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

All right. Good afternoon, everybody. Thank you so much for joining us for this session with Mobileye as part of Deutsche Bank's Global Automotive Conference. My name is Emmanuel Rosner, and I'm the lead U.S. autos and auto technology analyst here at Deutsche Bank. I'm incredibly excited to be joined here by Dan Galves, who's the Chief Communications Officer of Mobileye. As you probably all know, Mobileye is a technology company specializing in the development of hardware and software for ADAS and autonomous vehicle driving capability. The company's product range from base ADAS on chips, for which it has 70-plus percent market share to Level 2 Plus SuperVision, Level 3 Chauffeur and ultimately Drive, which is fully eyes-off and handoff. So very happy to have you here today to discuss some of the progress you've been making. So thanks for being here.

Thanks, Emmanuel.

So maybe just to kick things off, can you give us an update on Mobileye's progress so far this year. First, the volume outlook. How has demand been tracking on the base ADAS side in particular? Any signs of slowing down and maybe an update on the chip destocking that you had seen?

Yes. Thanks for having me here. I really appreciate it. We started the year with a pretty disappointing announcement that we had a kind of a buildup of inventory. And as of January 4, we laid out a pretty clear and detailed cadence of how volumes would progress over the course of the year and everything looks really on track at this point. I mean we really needed the market to collaborate, and the market demand has actually been very stable, not just for our product, but overall global production. We don't have any kind of overexposure to EV or ICE or anything like that, so kind of the mix hasn't affected us. As we said on the Q1 call, we dealt with 70% to 75% of the inventory in Q1. We are projecting that by the end of Q2, inventory levels would be back to normal, and that's still what we believe and we've seen good order indications for the back half. So we feel like very much on track to what we laid out at the beginning of the year.

And if we take a step back on that whole inventory situation, is there now enough open communications on the channel to prevent these overstocking for happening again? I guess what measures have you taken internally and externally to get a good feedback loop on what's going on?

Yes. So I think as a Tier 2, so we're always selling through Tier 1 auto suppliers and I think probably over the years, they've done a very good job of ordering to demand. And we were essentially maybe overrelying a bit on their demand outlook or their order outlook. Things changed a bit during COVID, where there was more of a desire to stockpile some chips, and we were kind of caught by surprise. We put in a lot of new processes too. We're very fortunate that we can look at global production data, we know what cars have our chip, what cars don't have our chips. So we have a very good sense of what the end demand is. And as long as we're matching that to our shipment over a particular period, we should have a good sense of kind of whether we're in balance or not. And all of these data points are pointing towards significant inventory reductions over Q1 and Q2. And we're also, yes, much more kind of in communication with Tier 1 suppliers. Some of them are providing us detailed inventory reports. So yes, we feel like we've got a handle on this. We definitely don't want it to happen again.

And then turning to SuperVision then. So for the year, you've been guiding to 175,000 to 195,000 units of SuperVision shipments. How is this tracking midway through the year? Do you still feel comfortable with this range? And where would you see potential risks or potential offsets or opportunities?

Yes. So I mean, we'll update our guidance in approximately a month, a little bit more than that. So I don't want to get ahead of myself too much. I think that this business, we're only on 5 different vehicle models right now. So it can be pretty volatile, and we've seen some of that in the first half of this year where Zeekr 001, which is the biggest volume product, was relatively low volume in the first couple of months of the year, but then they refreshed the car and the order flow and volumes went up significantly to the tune of like going from 6,000 a month to like 12,000 a month. So I would say from that perspective, maybe Zeekr 001 is maybe a little bit better than we expected, but there's still 6 months left in the year. I think kind of on the balancing side, Polestar 4 is a vehicle that was intended to drive a decent amount of volume in the second half. Their launch looks to be on track. So we're still encouraged by that vehicle. But it's produced in China and intended for sale in Europe and the U.S., but the U.S. might be a little tough with the 100% tariff. So not a super high amount of volume, but that could be kind of a balance to other good news. And I think it speaks to the fact that this is an extremely important kind of high-visibility business for us, SuperVision in general. But right now, when it's on 4, 5, 6 different models, and a lot of that is in China, there's going to be a lot of volatility. And I think in general, investors are paying very, very close attention to even weekly sales models -- sales volumes. And the numbers are really not even that material. 10,000, 20,000 units is $12 million to $25 million of revenue on an annual basis, which isn't really material to us, but it definitely gets a lot of focus. So I think that business will remain a bit volatile just because of the small number of...

And this year, you also have potentially FAW launching in the fourth quarter, which was not in the in the range that you gave?

Yes, that's correct. Our next launch customer is FAW, and that's kind of the driver of maybe some volume this year. We'll see what happens, more volume next year.

Okay. And for the benefit of everyone who is here in person, those Zeekr vehicles actually downstairs available for at least checking them out, I'm not sure about test drive, but the Zeekr 001 and 009 all downstairs. So your main customers right now are basically Geely out of China. Can you talk about the potential impacts of these recent tariffs imposed first by U.S. administration on China EVs and potential ones in Europe sort of like any day. Is this a topic that has come up with Mobileye because it could eventually impact growth of SuperVision outside of China. I'm thinking also for models like Polestar 4. How should we think about that?

Yes. I mean, I think it's back to SuperVision is kind of a long-term growth driver for us. I think that Zeekr -- having the opportunity to launch that system with Zeekr was huge for us, right, because we fully believe that if we didn't have that proof point of the system on the road that we would not have won the VW business that we announced earlier this year. So China is an amazing kind of proving ground for this technology because consumers are gravitating towards these types of systems and OEMs are moving very quickly to innovate and bring systems onto the road. So from that perspective, it's been a huge positive to our business. But also, like I said before, it leads to volatility of kind of geopolitical issues back and forth, like we don't like to kind of tit for tat back and forth between China and the U.S. and Europe. I think tariffs, in general, like it's kind of a good and bad thing for us. The good side is there has been a lot of market share shifts inside China from foreign automakers to domestic automakers. There's a lot of potential for China to export vehicles into Europe and eventually the U.S. And I think in general, our main customers are non-Chinese automakers. So from a perspective of market share solidification for our own customers, maybe it's a little bit helpful. But we also like this dynamic of China exporting systems outside of their home country because we do think it leads to more sense of urgency from foreign automakers if they're going to be competing with Chinese automakers that have very fast innovation times and the desire to push the envelope of intelligent driving. So kind of a positive and negative type of thing.

And then more generally, how exposed is Mobileye to the push out of new EV model launches or the recent demand softening. I think there is always a bit of concern among investors that, yes, you're basically powertrain agnostic, but in the end, a lot of these launches were going to be on EV. Is that true?

So I think that the base business, the IQ kind of single-chip single camera business is still 90% of our revenue. And if anything, we're underexposed to EVs there because we don't have business with Tesla. SuperVision, the first set of customers was all within this Geely Group and it was all essentially pure EV companies and EVs. So definitely 100% EV. I think our future launches are a mix. As we talked about with the VW deal, primarily portion Audi, it's about 50-50 EV versus ICE. I think the bigger picture is like -- kind of the global OEMs have gone through a significant period of -- shock is probably the wrong word, but I think we did see over the last 4, 5, 6 months, a significant kind of replanning of the portfolio of the global OEMs long term. And in some ways, that probably delayed a bit kind of their decision-making on SuperVision and going back a few months now. So there's no change that I'm trying to signal here. We're still on track for a number of design wins in the second half of this year. But I think that the positive that came out of that was a more kind of balanced portfolio approach, where I think that there was never any connection between EVs and SuperVision from a technology perspective. But when an OEM was thinking about like where do I want my leading-edge technology to go, I wanted to go on a flagship vehicle. And as of a year ago, those flagship vehicles were basically going to be EVs. I think that that's changed now, though it actually creates a more balanced business in the future for us. And maybe we even got a little bit lucky that we hadn't booked a number of deals before this change happened. So I think that the OEMs are looking at this kind of a powertrain in a more balanced way going forward. And maybe there was some, "Hey, I want to focus my technology advancement towards EVs because this is kind of where the market is going, this is what people are going to want to buy." But now they understand that this transition is going to take longer. Again, this is my perspective, I don't want to speak for the OEMs, but they understand that this transition is going to take longer and you need to compete on ICE vehicles and hybrids as well. And the way you compete is to have good technology in the car. So we're seeing a lot of kind of positive traction in terms of the supervision product set, new design wins and they're definitely going to be balanced between EV and ICE.

Let's focus a little bit on your pipeline of future business. How are you thinking about your customer pipeline for SuperVision? I think over time, you reported some design wins. You have previously stated you had 14 OEMs in advanced discussions or agreements in place. Any details you can provide on the current appetite from OEM for these advanced autonomous systems. And it sounds like, based on your previous answer, that you still expect additional SuperVision wins in the second half of this year. Is that correct?

We do. We do. Yes, so no change in the progress. Many of these engagements have evolved from technical evaluations to more of a formal RFQ process, which we think tends to solidify the time line quite a bit. So that's been a positive. I think the other thing that we've noticed over the last 3 or 4 months is that there's been more of a crystallization of how global OEMs want to deploy this intelligent driving technology across their portfolio where, I think 6, 7 months ago, it's kind of like, okay, we have SuperVision, on a path to Chauffeur for premium brands and fairly high-priced vehicles, not $100,000 above, but $50,000, $60,000 and above. And then we have base ADAS, right? What we've seen over the last 4 or 5 months is that more OEMs are looking for a leap in functionality for mainstream brands. And there's a way to do this -- and kind of specifically the deployment of hands-free system on highways with automatic lane changes, but not really targeting off-highway, not necessarily needing to be scalable to Chauffeur. But the idea is you kind of keep your hand in the game with leading-edge technology at the high end for the premium segment, but you want to be able to differentiate in the mid-range as well. And so we've seen a lot more appetite for highway hands free, and we can support this with one EyeQ6 High. We can take advantage of a lot of the content that's already on the car, such as the front camera and the 4 kind of near vision, wide angle parking cameras around the side of the car and support a pretty big leap in functionality. Think of it as kind of maybe an improvement to current gen Level 2 Plus systems for a relatively minimal incremental cost to the OEMs because it's only one EyeQ6 and because you're actually taking advantage of quite a few of the sensors that are already on the car. So this has been, I think, probably the most positive development that we've seen in terms of like a solidification of we don't want to just the kind of innovation at the high end, but we want kind of a mid-range in the meantime. And then you kind of see how SuperVision and Chauffeur go. And if it's successful and if consumers love it, then you can kind of proliferate that down the portfolio of -- at least you have something more high end for the midrange and it's for the time being. So that has been kind of a pretty big -- a bit of an evolution of the business development that we've seen in the last few months.

And the U.S., there's no great data on consumer interest in SuperVision like features. Investors worry that end demand may or may not be there. Take rate of Tesla's FSD has been reportedly low, although we haven't seen any reliable data of conversion rates since they cut the subscription price. Based on mobilized conversation with the OEMs, is there sufficient demand for this kind of technology? Or is there a risk that OEMs skipped Level 2 Plus altogether and just wait until a robust eyes-off solution is available?

Yes. I mean it's a good question. I think, number one, there's no perfect information out there that is true. What we know is that we saw a survey of Zeekr users, about 600 Zeekr users and 85% said that they were either very satisfied or satisfied with the system and 60% said they'd be willing to pay $3,000 to kind of continue to have the functionality. So we thought that those were fairly solid statistics. Now the reality is nobody is really charging for it in China because it's become part of the price war, and it's become kind of part of the cost of selling a car in that segment. So I mean, our information is basically that if you are trying to sell cars in China in the $45,000 and above price segment, it's very difficult to sell cars if you don't have some sort of hands-free -- I shouldn't keep on saying hands-free. It's really called Navigate on Pilot in China. So point-to-point plug in their address, the car drives for you. You have to keep your eyes on the road, but the car drives for you. So there's 5 or 6 of these types of systems on the road in China and it's become very difficult to sell cars in the $45,000 and above segment without having that. So I think from that perspective, it's actually a big positive to the global OEMs because, obviously, you can't extrapolate completely from China to other markets, but it's a good sign that if you put these systems on the road, they will differentiate your cars. I think we'll see what the -- maybe we'll never see what the actual data is on penetration rates for Tesla, still pretty expensive at $8,000, $100 a month. I think the expectations were probably pretty high if the consumers that did download it. And like we said, we don't really have definitive data. So we haven't seen any impact at all on our customers in terms of them putting any sort of caution in their viewpoint.

So I'm looking at in 2025, 2026 and beyond, what's a good framework to think about the sort of like midterm SuperVision volume growth? At CES, you provided for a first time a very good customer launch table, which outlines the model numbers and the time line and time frame for launch, which technology goes into it. But can you help us tie that table back to the kind of volume expectation we should consider for SuperVision? I feel like in speaking to investors sometimes [indiscernible] because it feels like -- and if I'm wrong, the only one you're really launching between now then is maybe FAW. And I'm not sure to what extent this is large volume versus not?

Yes. Yes. I can't really get into volumes too much in the next couple of years. I think again, it's kind of back to like when you only have 5, 6, 7, 8 different cars, like it's going to be tough to predict when you're sales 6 to 12 months away. I think that what we kind of look at most importantly internally is that you have an industry where right now, there's 90 million cars produced globally and probably about 60 million of those have some sort of driving assist system. We see that 60 million growing to around 80 million over the next 5 or 6 years as markets like India and Brazil as kind of lower-end segments in China and South Asia kind of catch up on ADAS adoption rates. There's actually significant kind of important growth drivers that would likely drive that volume higher. But the big question is going to be what's that pool going to look like in terms of segments. And I think you -- there's lessons in the past, right? I mean, I think AEB in 2012 was a high-priced option on cars, and I think we did 700,000 units in 2012. But you could see the writing on the wall that regulators were getting involved and -- I mean, maybe you didn't see the writing on the wall. I think at that point, you didn't know kind of where the business was going. You fast forward 10 years, and we were above 30 million units from 700,000 in 2012. So I think that's kind of where we are in this kind of evolution, kind of more sophisticated driving systems. It's hard to tell kind of how quickly the adoption curve is going to run.

Let's speak a little bit about the technology side. There's been quite a bit of focus on robotaxi, an autonomous vehicle, with the Tesla upcoming reveal of their vehicle in August. You've shared some pretty good information on Mobileye's approach to full autonomy. Is it different from Tesla's end-to-end approach and we hosted ourselves a fireside chat with [indiscernible] just a couple of weeks or so ago to go deep dive on this. If you haven't seen it and you're up for intense technology discussion, there's a replay available. But let's say, we're not up for it right now. So what are the practical pros -- I'm known for it -- what are the practical pros and cons of an end-to-end AI approach to solving autonomy of the Tesla, if that's indeed what they're doing versus why do you think that's your's is essentially more likely to succeed?

Yes. So I think you'll notice we were very careful not to say like this is a right or wrong thing. We have to look at the actual end market and I think also the intricacies of the automotive end market as opposed to maybe a large language model and also kind of what's happening in AI in general. I think, first of all, I would say that Mobileye has a history of rapidly integrating new evolutions in AI, which -- this latest one is -- it's not the first, it won't be the last. Convolutional neural networks were kind of a 2012 academic research. And we had CNN in our launch with Tesla in 2014, right? So rapid integration there, deep neural networks started to kind of become a thing in 2015. This is the first time that Nvidia started saying that data plus compute equals self-driving and we had deep neural network technology in our EyeQ4, which launched in 2018. And we have particularly what's called BEVFormer. So it's a transformer-based architecture that creates a bird's eye view of everything around the vehicle through consolidation of all the 11 camera data. This is something that's very prevalent in China right now. This is a transformer-based architecture, and this is an EyeQ6 High, which launches in first half of the next year. So we've had a very good history of kind of rapidly integrating new technologies, but we don't believe the right thing to do is to kind of completely pivot to one thing or the other. And I think we're in good company there because even ChatGPT -- even OpenAI and Google in kind of their latest versions of their large language models have moved away from a monolithic end-to-end AI system and kind of inserted more other techniques, the creative efficiencies in the system creates scalability in the system. And to look at specific kind of use cases of the system and say, okay, I can get better accuracy through this technique rather than end-to-end okay? And so this is called compound AI systems. It's kind of the latest in the academic research around these areas and this is even more important in automotive because accuracy is key, right? Like, I mean, ChatGPT can't kill you, a car can. So getting to this kind of 99.99% accuracy is really -- that's kind of the main goal, particularly for eyes-off systems, and we think the best approach is through compound AI to get to those accuracy levels. And then finally, I'd say like OEMs will not go for a monolithic AI system for 2 reasons. One is that when the system does fail and it will, you're going to have to be able to explain why it did to find the root cause and then identify a fix. If you just have a kind of a black box monolithic AI, you don't really know what's going on in the system, and so you can't kind of dig in and find out what was the root cause and the fix. You just have to try to find more data, retrain the system and hope it doesn't create other problems. So that explainability is really important for OEMs, for regulators and then the controllability. I mean the one thing that we know that's a complete deal breaker for OEMs is for them not to be able to control the driving experience and fine tune kind of how this particular like -- I'm approaching a stop sign, do I want to gradually slow down? Do I want it to be a little bit more harsh, that braking profile. There's infinite different ways you can approach it and they want to be able to control it. They want to be able to set it the way they think that their consumers will like it. And then if they're wrong and they get complaints, they want to be able to tweak it in real time, and you can't do that with a monolithic AI system either. So I think there's like a variety of reasons why we feel very confident in the approach we're taking. But I guess the last thing I would say is, as always, things are more complicated. There's been this kind of dichotomy of like AI versus rules based. And we've kind of been put in the rules-based camp. It's much more complicated than that. We have plenty of AI in our system, but it's not 100%. So that's kind of our viewpoint.

I wanted to ask you also a little bit about the competitive landscape for your solutions. You've often framed an OEM's decision about autonomy to as having to either write the algorithms themselves or they can source a solution for Mobileye. Is this still the case? Or are some other players now offering competitive personalizable driving algorithms to automakers, maybe some of the chip makers like Qualcomm or others where automakers can just put a few input and then still have a solution? Or do you still feel like the only turnkey solution is Mobileye?

I think it's kind of different inside China and outside of China. Outside of China, we still feel the same way. We haven't seen any entrants or existing competitor that can provide an actual solution to the automaker, including software and hardware. Nvidia and Qualcomm have some position in the business. It's really as a processor. It's like a chipset provider where somebody else has to provide the software and that kind of the only option there. We see as the automakers and there's been a lot of development in that area over the last 5 or 6 years, and we feel like the pendulum has much more swung towards a desire to have software delivered as long as the OEM has the ability to control the consumer-facing aspects like I was talking about before. Inside China, there's been more success within our systems and most of them use an Nvidia processor. So Li auto, XPeng, Huawei, Xiaomi, Neo. So this has been fairly successful with good respectable performance on the road. Our advantage there is these systems are using at least one, sometimes 2 LiDARs. They're using compute power that's 10 to 20x higher than us. So our benchmarking would say that our system is 50% to 70% of the cost of these kind of in-house systems. And that's not including the in-house R&D, which can be at least 1,000 to 3,000 people. So I think over time, it will be difficult to kind of maintain that type of cost structure and kind of investment structure. And we don't see this kind of approach being adopted by the bigger kind of more established domestic China OEMs. We see them wanting more of a supply solution, but it's not necessarily going to be only us. I think there's also a big push to have kind of local content in China. So our view is, ultimately, there will be 3 or 4 suppliers of hands-free system solutions in China and we'll be one of those. We've never said that we would have 50%, 60% market share in China. So we feel like we've got a lot of advantages in terms of cost, ability to support performance in U.S. and Europe, path to eyes off. Lots of advantages, but I think that we'll eventually have 3 or 4 suppliers and maybe Horizon is one of them, maybe DJI is one of them. But that's kind of how we see things going. But it's pretty unpredictable market right now. So we'll have to see how things play out over the next few years.

And maybe just finally, when I look at higher levels of autonomy, you have the Chauffeur products and then Drive eventually, what is the status of a discussion with and interest from customers right now?

Yes. So I think Chauffeur is kind of the North Star of a lot of OEMs, like the kind of the development of SuperVision. They see benefits and potential profit pools from that product, but they really see a clear value proposition with a system where maybe 90% of the time, you can do other things while you're driving. So Chauffeur is a big driver of development of SuperVision and Chauffeur in general. And I think -- we feel pretty confident that we're the only supplier that has like a true eyes-off development program, serious production program, and that's the one with Audi. So we're encouraged by that business. Drive is more challenging from kind of regulatory, and there's lots of other aspects that you have to deal with to have no driver at all. But the potential payout is huge because you're removing a human driver. So we're selling these kind of Drive systems for $50,000, $60,000 a piece. So if things work out, it's a big opportunity. I think what we're trying to do there is be agnostic to use case, like we've never really thought the right approach is to develop in a few different cities and then basically do your own robotaxi service and kind of assume that customers will come. We want to be more agnostic to use case. And the use case that we're seeing probably the most interesting right now is the conversion of large fixed route buses with drivers to autonomous on-demand smaller shuttles, where people could sign up for rides, and basically the car would pick people up and bring them into the city center. So we're seeing a lot of demand for that from public transit operators. But I think that could change, right? What's the best use case, what region is going to have the most kind of openness to this technology, like we want to be agnostic. And that's why our approach, that's kind of based on the consumer level driving system we think is really the right approach.

Great. Looks like we're exactly out of time. So Dan, thank you so much for your time and insight.

Thanks, Emmanuel. Yes. Thanks a lot.