Mobileye Global Inc. (MBLY) Earnings Call Transcript & Summary

Okay. Great. Thank you, everybody, very much for joining. My name is Mark Delaney, and I cover Mobileye for Goldman Sachs. I'm very pleased to be hosting Dan Galves, the Chief Communications Officer of the company today. Thanks for joining us.

Thanks, Mark. Appreciate it.

A lot for us to get into over the next 35 minutes, but to start, I thought perhaps you could cover Mobileye's key offerings and maybe talk around how the tech builds up, starting from that base ADAS product and how that goes into supervision, Chauffeur, eventually Mobileye Drive. And I think the ability to have some scalability of the technology, I think, is pretty interesting, especially with what it might mean for your ASP. So can you talk a little bit more around how the product set was out? That would be helpful to start.

Yes, sure. So our kind of core historical product is the software and chip that processes data from a front-facing camera that helps the car avoid dangerous situation. So if you're about to get into a rear-end collision, the car can identify that the situation is happening and send a signal to the brakes to brake the vehicle. And that's really kind of the core of our business. It's 90% of revenue today. Five or 6 years ago, we made the decision that we should pursue higher levels of self-driving, but we wanted to do it through kind of a building block approach, right? And so if you think of the target as cars that can drive themselves, you can think of 2 different markets potentially developing, like you could think of the robotaxi market where you have completely driverless cars that are intended to replace human drivers and operate within a fleet, try to operate many hours a day to drive high utilization. So that's one approach. And then you could also think of the potential for regular consumers to buy cars where in certain situations or in maybe all situations, you could disengage, do other things and the car would take over the driving functions for you. So our desire was to create a technology that would work for both of those markets. So that means it can't be $50,000, $60,000, $70,000 for the system. That might work for robotaxis, but it's not going to work for consumer vehicles. It has to operate everywhere. It can't just operate in San Francisco. That would work for robotaxis, but not for consumer vehicles. So we've kind of tailored our approach to that. And the building blocks are really the first step is to take the single front-facing camera and create a 360-degree computer vision system. So data from 11 cameras around the vehicle. So you're not just monitoring the front, you're monitoring the entire scene around the vehicle. We've done that to -- then we believe that high-definition mapping is very important. If you think about us as human drivers, we're a much better driver in our hometown, and then if you dropped us into France or someplace like that, because we're much more familiar with the signs, we understand the traffic patterns, the culture, so we -- since we have this kind of great position with front-facing cameras in vehicles, we have about 70% market share, that means we have a lot of front-facing cameras in vehicles. We're extracting data from these vehicles that we can turn into a high-definition map in the cloud. So with those 2 things, you have a really good kind of model of the environment, then you have to make decisions. So we created a decision-making software. And then kind of the last step, I would say, is to get to the failure rate that would support better-than-human level of performance. And we feel like you can't really do that with just one perception system. So we add a second perception, an independent perception system based on RADARs and LiDARs. So this is the approach. The benefit is if you kind of ignore the RADAR, LiDAR perception system, you can create kind of a complete hands-free driving system where the driver needs to monitor the environment, right? So the driver needs to stay eyes on, but the car can take over the driving functions for you. We call that supervision. So our approach to autonomous leads to the ability to commercialize kind of less systems that are not full self-driving. So the supervision system, which is in production today, we generate maybe $1,300, $1,400, $1,500 per unit compared to $50 per unit for our base system for the fully self-driving. For the kind of fully autonomous systems, the selling price can go into the thousands of dollars for us.

And that's a really interesting scalable aspect of your business. You're in discussions with a lot of different customers and potential customers around that. And maybe starting with the 6 OEMs that are currently signed up for SuperVision or Chauffeur, a couple of which are Porsche and Polestar with recent announcements. Can you talk about the cadence and the ramp for SuperVision and Chauffeur with those 6 OEMs?

Yes. So we started this year with one car with SuperVision. So the Zeekr 001, which is an all EV from a company -- it's sold in China. They're starting to export to Europe in the next couple of months. We did about 90,000 units in 2022. So this was a car that generated good brand recognition, good volumes. But that's kind of -- we started with one car. Starting in Q1 of 2024, we'll have 5 cars with SuperVision. So that includes 2 Zeekrs, a Polestar 4, a vehicle from Smart and a vehicle from a fifth -- from a fourth vehicle brand. So starting next year, we'll have 5 vehicles in market. We have a design win with Porsche that launches in the middle of 2025. We have the potential to do a program with VinFast. So we have a design win with VinFast, you can have small volume, that would launch in 2024. So these are really kind of the production contracts that we have for SuperVision today.

And of course, you hope to build upon that. You said on your earnings call, you're engaged with 9 brands for potential new wins with these advanced products. What do you think needs to happen in order to be successful? And how long do you think it may take to know if Mobileye is selected?

Yes. So I think that there's a lot of competitive dynamics happening within kind of the automaker community. Now that creates a lot of pressure to make decisions on hands-free driving. So clearly, Tesla has a system on the road that is, we think, very good. We have a lot of respect for what Tesla has done. So there's competitive pressure from there. This kind of hands-free driving functionality has become very big in China. So in addition to our system with Zeekr, there's 4 or 5 other systems that I would consider like good that are in China, kind of the non-Chinese automakers understand that these brands are moving into Europe in the near term. So I think that there's a sense of urgency that's been created in the industry. We have also, I think, gone from -- there's a big difference between having a system in production on the road. And I mean, we were much more than a PowerPoint, right? We could bring people to Israel and do demos and kind of show them the performance of the system, but actually getting it on the road, having consumers experiencing, that having positive feedback, it's really a huge proof point. We now have our maps that are kind of covering more than 90% of North America and Europe. So we can essentially bring these cars to anywhere in North America and Europe. If the automaker wants us to show up at a mystery location so they know that we can't do anything to train the system, like we can do that. We can drive -- we've done 3,000-, 4,000-kilometer demos for customers. So I think it's all become much more real. And really, if you want to compete in the 2025, 2026 time frame, you really need to start programs now. So we feel great about these 9 OEMs that have essentially told us, we've chosen your technology. Now it's really about completing the contracts.

You brought up Tesla. On the one hand, the thing Tesla is working on perhaps is a catalyst for other OEMs to consider Mobileye and any sort of product. On the other hand, Tesla aspires to be a competitor, and they said they're open to licensing their FSD technology to other OEMs. Have you seen that impact your discussions at all with OEMs? And are you seeing them a competitor in the marketplace?

Yes, we haven't seen any impact from that. I mean it's not the first time that Tesla had said that they'd be willing to kind of license or sell their self-driving technology to other automakers. I think that it's funny because this sense of urgency that's been created in the industry, we feel like is more related to Chinese automakers than Tesla. And maybe this is the fatal flaw of the world's automakers underestimating Tesla because I think what they've done is very impressive, but I think the view on the automakers is, number one, our system has better performance, is more kind of confidence, inspiring, less interventions. And I think number two, this kind of scalability of our system where we have high-definition maps in place across most of the world, where we have a plan to scale the eyes-on system to eyes-off just by adding a second perception system, it's very appealing to the automakers because they see a lot of -- I mean, I think that this is kind of common sense, right? A system, obviously, that the consumer would have to trust, but a system that would allow the consumer to do other things while they're driving, can create like significant value streams versus one where you have to monitor the system. So I think the automakers see a path with us to that eyes-off technology. So yes, we haven't really seen any kind of impact to that.

Maybe we can stick on the market share dynamic and some of the OEMs have spoken of wanting to do more custom solutions themselves as they consider bringing out eyes-off and hands-off types of ADAS capabilities. And they've talked about potentially working with Qualcomm or NVIDIA. One of those was VW, and you now have a win with the VW Group for SuperVision and Chauffeur. But there's a number of other OEMs that are also considering going down that route. So do you think there's an opportunity to perhaps have some wins of SuperVision and Chauffeur in some of these other larger OEMs that have said they may consider working with Qualcomm or NVIDIA?

Yes, for sure. So I think that this is a big question, right? Because I think in a lot of ways, our main competition in this field is our own customers. So it's the internal efforts that the automakers that are using high-power processors from semi companies like Qualcomm or NVIDIA. I think that -- so the results -- and this has been going on for 4 or 5 years. I mean, NVIDIA started talking about their desire to kind of penetrate into this market back in 2015 and have been working on it. I think that the results have not been that great. I think it's -- if you think about -- the decisions here are going to be made based on cost and performance, right? And because we have software and hardware engineers under the same roof, our chips are architected with full knowledge of what type of workloads are going to be running on these chips. So our goal is to have as little processing power as is necessary in the system because processing power means cost, it means power consumption, each of which are bad things to automakers. So what we've seen kind of with these experimentations and internal efforts is that you end up with too much processing power, a lot of it unutilized, too much cost and the performance hasn't -- has been descoped versus kind of what the original intent was. Now one of the reasons why the automakers wanted to go down this road is because they do want to customize their systems. And I think the view was, hey, if we go with Mobileye, then if 10 other automakers go with Mobileye, then we'll have the exact same system as everyone else. We anticipated that happening. So with our single front-facing camera business, like it's okay to be a black box because it's basically like you either see a car in front of you or you don't. You either tell the car to break in time or you don't. There doesn't need to be any customization. But we knew that when you start offering systems that take over the driving, Porsche would not want the same driving experience, the same feel as Ford. They would each want it to be aligned with their own brands. And so a couple of things that we did, when we were acquired by Intel, one of the big positives was that we knew that Intel was experts in creating open compute. So we leverage resources from Intel back in 2018 and now have something called EyeQ Kit, where there's tools and libraries and SDKs and kind of open pieces of the chip that automakers can deploy their own code onto. We also created a system where you essentially have like 500 to 600 knobs where you can tune the driving experience. If you want to do more lane changes and takeovers, to be a more aggressive feel to the drive, if that's what you want for your brand, all you need to do is really tune the system to do that. You can adjust after the system is into production. So we feel like our system is very, very customizable. And so I think between us getting SuperVision onto the road in a production form, us kind of like marketing and kind of evangelizing the openness within our system and kind of the poor results of the internal efforts have led to sort of turning of the tide over the last year or so.

So a lot of interesting work underway there. Sticking on market share. Can we speak specifically on the China market and what competition you may be seeing from Chinese semiconductor and technology companies, even if it's just around base ADAS functionality? And I think referring again to VW, right? They, as one example, talked about trying to work with Horizon Robotics. And I'm not trying to get into that customer in particular, but just talk a little bit around the competitive landscape in China and how much of a risk is there with some of the geopolitical tensions for your business in China.

So kind of on the driving assist sort of the base ADAS business, we were a little late to enter China. We really started kind of the business in 2014, 2015, where it's -- the rest of the world was more like 2007, 2008, and Bosch had most of that market at that point with RADAR systems. So at the time that we were acquired by Intel, we had maybe 25%, 30% market share in China. Now we have over 60% market share in China. So we've done really well on kind of the single front-facing camera ADAS business, and it's become a big chunk of our business, maybe 25% of revenue, something like that, so which is very balanced relative to auto production. Now when you look at -- and we don't see competitive threat -- any new competitive threats in that part of the business. Now when you look at like the hands-free driving segment, China is really where the action is. This is where the market is moving most quickly. This is where the media is most interested in these technologies and promoting them. And this is where systems are going on the road pretty quickly. So you have what we call eyes-on, hands-free, right? You have systems from Li Auto and NIO and XPeng and now Zeekr and maybe there's 1 or 2 others. And the systems besides Zeekr are mostly internally developed, either using Huawei processors or NVIDIA. And they're pretty good. But when we look at -- and we think that the best one is XPeng. But when we look at kind of the configuration of that system, there's multiple LiDARs. There's 1,000 TOPS of processing power versus 48 for the Zeekr system. The system is working in 2 cities today. These are the cities that XPeng mapped. We were told that it was very expensive to manually map these cities. So maybe they've stopped doing that. So the point is not to kind of compare and contrast. The point is to say that you've got some very good systems in China, but we feel like ours is better. And the feedback since we've kind of rolled out the full highway SuperVision software in China based on kind of media benchmarks and things like that, is that we have a better system. But I think China is a great market. It's very challenging for us, but the fact that it's moving so fast, we think, is creating this kind of surge of urgency that is helping us globally.

One, the China market and the capabilities of your product, I think there's some news out just late last week around Zeekr SuperVision system and some of the things it's able to do now. So maybe you could talk a little bit on what you enabled with, I think, an over-the-air software update?

Yes. So the system in Zeekr cars has been like Level 2 Plus highway assist for the last 6, 7, 8 months. So what that means is it's kind of adaptive cruise control on steroids. The car can slow down and speed up, it can keep you in the center of the lane, but it's not really driving for you. What we launched after kind of a long validation period and after kind of a beta group of more than 1,000 users for more than a month had the system is we launched kind of the full SuperVision capability on highway onto all 100,000-plus Zeekr owners. And the feedback has been great so far. I think it's not that hard to create a system that can sort of, in light traffic, keep the right speed, maybe make a couple of lane changes, but you can go on to the web and see videos of our system like in really bad weather, recognizing construction cones that just went up, and merging left, where human drivers are getting confused in front of complex intersections, again in construction areas, and our system kind of breezes through without a problem. So I think we're really -- we expected it to perform really well, but we're very pleased with how well it's performing. The customer is super pleased. And in a lot of ways, until you actually get it on the road in tens of thousands of units, you don't really know. And I think the other thing that's -- I think that the perception in China was that the Zeekr system, maybe they can get to be like as good as the others, but how could they outcompete them with only 48 TOPS and no LiDAR. And I think that, that's been the biggest takeaway from the media is like, wow, this looks like maybe a leap ahead and they're doing it with 2 hands tied behind their back in terms of cost.

In terms of what SuperVision system can enable you, you talked about hands-free highway driving, but what about within city streets in certain cities? Where do you stand on enabling that?

Yes. So the big constraint in China is mapping because in North America and Europe, we just extract data from -- there's about 2 million cars sending data. It goes on to our cloud. We have full access to it. It's much easier. In China, data has to be -- no non-Chinese company is allowed to even see or touch any consumer -- Chinese consumer data. So we needed to find a third party to kind of be the owner of that extraction process, the owner of the cloud. And we really just started collecting data about a year ago. So the map is really the constraint. It's building out quickly. And so as the map builds out, we'll be able to launch the system on urban and suburban streets. Zeekr is going to have a big sort of promotion and test period during the Asian Games where they'll -- where the system will be working on suburban street. But we're expecting it towards the end of the year to roll out broadly.

Okay. Looking forward to that. And then the next level would be L3, so hands-free and eyes-off situationally, and that's your Chauffeur product. Maybe talk about what's still needed from a product development standpoint and a validation basis in order to get to that type of L3 capability? And when can investors expect that?

Yes. So I mean if you come to the Analyst Day in Israel, you'll experience Chauffeur in the crazy streets of Jerusalem and Tel Aviv. So the system operates. There's no technological breakthroughs that we need. But with eyes-off comes liability and more regulation, right? Because you're -- with eyes-on, it's like as long as you have a robust monitoring system of the driver, you kind of know that, that human is responsible for the performance of the vehicle. But when you start telling people you can go to sleep in the back seat, the car will drive for you, then it creates risks for other people on the road. So the regulators get involved. So I think it's more of a validation process that needs to happen. So the intent is that if you can create 2 separate perception systems, each of which are capable of driving the car on their own, each of which have an approximately human level of performance, which ours do, if you put both of those systems on the same car, the chances of both of them failing at the same time go down exponentially. So the process right now is to convince the automakers that we can -- that, that is true and that each of these perception systems is approximately kind of human level of performance. And then we have -- so you want to convince your customers first that you can get there, convince them enough that they'll move forward with the program, which Polestar was the first kind of Chauffeur design win. And then the second part of the process would be to actually prove it on the road, and that's going to require lots of vehicles. So the plan would be to launch with eyes-on, monitor the system in the background, generate enough miles and data to prove it to the regulators, and then kind of launch with eyes-off. So it's -- none of this is easy. It all comes with some complications. But I think it's seen as a game changer for the automakers to provide a level of not only something like 10x, 100x better-than-human-level safety as well as the opportunity to do other things to be more productive when you're driving.

And just to be very clear, the vision system, I mean, that is SuperVision and then you add a second one, and that's what becomes Chauffeur. So that speaks to the scalability and modularity of your products that you spoke to...

Exactly. Polestar is a really good example because they adopted SuperVision for their super -- for their Polestar 4 vehicle, but it's kind of easy because like they're a sister company with Zeekr and they had access to the platform and its carryover. So it wasn't a huge deal, and they're launching that late this year, but now they're talking about launching a Chauffeur program in '25. So you would think that to do eyes on versus eyes off, you would need a completely separate program and another 3 years of development. But you can leverage so much of the SuperVision system in terms of launching a Chauffeur system. So it's -- you can get to market fairly quickly.

And maybe the final product would be robotaxis using Mobileye Drive. What sort of time frame should investors have in mind for that?

Yes. So here, again, like everything is complicated in this business. But I mean, we're in San Francisco. Like I've already seen 30, 40 like Waymos and Cruises going around. Our desire or our business plan is not to own networks of vehicles and run our own robotaxi network. It's really to be the supplier of the self-driving system. To do that, you obviously need customers, and you also -- but you also need vehicles. And the vehicle shouldn't just be like an off-the-shelf car that you kind of stuff a self-driving system into, it should be a car that's built for robotaxis. So we're engaged with a company called Schaeffler and VDL in Europe. It's an engineering company and a vehicle producer. They're designing sort of a 9-person configurable shuttle that's pre-engineered to accept our self-driving system. We're working with a company called Benteler that's doing really the same thing. Volkswagen commercial vehicles, they want their ID. Buzz to be a kind of a platform for robotaxis. So we have 3 engagements to be able to supply vehicles with our self-driving system by the middle of 2025. And then we have relationships on the demand side. So we have a relationship with fixed rental car that's interested in the Deutsche Bahn, which is a public transit operator in Germany, a few others, but then also these vehicle builders have their own distribution contacts and networks. So we really want -- we want multiple entities trying to sell these vehicles. We want multiple customers engaged and the economics work, like the customers are telling us that we can save them EUR 100,000 a year by eliminating the driver, and the system will cost much, much, much less than that.

One more tech one, if I could. I wanted to get an update, please, on where Mobileye stands with its most advanced chip development. And I realize it's not just about the chips, it's the whole solution you're developing, but maybe talk around time lines for the EyeQ6 and EyeQ Ultra chips.

EyeQ6 is really critical because the EyeQ6L will be our new sort of workhorse chip for kind of high-volume ADAS programs, and that launches early -- that launches like Q1 of 2024. So we have several launches of kind of ADAS platforms with EyeQ6 that are happening that are on track for the spring of '24. So that feels very good. EyeQ6 High is supposed to be ready for production sort of late '24, and then there will be kind of a further validation process and industrializing it onto the domain controllers. And so the first launch of EyeQ6 High is the Porsche program in mid '25. So we feel great about the chips. And then EyeQ7 or EyeQ Ultra is more like a single die with all the processing power needed for full self-driving. But I think -- and that's -- we feel like that's on track as well. But really, we can easily put 2 EyeQ -- the EyeQ6 is pretty scalable. So SuperVision is 2, Chauffeur on-highway is 3, Chauffeur Everywhere is 4. Drive is 4.

Got it.

So yes, the chip road map is great.

Got it. Okay. Maybe we could talk a little bit on end market trends. And you're tied to auto production, right, certainly outgrow auto production over time as more vehicles adopt ADAS capabilities. But could you comment on auto production trends and what Mobileye is seeing by region?

Yes. I mean, I think it's been a good year. I mean I think it started out with a lot of caution from the supply chain and the automakers, a lot of concern around vehicle affordability and general economics, interest rates. And I mean what's actually happened is North America and Europe demand has probably been better than people expected. China was quite weak in Q1, but then really kind of started to pick up in Q2. So I think in general, auto production has been better this year than anybody expected. What we've experienced is that in April and May, we were getting some -- there was some concern around the back half, and can we move some shipment volume out of one quarter or the other? The answer was like, let's let this play out and see what happens in the next couple of months and then all those requests went away. So we didn't really see a lot of upside from the better-than-expected production, but it felt like there was a little bit of risk there for a while that's kind of gone away. So we feel great about where we are for this year. On a volume basis, we should be up double digits. So it's been a good year in a tough environment.

Great. We've got time for 1 or 2 questions from the audience. I can keep going here for another half hour, but I want to see if anybody has a question. Yes, we've got one in the front. So if you don't mind waiting for the mic. Right there.

So I would like to ask, in terms of your -- because you do a lot of business in China. So in terms of export control by U.S. government, because autonomous driving is also considered an advanced application of semiconductor. So do you see it as a risk that the export control will spill over to this area? And do you have a plan if that really happens? So that's one side of the question. The other side is, you mentioned that you already give up like storing the maps or information in China, like the cloud usage. But also in China, it is sensitive in terms of autonomous driving because like Tesla, there are news that they are not allowed to go into the government because of -- they are taking all the camera information. So how do you prevent such scenarios in China when you do a lot of business with China?

Yes. So I think on the semiconductor side, it's definitely a risk, right? I think what we've seen is the types of chips that have been controlled so far are kind of in a completely different league than our chips in terms of data speeds and processing power. So like our chips are maybe 10% of kind of where that line is where the chips are being controlled. There's also like a lot of language around programmability. Our chips are not programmable in like a traditional sense. Like you can't -- they're built -- purpose-built for automotive. You can't just put them on a data center and start programming them for a weapon system or something like that. So we feel like if archetypes of chips start getting restricted, then the whole world has got a really big problem because our chips are not -- they're not super high powered, I guess, is what I'm trying to say. So they're far away from kind of where those restrictions have come so far. So that makes us feel fairly comfortable. On the data side, this was one of the areas that Intel helped us a lot. They've got good kind of regulatory government affairs assets in China. So they helped us to understand the data laws and create a framework that we feel like is, for sure, compliant today and also can withstand changes to any regulation. So we have a third-party partner that is the one that's officially extracting the data, the one that owns the cloud. We have self-validating algorithms in the cloud so we never have to see or touch the data. So we feel really good about kind of how that's come together as well. I think it's key is to have Chinese partners, right? And we've got great partners kind of on the mapping side. We talked about a company ECARX that's going to be involved with the Polestar Chauffeur program. So I think we're very kind of interested in making sure that we're always kind of partnered with a Chinese company, and we think that, that will help us to stay away from any restrictions.

Unfortunately, we're going to have to end the session there. But Dan, really appreciate you joining us today for all the questions.

Thanks, Mark. Great questions. Thanks, everybody.