarter, we recorded a series of new design wins within the domestic market. Our deliveries for those models are scheduled to begin next year. These include a flagship model from a top selling EV maker, new to our client roster, which currently has 15000 vehicles shipments per month.
Speaker Change: Our existing customers, who are among the largest EBIT shippers in China have also extended their partnership with US to include multiple new models and facelift set to launch starting in 2025.
Speaker Change: That option of our products by these key players reflect our competitive edge and the substantial value we provide.
Speaker Change: Notably as elsewhere autonomous driving technology promises.
Speaker Change: Precedent to the consumer experience.
Speaker Change: The growing trend in the domestic market to prioritize high performance liner products for next generation vehicles targeting our Sui standards alongside domestic Oems historical focus on cost efficiency.
Speaker Change: Among the previously mentioned new design wins, a leading EV maker has already signed an agreement with us to exclusively adopt next generation LCD Ultra high performance Lidar for all their new models scheduled for release in 2005.
Speaker Change: Is it further solidifies our position as a leader in advanced Lidar technology and opens the gate for more domestic OEM to follow.
Speaker Change: On the international front, we have secured design wins with four prominent global Oems, including three joint ventures in China with two American and one European automotive companies.
Speaker Change: Some of the models will be shipped both domestically and globally, most notably we have been selected by a global automotive OEM for its worldwide shipping programs.
Speaker Change: Unlike some of the competitors who are still in the B sample development phase we are progressing towards the actual delivery of samples for this milestone to by the way.
Speaker Change: Additionally, we've been awarded new POC programs with two leading global Oems from Europe, including a prestigious sports car brands to test next generation high performance long range and for regulators.
While these two policies are not yet fully design wins, we believe they have potential to convert into real deals in the future.
Speaker Change: To date, we have secured the Adas design win with a total of 19 Oems globally across over 70 vehicle models.
Speaker Change: This includes eight a series production partnerships with six out of the top 10 global Oems directly or through entities within the group and eight out of the top 10 domestic Oems measured by their revenue in 2003.
Speaker Change: Among these 19 OEM 13 of them have chosen us as their exclusive long range Lidar supplier further demonstrating the trust and confidence industry places in our products and our capabilities.
Speaker Change: Now, let's briefly go through our operating and financial results for the second quarter of 2024.
Speaker Change: To be mindful of the length of the earning call today I encourage listeners to refer to our second quarter, earning press release for further detail.
Speaker Change: In the second quarter, we achieved quarterly revenue of RMB $458 9 million U S dollars $63 1 million, reaching the high end of our guidance.
Speaker Change: In addition, our lighter shipments rose to over 86000 units.
Marking an increase of 66% year over year, and a 46% quarter over quarter.
Speaker Change: Our blended gross margin was robust at approximately 45% improving quarter over quarter. Thanks to effective cost management, and our flywheel approach to cost and scale optimization as well as additional service revenue contribution during the quarter.
Speaker Change: As a result, our quarterly net loss narrowed significantly by 33% quarter over quarter to RMB 72.1 million U S dollars $9 9 million.
Speaker Change: These accomplishments highlight our best in class execution within the global lighter industry in streamlining our operations.
Speaker Change: We continue to anticipate stronger performance in the second half year, both in terms of revenues and shipments.
Speaker Change: For the third quarter of 2004, we expect net revenue to be between RMB 450 million U S. Dollar $61 9 million and RMB $500 million U S. Dollar 68, 8 million, representing a year over year increase.
Speaker Change: Currently one to 12, 2%.
Speaker Change: In light of our downstream adjustments to accommodate the postpone S&P timeline for certain clients vehicle models.
Speaker Change: We've revised our full year revenue forecast to be within a range of RMB two zero to $2 3 billion, roughly USD $280 million to $320 million.
Speaker Change: Additionally, we anticipate that less than 20% of our total revenue will come from the U S market.
Speaker Change: Vast majority of our revenue will be generated outside of the U S driven by the increasing demand for Lidar technology elsewhere.
Despite the recent downstream adjustment in Adas and the unexpected production debates or the railroads have decided since late 2023, our financial strength remains robust.
Speaker Change: Blasting the resilience of our business.
Speaker Change: Our cost management initiatives have yielded a better than expected results in terms of our blended gross margins.
Speaker Change: Compared to our earlier guidance.
Speaker Change: Which projected a blended gross margin at the higher end of the 30% to 35% range for the full year of 'twenty 'twenty four we now foresee the blended gross margin for the third and fourth quarter is expected to be close to 40%.
Speaker Change: This expectation holds true even with the notable year over year growth in Adas business, which also expanding rapidly has traditionally had a lower margin.
Speaker Change: We are not aware of any other player in the global lighter industry that matches, our financial strength, while operating at such a massive delivery scale.
Speaker Change: We anticipate that effective expense controls and optimize operational efficiencies will bring us closer to achieving profitability in the fourth quarter of this fiscal year.
Speaker Change: We'd like to remind you that this outlook is based on the current market conditions and reflects the company's preliminary estimate of the market and operating conditions and customer demand, which are all subject to change.
Speaker Change: Looking ahead, we see strong growth opportunities.
Speaker Change: <unk> initiative and market positioning lay a solid foundation for future success.
Speaker Change: We're confident in our growth potential for 25, and 26 and expect to continue outperforming our lidar peers driven by the following key factors.
Speaker Change: First we're strategically positioned to benefit from the rapid growth of the robo taxi market, particularly in China.
The recent launch of Baidu Apollo go across 11 leisure trainees cities marks the beginning of a new era.
Speaker Change: Industry analysts estimate that this like our deal is worth $200 million to $300 million based on Baidu plan to deploy approximately 100000 robo taxi vehicles in China.
Speaker Change: This move is expected to be the first extensive deployment of robotic technology in the Chinese market and Baidu.
Speaker Change: Advancements.
Speaker Change: Of the iceberg.
Speaker Change: Other leading robo taxi players are also making significant strides notably.
Speaker Change: Of the top five robo taxi companies in China have selected <unk> as their exclusive main perception by our supplier.
Speaker Change: As a robot taxi customers continue to enhance cost efficiencies and scale their operations, we anticipate a strong rebound in our robots have you added in revenue.
Speaker Change: Many years.
Speaker Change: Second the Adas sector with fewer key design wins with 19, leading Oems globally.
Speaker Change: 13 of which have selected us as their exclusive long range Lidar supplier.
Speaker Change: Our strategic approach of offering both ultimate performance and ultimately value to cost of product is generating a robust eight order pipeline for 2025, and 26% stronger than that of our peers are AG as Adas Lidar designed for mass market and the large scale at all.
Speaker Change: Option.
Speaker Change: At SKU or design wins from several Oems as of the end of second quarter.
Speaker Change: This positions us for millions of units used throughout the coming years based on customer demand forecast.
Speaker Change: Furthermore.
Speaker Change: We are the sole recognized provider of ultra high performance Lidar, particularly our 80 512, four Oems aiming to achieve level three standard at the end of the next generation of intelligent vehicles.
Speaker Change: We're executing level three series production programs using this advanced technology, including collaboration with a leading EV maker in China.
Speaker Change: Leading global OEM.
Speaker Change: These achievements.
Speaker Change: Tradition, our Adas business for exceptional growth, both domestically and internationally supported by our cutting edge technology and proven track record of over 450000 baidu deliveries since inception.
Speaker Change: As of end of the second quarter.
Speaker Change: Third we anticipate that the introduction of regulations mandating higher safety standards will be transformative for the lighting industry.
Speaker Change: Initiatives, such as China's newly launched level three policy and a nice test AED speed requirements in the U S are propelling advancements intelligent driving with an unprecedented emphasis on safety. Meanwhile, more Oems and consumers are recognizing a lighter configurations.
Speaker Change: As essential safety features just like safety belt or airbags.
Speaker Change: As a global leader in automotive Lidar.
Speaker Change: <unk> is exceptionally well positioned to capitalize on these dynamic safety trends.
Speaker Change: Last but not least before I conclude I am delighted to announce that the publication of advising Albuterol ESG report.
Speaker Change: This report outlines our efforts and accomplishments.
Speaker Change: ESG across our business operations and underscores our ongoing commitment to sustainable development.
Speaker Change: As a leader in automotive Lidar industry. Aside is delighted not only to elevating people's lives within cutting edge technology and products, but also fostering greener and more sustainable operations.
Speaker Change: Moving forward, we will continue to align our business growth with ESG best practices to ensure long term value for our stakeholders and society.
Speaker Change: For more details on the year to report please visit our IR website.
Speaker Change: In summary, we are poised to capitalize on emerging opportunities in the automotive industry.
Speaker Change: Backed by our efficient operations, a robust financial foundation and outstanding technological capabilities.
Speaker Change: As we look to the remainder of 2024 and beyond we remain committed.
Speaker Change: Driving innovation and providing top tier lidar solution that in.
Speaker Change: Enhanced vehicle safety and autonomous driving worldwide, while adhering to our ESG objectives.
Speaker Change: This concludes our prepared remarks today, operator, we're now ready to take questions.
Speaker Change: Thank you if you wish to ask a question. Please press Star then one on your telephone and wait for your name to be announced if you wish to cancel your request. Please press star two if you're on a speakerphone. Please pick up your handset before asking your question.
Speaker Change: The benefit of all participants on today's call.
Speaker Change: A few questions to management in Chinese please.
Speaker Change: Immediately repeat your question in English.
Speaker Change: If I could clarity in order to please ask one question at a time.
Speaker Change: Management will respond and then feel free to follow up with you next question.
Speaker Change: First question today comes from Timothy <unk> from Morgan Stanley.
Speaker Change: Please go ahead.
Speaker Change: Yeah.
Speaker Change: Good morning, David Thanks for taking my questions.
Speaker Change: Two questions the first one.
Speaker Change: We noticed that the financial times reported that the U S Defense Department has consolidated a niche.
Speaker Change: Aside from the Black glass.
Could you please elaborate a bit more on the current development progress and.
Speaker Change: Of course, the implication to your project wins can appreciate it obviously is because we think.
Speaker Change: A very important milestone so great Acacia warranty terms. That's my first question. Thank you.
Speaker Change: Okay.
Speaker Change: Thank you Tim.
Speaker Change: And thank you for the question.
Speaker Change: We have consistently maintained that our inclusion on the 12 months with ph list. It was a mistake.
Speaker Change: Strictly for commercial in the civilian use.
Speaker Change: We have no connection to any military bodies will not a vendor to any military bodies either.
Speaker Change: As we discussed in the previous earning calls.
Speaker Change: Being on the Dod means strictly that.
Speaker Change: The U S Department of defense.
Speaker Change: The Pentagon cannot buy our product starting mid 2026.
Speaker Change: But to be honest as far as we know.
Speaker Change: We've never sold anything to Vod or any military.
Speaker Change: We definitely don't plan in the future.
Speaker Change: Simple terms, we've never generated any revenue from <unk> or any other military.
Speaker Change: And if again, we don't expect to however.
Speaker Change: On the list.
Speaker Change: Seriously impact our reputation.
Speaker Change: You can see the stock price.
Speaker Change: So impeding some of the business opportunities over the past few months since we didnt include it.
Speaker Change: Hum.
And again to be honest actually made things very tricky for some of the customers because they're worried that we might have ties.
Speaker Change: Two of the Chinese military as that's what the list meant.
Speaker Change: Yeah.
Speaker Change: Unfortunately, it's hard to disapprove.
Speaker Change: And you do the official it takes us off the list.
Speaker Change: We will not be able to speak to.
Speaker Change: The actual results to its official but by any chance if we have removed with a leading technology and the best in class financial strength.
Speaker Change: Very optimistic that we're locking.
Speaker Change: More global deals.
Speaker Change: And this is the information.
Speaker Change: We would like to share regarding.
Speaker Change: The current status of the Dod.
Speaker Change: Unfortunately, I will not be able to speak to.
Speaker Change: To the status of the financial times article because thats speculation of the case and we definitely need to wait for the official list, but I think it's more important that people understand our position understand the facts and also understand that we having in ta to buy this inclusion.
And if by any chance we are removed we are extremely optimistic that a lot of the progress that was.
Speaker Change: Indeed, it in the past.
Speaker Change: We will be removed and hopefully an accelerated path.
Speaker Change: To answer your question Tim.
Speaker Change: Yes, yes, thanks for sharing all the details and my second question is apparently investor focus a lot on the Gulf of taxi NPV associated quite.
Speaker Change: Update that during the presentation, but.
Speaker Change: As we mentioned I think that was chosen by Baidu.
Speaker Change: Baidu Pogos in its next generation of a protection so suppliers across 11 cities.
Speaker Change: But if there is any further detail how should we think about the market opportunities because he also mentioned in addition to Baidu polo.
Speaker Change: Top notch, rather catchy operators would makers I also want to do the business because.
Speaker Change: Like I look for a light up a car.
Speaker Change: With that kind of business also boost of adequate and can always like a potential assembly or software being integrated and.
Speaker Change: In the meantime.
Speaker Change: When do you think we're going to see it.
Speaker Change: The inflection point with more meaningful revenue uptick.
Next year, where the year after or we're going to see some progress later this year. So that's my second question.
Speaker Change: Thank you, Tim and I will answer the first part I think for first split of secondhand. Mr. Your question on the software side and which I.
Speaker Change: And I have to ask you to ask again, but let me let me first take on the question of the the business development of the Robo taxis.
Speaker Change: Think it is fair to say that we are the biggest.
Speaker Change: Robo taxi light our supplier in the world by any measures and.
Speaker Change: And in China, we are the exclusive the main perception light our supplier for <unk>.
Speaker Change: The top five robo taxi supplier and most people believe that we have a product, but that's the way superior than the peers.
Speaker Change: And including Baidu Apollo Gulf rate and based on that you report for 2023, we have a 74 market share of the global Lidar market for robot taxis.
Speaker Change: I think had been communicated.
Speaker Change: And historically.
Speaker Change: Those people use mechanical spinning lidar and but now as you see as we are scaling up a lot of people are adopting and the Adas $81 28.
Speaker Change: Including that Baidu, Apollo, which is a very interesting and transition as we see because 80 128 is a new sensor that we ship hundreds of sell themselves.
Speaker Change: It's a very powerful much more affordable a sensor and I think that actually helps the customer to achieve a better balance between price and performance.
Speaker Change: At this point to me the biggest inflection is.
Speaker Change: More commercial than technological because technological advancement has always been continue continuously.
Speaker Change: Advancing.
Speaker Change: Well this year is the first year most people are talking about.
Speaker Change: Commercialization in a sense that you need to look at the total cost of equipment, you need what kind of amortization.
Speaker Change: Amortization and in the end you need to come to a a business case in which if your sensors are still.
Speaker Change: Worse.
Speaker Change: Tens of thousands of dollars each as you feel it makes it tricky for people to do that and Thats. Why we are working very closely with the robot has to people.
Speaker Change: To do that and Baidu is one of the.
Speaker Change: For example, and they're not in only one by the way.
Speaker Change: The other or what have you would have also adopted the similar trend.
Speaker Change: And as a result, what we see is that we start to receive significantly larger light up orders.
So robo taxis for the years to come at some of them have already been.
Speaker Change: Locked in and.
Speaker Change: As we expect this market to grow and we expect the customers to move from a smaller.
Speaker Change: Scale high price mechanical lidar with a larger scale a bit later.
Speaker Change: And also international robot taxi players.
Speaker Change: We are still focusing on our performance. So they are still focused on the mechanical lidar, which is the more high priced.
Speaker Change: And.
Speaker Change: A more much higher margin business for us.
Speaker Change: So this is on the business part and again I remember you had a question on the software can you repeat that like unclear the answer.
Speaker Change: Sure sure. So basically just wanted to tell that.
Speaker Change: If there would be any difference between color.
Business.
Speaker Change: They brought protection maker and.
Speaker Change: Traditional carmaker so in Rockwood taxis that case, because we are going to provide like announcements like ours. So just wondering if there won't be any potential upside to the battery content. So in addition to the lidar.
Speaker Change: I thought it was a provider like assembly services or together with some additional software to facilitate.
Speaker Change: The real house.
Speaker Change: And so pet insurance, but would there be any very content upside in addition to that like yourself.
Speaker Change: Mhm.
Speaker Change: Okay. So your question is.
Speaker Change: To make it a simple kind of will make more money from them by not only the hardware, but also selling the software right. So.
Speaker Change: The quick answer is the quick answer is I believe it's a different business model in a sense that we do provide a lot of tools.
Speaker Change: We're trying to stay away from the data per se, but we do provide tools for our installation and calibration staging different point cloud into one.
Speaker Change: Panorama image and those are the tools, we have but.
Speaker Change: But instead of targeting them separately, we think the business model is that we provide them with the software as part of the hardware package and that allows us to have a better margin and better a more competitive product. So in other words, that's already embedded in that is one off.
Speaker Change: Our advantage of being able to cater to this market with a better offering.
Speaker Change: Let me clarify on that I think that's a key focus is exclusively.
Speaker Change: Exclusively on supplying a lot of that lineup hardware than software.
Speaker Change: I think we are very strict about we never have any data.
Speaker Change: Data security and privacy risk that can be positive because we never transmit data wirelessly.
Speaker Change: You'll now start even a second point clouds, and we only supplier.
Speaker Change: But not the same thing I think that's key.
Speaker Change: I'll give you. Another example that I consider as analogous.
Speaker Change: If you think about.
For example, Apple right they sell your cellphone.
Speaker Change: Technically they could charge you for the iOS system or if you look at it Youre Macbook they could charge you for the.
Speaker Change: The macro what system they never do that they just sell you a more accepting hardware because most.
Speaker Change: Most people don't have the habit of buying a separate set of software for the hardware, even though they go together.
Speaker Change: I think thats helpful.
Speaker Change: Served as a higher barriers and a better user experience for our hardware products.
That's kind of the philosophy, we're following.
Speaker Change: Yeah.
Speaker Change: Got it Super clear thanks for sharing all your details. Thank you alright.
Speaker Change: Alright, thank you.
Peter how: Thank you. Your next question comes from Peter how from Goldman Sachs. Please go ahead.
Speaker Change: Good morning, David and team. Thanks for taking my question. So I have two questions. The first one is regarding the robo taxi Lidar. So you report autonomous mobility light our shipment.
Speaker Change: But now I understand that would include the 81 H Lidar asphalt right. So just wondering like how much of that are $5 7000 is H E. And then the rest is Pandora could you give us like a breakdown.
Speaker Change: And then also for the HD one to eight that you sell to the robo taxi.
Speaker Change: Customers is it the same pricing and margin as you sell to.
Speaker Change: EV Oems.
Speaker Change: So that is a good question so as we sat car.
Speaker Change: Alright.
Speaker Change: In the Chinese market, we are seeing a trend where our Chinese travel taxi players one day will like to commercialize their business there.
Speaker Change: Theyre switching Sunday transactional mechanicals like ours.
Speaker Change: The Adas Lidar and that's as a result, we have received a significantly larger Atlanta, others for use in robotic space for the yet to come and that means that the order will be split into several years and we will record the Adas lidar to these type of Chinese protecting plant in the coming years so holistic.
Speaker Change: I think on the robotic side in China, we can't expect that they are moving from the smaller scale.
Speaker Change: Our highest heightened mechanical lidar to larger scale Ada flight hours and that will boost our revenue and gross profit in the long run at the robot taxi business grow in China.
Speaker Change: And they.
With regard to your second question are we having a higher price and having the higher margin, but the ATR flight hours out to them about Kathy players in China.
Speaker Change: The answer is yes.
Speaker Change: The amount that they are buying from us is not as significant as the passenger car OEM.
Speaker Change: Right.
Speaker Change: So basically they will enjoy.
Speaker Change: Of course.
Relatively.
Speaker Change: Price and of course, we are selling the.
Speaker Change: Eight applied to them with the same cautious or the margin would be relatively better as well. So that's why I'm, saying that will boost our revenue and gross profit for the long run.
Speaker Change: Yeah. So the.
The other angle to look at it at that to us.
Speaker Change: They are buying and the identical product in.
Speaker Change: In the end of the pricing is strictly tied to volume right.
Speaker Change: If you kind of look at it.
Speaker Change: Adas volume, usually where in the range of hundreds of thousands of units a year.
Speaker Change: Really a robot taxi isn't there so that's why they they they have to pay for a higher price.
Speaker Change: As the volume isn't there, but having said that.
Speaker Change: The long term framework agreements, we have with different global testing acres is such that by the time they reach similar level.
Speaker Change: Range level as the Adas product.
Speaker Change: The price to them will be awesome.
Speaker Change: The Adas product so.
Speaker Change: And it's just the nature of such a business.
Speaker Change: And financially I think it's an equation right. It's about the price you have multiplied by the buyer Yo have done that's applied by the gross margin you have and so.
Speaker Change: So based on that equation I think in the long run you know, having the Adas lidar shipped two hour.
Speaker Change: Yeah.
Once all thrilled about hockey players at that will help that.
Speaker Change: To help them connect you like that business and in the end.
Speaker Change: The equation for us I think what the benefit is lumpy.
Speaker Change: The beneficial to us financially as well.
Speaker Change: Thank you that's very clear and makes a lot of sense answer. The second question is regarding your gross margin because the second quarter gross margin has improved quite a lot from first quarter. So could you give us a breakdown in terms of the factor for the improvement how much is from.
Speaker Change: Next how much is from like scale benefit and also as David mentioned a bass.
Speaker Change: Slide our gross margin has also significantly improved so just wondering like how much difference is there between the Adas gross margin and autonomous gross margin now and maybe shoot many questions on gross margin as well. So as you guide at four <unk> and four <unk> gross margin at <unk>.
<unk> percent. So wondering why is it lower than our second quarter margin and lastly, how should we think about gross margin in 2025. Thank you.
Speaker Change: Thank you.
Speaker Change: Are there many many questions. So I will try to give you the top level of thinking and maybe we can have a more interactive discussion based off based on those.
Speaker Change: The first is despite the downstream as adjustments to accommodate that pushed on sop timeline for certain clients.
Speaker Change: Our Adas Asps will remain relatively stable within the year, so pricing was negotiated at.
Speaker Change: At the time of the contract that was signed typically.
Speaker Change: Fixed for the year.
Speaker Change: The mechanical lidar.
Speaker Change: For each specific product will also remain stable.
Speaker Change: Most people recognize us being by.
Speaker Change: By far the best mechanical Lidar on the market.
Speaker Change: And then you are right that we had a 45% gross margin blended <unk>.
Speaker Change: Highlighting our financial strengths and it's definitely the resilience of the business. Despite some of the shorter term headwinds.
I think one thing I wanted to point out is that our.
Speaker Change: Quarterly gross profit total.
Speaker Change: His more than RMB 200 million RMB and that's roughly three times that of the next highest.
Speaker Change: Publicly listed competitor on the global side.
Speaker Change: And I think a few reasons one is.
Speaker Change: Our cost advantages.
Speaker Change: Cost management efforts have paid off.
Speaker Change: Does we upgraded the AG 128, featuring a more integrated design along with improvement of our in house Asics.
Speaker Change: I think thats one of the biggest effect.
Speaker Change: Otherwise, it's definitely we are benefiting from the economies of scale as we ramp up of the shipment.
Speaker Change: And also we were able to take advantage of that to drive down our material and manufacturing costs and Theres also I have to say there was also a one off high margin.
Speaker Change: Service fee.
Speaker Change: A K E from one of the global leading OEM in the second quarter, which is very helpful. On the gross margin side because he is the service revenue.
Speaker Change: So these are the status of it and are looking ahead I think we initially guided a blended gross margin for the higher end of 30% to 35% range for the full year.
Speaker Change: We now expect that the margin for Q3 in Q4 to be closer to 40%.
Speaker Change: But to be honest, we are not aware of any other player.
Speaker Change: In the global industry that can match our financial stress.
Speaker Change: At the level of the revenue and the number.
Speaker Change: Number of units, we deliver which is already at scale.
Speaker Change: With effective expense controls and.
Speaker Change: Optimizing operational efficiencies.
Speaker Change: Our opex is expected to grow 10% to 15% compared to the full year of 2023, and aziza initiatives bring us closer to achieving profitability in the fourth quarter of the year.
Speaker Change: We are also optimistic about approaching non-GAAP breakeven for the second half of 'twenty 'twenty four.
Speaker Change: And these are.
Speaker Change: We expect.
Speaker Change: We expect.
Speaker Change: For the future and also the current status of those.
Speaker Change: The year.
Speaker Change: So in short our gross margin will be very robust and we delivered 45% into Q and we are expecting Q3, and Q4 to be closer to the 40%.
And why there will be a Q O Q slightly declined by 45% to 40% and it's because we.
Speaker Change: We recorded a one off high margin service revenue during the second quarter.
Speaker Change: And how are they on the other side. If you look at the cost management capability. We had if you look at the economy of scale benefits, we are enjoying at 40%.
Speaker Change: Level of the gross margin is probably very leading position in the industry and actually look at the gross profit in absolute value. We have recorded more than 200 million RMB into along.
Speaker Change: I think we can.
Speaker Change: As of now we are not aware of anyone else in the industry actually have this kind of financial strength and that is helping us to Ghana.
Speaker Change: A lot of deals from the other.
Speaker Change: The other.
Speaker Change #100: Passenger car Oems as well the cost best in class financial strengths.
Speaker Change #100: They have more competency to partner with us in the following years to come.
Speaker Change #100: Does that help you understand the.
Speaker Change #100: The gross margin fluctuation.
Speaker Change #100: That's very helpful. Thank you.
Speaker Change #101: Okay. Thank you.
Yeah.
Thank you. Your next question comes from Jesse <unk> with Bank of America Securities.
Speaker Change #102: Please go ahead.
Right.
Speaker Change #103: My question My first question is Florida.
Speaker Change #104: Uh Huh, just now because I was wondering that.
Speaker Change #104: We have already.
Our breakeven for the fourth quarter there.
Speaker Change #106: And one because you mentioned that they are targeting a non-GAAP breakeven second half.
Speaker Change #106: I'm, just making sure it that's all I have.
Okay.
Speaker Change #106: Yeah.
Speaker Change #106: Excuse me just Jesse would you mind repeating your question.
Speaker Change #107: We answered that already but is there a new question.
Speaker Change #108: The brakes as breakeven timeline I think we just answered that question.
Speaker Change #107: Tina.
Speaker Change #109: Okay, Yeah, Yeah sure.
Speaker Change #109: Hum.
Speaker Change #110: Uh huh.
Speaker Change #110: Okay.
Speaker Change #110: Right.
Speaker Change #110: You asked about.
Speaker Change #110: I still mentioned that they will not be going for a while of course, they are not a meaningful client assets now.
Speaker Change #110: We were just wondering that what is the chance that on there.
Speaker Change #110: Okay, well try to follow what they are doing on the technology side, because you know what we see as very browsers for us yes.
Speaker Change #110: Lot of orders coming in slightly which is a lot of employment that clients, but on the out of home.
Yes.
Speaker Change #110: Someone decided not to use and then I guess they have their own reasons. So how does a few things.
Speaker Change #110: In the future.
So may I clarify your question, you're asking about the domestic project pipeline.
Speaker Change #110: I am asking about Exxon.
Speaker Change #110: They decide not to use the line keeps your models and then are there.
Speaker Change #110: Uh huh.
Speaker Change #110: In the future trying to follow a copy what they are doing right now.
Speaker Change #110: So.
Speaker Change #110: Let me make sure.
Speaker Change #111: I own the real question, so you're asking about the question about Tesla vision only solution an X 10 switching from Lidar solution to an online I'm not correct.
Speaker Change #111: Yes, Yes, and then of course, it does not impact us.
Speaker Change #112: What is <unk> trying to copy.
Speaker Change #111: Right.
Trying to do right now.
Speaker Change #111: Oh, Yes sure sure sure.
Speaker Change #111: The Tesla question is the same question and it is the four right.
Speaker Change #111: The one thing I think people should pay closer attention is that are there.
Speaker Change #111: There had been a publication by the Wall Street Journal.
Speaker Change #111: And.
Speaker Change #111: They've been lifting out a lot of the publicly available sources on the different technological challenges on the safety side Tesla have and.
Speaker Change #111: Definitely they believe.
Speaker Change #111: Some of them could have been avoided with.
Speaker Change #111: I think that even though it's public data it was very.
Speaker Change #111: Interesting for people to collect them in such a way onto to see Oh, it's.
Speaker Change #111: It's a much more intuitive image for us to understand like ours.
Speaker Change #111: Seatbelt or.
Speaker Change #111: Our labs.
And the other.
Speaker Change #111: Fox I want to point out is that.
Speaker Change #111: In my mind Tesla Flash.
Speaker Change #113: Out of the carmakers today, they're shipping level, two or level, two plus plus sensor systems, which.
Speaker Change #114: The outbreak is a human right, it's not on the machine.
Speaker Change #115: Clearly there have been a lot of efforts globally for sure and also in China that in the industry is moving towards level three the.
Speaker Change #115: The nature of level three is you need redundancy measures too.
Speaker Change #115: To achieve that level off.
Speaker Change #116: Functional safety functional safety, meaning that you need redundancy.
Speaker Change #116: You have different ways to measure the same result, or same objects and that requires a wider and at least that's what we see.
Speaker Change #116: Almost every other global Oems and the vast majority of the.
Speaker Change #116: The Oems in China, when they develop a level three system. So the message is that a look at the recent.
Speaker Change #117: Accidents b for level three globally, everybody else agreed it you need a lidar.
Speaker Change #118: China a level three everybody agrees you need lidar for level two some people think.
Speaker Change #118: Could save that money, but even with that we're making that's affordable enough that most people are.
Speaker Change #118: Widely adopting manner and a lot of the players decided to make it standard configuration moving forward.
Speaker Change #118: So this is really the status of the industry.
Yes sure. Thank you so much as.
Speaker Change #118: Can I still have one more question, which is our previously guided fourth quarter shipments to be 150004th quarter 200000.
Speaker Change #118: We're at a 500000 that are having.
Speaker Change #119: And if.
Speaker Change #120: If you could could you sort of shed some light on that ship cranes breakdown that sounds like 1000 patients.
Speaker Change #119: Right.
Speaker Change #121: Oh, Yeah sure. So I can take that question. So for the second half of 'twenty. Four we are not expecting 300 to 350 K shipments in the second half of the year.
Speaker Change #122: And this is due to downstream adjustments by certain Adas clients, whereas some of their models have been pushed out.
Speaker Change #122: Early next year.
Speaker Change #122: On the other side, we're seeing two trends.
Speaker Change #123: First is that our E. T X has garnered significant interest among the domestic Oems and as we stated in the earnings are earnings that we have already secured several Oems for our ATF product already in the <unk>.
Speaker Change #123: Second tenant that we have noticed that in China, especially recently.
Speaker Change #123: There has been a growing trend.
Speaker Change #123: The domestic Oems are also moving toward level trade spend there. So they are requesting for.
Speaker Change #124: Even better performance of the Eva Flagged Act. So like we said in the earnings that one of the leading EV maker has already signed the agreements with US adapt our next generation Ultra high performance Adas Lidar for all of their new models scheduled to open in 2025, and we believe that this will open up.
Speaker Change #124: Wait for others to follow as well for either ultra higher performance like ours, and so as we offer both automate our performance and also ultimate value to cost products.
Speaker Change #125: We are seeing some clients have decided to switch from our competitor to us. So that's why we are we will be anticipating very strong and solid order pipeline in 2025, and 2026 and in 2024 actually stayed at the cost of the push outs for second models from the clients that we are getting.
Speaker Change #125: 300 to 350 paying for the second half of the game.
Speaker Change #125: Okay. Thank you so much.
Speaker Change #125: <unk>.
Jesse: Thank you Jesse.
Speaker Change #127: Thank you. Your next question comes from things at one time.
Speaker Change #127: Securities.
Speaker Change #128: Go ahead.
Speaker Change #128: [noise].
Speaker Change #128: Yes.
Morning.
Speaker Change #128: Oh I'm sorry.
Speaker Change #128: Yeah.
Speaker Change #128: Yes. Please go ahead.
Speaker Change #128: Okay.
Speaker Change #128: It is all.
Speaker Change #128: About go to market.
My first question.
Speaker Change #128: What's the difference between the ACR.
Speaker Change #128: A tier one pool for.
Speaker Change #128: For the country.
Speaker Change #128: What's the impact for the gross margin.
Speaker Change #128: Well, let me go into somebody's not women.
Speaker Change #128: Barbara.
Speaker Change #128: No.
Speaker Change #128: Exactly.
Speaker Change #128: Okay.
Dan: Hey, Dan.
Speaker Change #130: And that's a good question. Thank you Jonnie and so our a T X as a high value to cost law Ranch Adas flight hours and comparing.
Speaker Change #131: With 80 128, I think the key point is that it's having a very reasonable price of course, and unlike similar products from our competitors that sacrifice performance for there.
Speaker Change #132: Lower priced eight apply that our <unk> offer sports performance upgrades and cost efficiencies and why we are securing.
Speaker Change #132: A bigger number of.
Partnerships on the Oems so since its launch we have seen that the ATX has secured design wins with several major Oems by the second quarter as we sat and the MLP timing for <unk>, we expect that it will begin in the first quarter of next year, we're significantly larger volumes expected in 2026 as well.
Speaker Change #132: And we anticipate that it will penetrate into a broader range of vehicle price pricing segments.
Speaker Change #132: My small models, featuring as a standard configuration and further driving our flywheel of scale and cost optimization at the cost because of this.
I think the gross margin for the Ats product, whether you've ever reasonable even though we didn't specifically disclose gross margin its about house.
Speaker Change #132: Okay. Thank you.
Speaker Change #132: My second.
What do you see other competitors they have with the older or the.
Goldman lighter.
Speaker Change #132: No.
Speaker Change #132: No.
Speaker Change #132: We will have bumps.
Speaker Change #132: Good quarter.
Speaker Change #132: Sure.
Speaker Change #132: Are you talking about the robots.
Speaker Change #132: Oh yeah.
Speaker Change #132: Oh, okay.
Speaker Change #132: Crude oil is being done.
Speaker Change #132: And I agree with you in New York.
Speaker Change #132: London book Walmart are cool.
Speaker Change #132: Sure.
Speaker Change #132: Got it.
Speaker Change #132: That's a good thing.
Speaker Change #132: Yeah.
Right. So the question is do we have a dessert products for.
Speaker Change #133: Nobody robotics industry and.
Speaker Change #133: Depending on the definition of robotics.
Speaker Change #133: We always have.
Speaker Change #133: Now Adas.
Speaker Change #134: And for example, the Dod's areas the etsy serious they were not for Adas products. So we've always had that and having said that we do recognize that there's been a lot more embodied AI and robotics applications, who would benefit from a even more miniaturized products with lower.
Speaker Change #134: Price point, and so we are looking to get into that and we do have.
Speaker Change #134: A lot of interest and some of the AR and the orders already at.
Speaker Change #134: Reasonably large scale from the now eight us industry, but we.
Speaker Change #135: We don't have plans to disclose their names yet, but we have been aggregated them into the <unk>.
Speaker Change #135: Dineric robotics sector, whereas.
Speaker Change #136: Yeah, I think industrial robotics has always been part of our business and remember that we are the global leader in capturing most of the market worldwide and all thanks to the best performance of our mechanical opinion like ours.
Speaker Change #137: Example, if I look at the recent news in July we just signed a deal with worthwhile to speed up the global expansion in AP for logistics and our lightest can of course be used in many kinds of robotics applications.
Speaker Change #138: Manley logistics mining trucks last mile delivery robotics electronics.
Human robotics in the future potential like Humana.
Speaker Change #139: So we see huge growth opportunities ahead, I will say and also stay tuned for our <unk> event in Germany in September this year.
Speaker Change #138: Okay.
Speaker Change #138: Okay. Thank you and thank you for taking my question.
Speaker Change #140: Thank you Kelly.
Speaker Change #140: Thank you. Your next question comes from Jeffrey Zhang from CRC.
Speaker Change #141: Please go ahead.
Speaker Change #142: Sorry and management team.
Speaker Change #143: Taking my questions.
Speaker Change #144: She joined from <unk>.
Speaker Change #145: Congratulations on these quarterly results I have two questions.
Speaker Change #145: The first one is regarding to the level three.
Speaker Change #145: So I mentioned, that's not necessarily require a certain level of redundancy.
Speaker Change #145: So I want to go to more specifics regarding the conditions. So are there any scenarios or conditions that can only be met with lidar.
Speaker Change #145: So that should make a lighter and intensity.
Speaker Change #145: Thank you.
Speaker Change #145: Yeah.
Speaker Change #145: That is the.
Speaker Change #145: Very good question.
Says that if you think about level three and the functional safety requires that first you need to have multiple measures of the same object in case, one fails right. That's the nature of such a system and then directly to your question.
Speaker Change #145: Well, we see the best use of Lidar being the one that stepped up one camera sales there are two main scenarios.
Speaker Change #146: Those are not hypothetical cases those are the data we see from the hundreds of sound and incentives, which have shift and when they are operating on the road. We get we get those feedback one is they called out general objects and.
Speaker Change #146: On a for AEP functions, if you have an object.
Speaker Change #146: A truck laid down and sideways.
Speaker Change #146: By the way on the highway or identify.
Speaker Change #146: Hum.
Jobs lost of cargo that type of object you on you on how to work training would it require your system to have.
Speaker Change #146: Such a an object and a path to be able to recognize that that's one.
Speaker Change #146: The other is generally a knife.
Speaker Change #146: And again I encourage you to look into the Wall Street Journal dataset, which I think they include more than 200 cases.
And if you look at it those cases a lot of them are generally in the change of lighting condition, especially in darkness, we're in or out of the tunnels and which computer vision is struggling to see anything.
Speaker Change #146: Two is too late.
Speaker Change #146: And and that is where a lighter could reliably and a stably precisely identify.
Speaker Change #146: The best timing to break or not.
Speaker Change #147: Those are the two scenarios, we consistently see across different EBIT level, two plus but applications, but again thats for level, two plus plus you can always play in the human and that's not a big.
Speaker Change #147: Big deal if machine fails because humans are supposed to be.
The backup plan.
Speaker Change #147: Level, three euro, giving humans freedom to not to.
Speaker Change #147: To pay attention and that is a big city.
Speaker Change #147: Safety risks.
Speaker Change #148: And we also talking about the introduction of regulations mandating higher safety standards. For example, the level III policy only out from China.
Speaker Change #148: And also the AEP fleet requirements rolling out from that that I think we with these kinds of safety.
Speaker Change #148: Safety standards are only out of the content per vehicle.
Speaker Change #148: Financially will be higher as well that means that.
Speaker Change #148: Light or the number of flight hours per car can potentially increase that would be beneficial to us financially.
Speaker Change #148: Hope that answer your question patchy.
Yes, that's very clear.
Speaker Change #148: From a second pause a few questions regarding to the <unk> products.
First of all.
Speaker Change #148: The progress.
Speaker Change #149: Etfs to be integration highlights I guess, there should be some there'll probably be some technical issues with that.
Speaker Change #149: My question is regarding <unk>.
Speaker Change #149: Do you guys to achieve a lower cost Floyd yet other than the economic Skus do we employed more.
Speaker Change #149: Maybe the Chinese supply chain.
Speaker Change #149: Thank you.
Speaker Change #149: So the.
Speaker Change #150: I'll do the second question first.
Speaker Change #151: The way, we achieve a lower cost before <unk> are a few.
Speaker Change #151: The first is that it.
Speaker Change #151: For.
Speaker Change #151: The level of economies of scale as we expect.
Speaker Change #151: Al.
Speaker Change #151: Units to be shipped over the lifetime of.
Such a product and we already see that.
Speaker Change #151: Uh huh.
Speaker Change #151: Second is the further into a level of integration and Asics.
Speaker Change #151: Because it's using our <unk> for semiconductor was you remember with Gen. Two.
Speaker Change #151: And so that is a major improvement on the level of integration integration in semiconductor industry need half the savings because you just you.
Speaker Change #151: Area part of the wafer to build such a chip number three is.
Speaker Change #151: Product definition.
Speaker Change #151: Fit into that.
Speaker Change #151: A T series was more generic because that's the first time, we could find the Adas forward looking sensor by the time of ATF, we've had hundreds of thousands of sensors.
Speaker Change #151: Furious, knowing where to focus and where we can relax.
That's a little bit to achieve a relatively similar or even higher performance. So we are able to fine tune such a sensor.
Speaker Change #151: Two two to fully utilize where it's needed.
And cut costs at the park not necessarily with the combination of those three factors really.
Speaker Change #151: Go to achieve superior cost to performance ratio.
Speaker Change #151: And with regard to your first question about integration.
Speaker Change #151: Sign a partnership together with somebody really several months ago to.
Speaker Change #152: To integrate our ATR flight hours into the headlines and remember down my rally and of course, one of the most famous tier one supplier for a global OEM. So that's about integration I think.
Speaker Change #153: <unk> can be applied to many placements on the cars and we won't be seeing large adoption for the T X program, starting in 2025, and even bigger volume into sometimes things.
Speaker Change #153: Yeah.
Speaker Change #153: Thank you.
Speaker Change #153: That concludes our question and answer session I would like to turn the call back over to the company.
No.
Speaker Change #154: Thank you once again for joining us today. If you have further questions. Please feel free to contact our IR team. This concludes today's call and we look forward to speaking to you again next call. Okay. Thank you goodbye and thank you everyone. Thank you.
Speaker Change #155: This concludes today's conference call May now disconnect. Your lines. Thank you very much.