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

Okay. Very pleased to have with us Mobileye as we continue day 2 of the Barclays Global Autos Conference. Mobileye, a global leader in active safety solutions, autonomous driving solutions, more on the active safety side -- sort of more on the active safety side. Dan Galves...

Depends on who you talk to.

Dan Galves, the company's Head of IR, Chief Communications Officer. So we're going to go through a series of fireside chat style questions. Anyone in the room has a question, please feel free to raise your hand. If you have questions you want to ask anonymously, you can e-mail my colleagues, [email protected] or Trevor Young, [email protected]. They can ask on behalf of you. So with that, Dan, welcome.

Thanks, Dan.

Let's start. You've been probably pretty busy. You got a big event coming up. Maybe you could just give us a flavor, not let everything out, but like give us a flavor of what we should expect in December at your CMD.

Sure. Yes. I mean we're really excited about this event because it gives us kind of a chance to refocus on Mobileye's competitive advantages, what makes us unique. I think there's going to be like 3 main sections of the day on the technical side. I think that kind of the most important thing for us is to demonstrate how we're integrating GenAI and transformer-based architectures but as a component of the system, not as the entire system and how that actually helps us tremendously. But we're not seeing it as a shortcut. We're seeing it as like a significant sort of accelerator to the technology and an improvement to the technology, but as part of an overall architecture. So we'll continue -- I think that's something that we've been doing quite a bit of communications on. We'll continue to kind of hammer that message home. There will be an execution section, kind of going over some of the work we're doing with VW Group on the SuperVision and Chauffeur programs, how that's going, how kind of learnings can be leveraged into other programs. So I think you'll be sort of right in the backyard of that development. So that's something that we'll focus on. And then on the commercial side, I think the most important thing is to kind of give a sense of kind of where the competitive landscape is on ADAS, why we believe that -- or why kind of our design wins over the last couple of years give us really strong visibility on kind of ADAS systems out into the early 2030s with our top 10 customers. What's the difference of kind of where we are kind of outside of China with where we are inside of China, kind of continue to provide some color on that. An update on the kind of advanced product discussions with some detail around kind of the anatomy of a deal, how a deal comes together, what are the different kind of stages and kind of where are we with different customers, I think that will be a focus. And then kind of on the finance side, we'll probably try to translate some of that into a framework of when you do hear announcements of advanced products, here's how to think about kind of what the economic implications are for us timing-wise and kind of magnitude-wise. So that's -- and you'll get demo drives and kind of hands on to the technology.

Great. And then as we just think about cadence of data points because you have the CMD early December and then you have CES, typically, CES has been an opportunity for you to obviously showcase your latest tech developments, but also you've given some commercial updates as well. How do we think about sort of the flow of data points between the 2?

Yes. I mean I think CES will be somewhat of a synthesis of kind of what we say at the CMD. So it's probably not going to be as much new information as usual. I mean you're getting -- you're at the end of the year. So you'll have a good sense of kind of what your design win activity was for 2024. We've been disclosing that at CES. So that might be an incremental data point that we would give. But I think a lot of it will be somewhat of a synthesis of kind of the 4, 5, 6 hours of content during the CMD.

Let's pivot and just start with the overall landscape. And I want to start with a big-picture question. Obviously, the last couple of years from an industry standpoint, it's been -- we've seen lower EV uptake, lower sort of megatrend uptake. What extent has this shift in environment driven a change in strategy in Mobileye? To what extent have you done a pivot and say, okay, when we -- when you came out and you IPO-ed, it was -- we have a range of solutions across base ADAS, all the way up to full autonomy. To what extent has this environment forced you to pivot more to let's focus on base ADAS where we know the volumes are there?

Yes. Yes. I mean I think we have to listen to our customers, right? And we did experience somewhat of a pause in kind of the activity around the advanced products, like, let's call it, last winter that coincided with kind of the changes in kind of the EV landscape, right? So as OEMs started to come to terms with EV penetration was probably not going to be 80% 3 or 4 years from now and maybe they didn't need 6 or 7 battery plants, that drove kind of a reassessment of their product portfolio. And when you're making like huge changes -- I don't want to speak for the OEMs, like when you're making changes in your future product portfolio, it tends to put a pause on big technology decisions. So there was a period of time where, I would say, progress in terms of kind of like the discussions on the advanced products was slow. I think we've said that before, but that was almost a year ago now, probably ended 7 or 8 months ago. And since -- and -- but coming out of that, there was no difference in kind of the eagerness or the sense of urgency around being competitive in the self-driving space kind of whatever form that would take, right? And so I think if you go back to our top 10 customers, I would say every one of them has the desire for kind of an aspirational hands-free system that would start as an eyes-on system and would evolve into an eyes-off system. And I think some of them -- again, like this is no change, but some of them continue to see that as maybe something that they should try to do self-development wise, but the majority of them are engaged with us to -- could have put a program together that, I think, gives them more certainty of cost, more certainty of performance, more certainty of launch timing. And then the other ones that maybe don't have -- that are still maybe with a self-development mindset, that seems like those are the -- some of the companies that are looking for more of a surround ADAS type of technology in the near term. So I think we've not seen kind of any slowdown in the desire of OEMs to move forward with these advanced programs. So that means to us like we need to continue to support these businesses and continue to support the R&D that is critical to getting the launches done on time.

Okay. Another development. I know you are powertrain agnostic. We should be in ICE or in an EV. But I think we know that generally, uptake of more premium content across the board has been more so focused on EV. So as we're in the midst of this EV winter and we just had an election in which the potential or likely outcome is a slowing of EV uptake in the U.S., what extent does this limit the forward opportunity for Mobileye? Or are you seeing some ICE extensions? Or are you hearing about ICE extensions where automakers are saying, "Okay, we still need next-gen ADAS, better capabilities," and so it really doesn't matter?

I think it doesn't matter. I mean the Volkswagen Group program is basically 16, 17 different models. Half of them are EV. Half of them are ICE vehicles. So kind of there's no specific synergies between our technology and what powertrain is in the car. I think maybe a year ago, 2 years ago, OEMs were thinking of kind of EVs as their highest-profile vehicles, like whatever your kind of most advanced kind of self-driving ADAS, advanced ADAS, whatever you want to call it, your most advanced systems there should probably go on your most kind of focused vehicles. I think that, that has changed a bit in terms of kind of what's my high-profile vehicle going to be in '26, '27. So -- but like I said before, the portfolio kind of changes seem to be fairly concrete and finalized by earlier this year. And so now we have a set of vehicles that the OEMs are pursuing for these programs.

As we look into next year, and you'll finalize your forecast, I'm sure, and you'll give your guidance when we get 4Q. But I think some commentary you gave on the last call was if we look at EyeQ shipments volume in 2H, it's sort of annualizing at 35 million units. Is that still the right starting point when we consider, okay, there's still some squishiness on schedules. In the U.S., we're looking at sort of elevated inventory for D3. We don't know how E3 is going to shake out. And then in Europe, obviously, IHS right now is down 1%, but we know that there's a changeover on emissions, and one of the potential outcomes is could drive volatility in the schedule. So how are you thinking through those different components as we look at the volume outlook for next year?

Yes. So yes, our -- the importance of the 35 million run rate in the second half is that it was much lower in the first half because we had inventory digestion coming through. So we wanted to make it clear that the second half run rate for the EyeQ business, we consider that sort of aligned with true demand or true production, true demand, no inventory changes in the second half. So you've got 35 million. We weren't saying that that's the number for next year. That's where you should start your analysis, right? And how should your analysis go? Your analysis should look at our top 10 customers, not the market as a whole, right? So our top 10 customers, we named them on the Q3 call, but it's kind of the biggest legacy OEMs in the world, but they only make up about half the industry at this point. And so you need to look at kind of what their production outlook should be for next year. So for example, I think IHS is like plus 1 for the overall industry and like minus 1.5 for these top 10 customers. So you should think about that number, not just the overall number. I would look at kind of what IHS is saying about those companies' China volumes. If there -- if IHS is assuming it's not that bad, I would be more cautious, right? You know what I'm saying? So it's like you need to start thinking about the different pieces of the market. I would say, overall, we feel like we should be outperforming those top 10 customers by 4 or 5 points because we're still gaining share within some of them. There's still ADAS adoption growth that these companies are going to be experienced. So a bigger percentage of cars with ADAS next year than last year. So it all kind of comes back to a little bit of a view of basically flattish from those 35 million versus the 35 million. So I think like I can't talk about guidance for next year, but that's kind of the framework that I would suggest. And then with China, the volume this year for China domestic OEMs is around 1.5 million units overall. We would probably forecast more like 1 million. So maybe a little bit of downside there, just to be cautious, right, because actually, the second half volumes are higher than the first half volumes a little bit surprisingly. But we would probably take a conservative stance. So I think that's kind of what we -- that's what we're trying to get across on the Q3 call.

And much of that 1 million is export volume, which would [ demand ] you as a solution as opposed to some of the Chinese?

Maybe half of it. So I think the performance requirements in Chinese OEMs are not exporting to the U.S. But for Europe, specifically, the performance requirements are extremely difficult. One of the big China OEMs used one of our European competitors for an ADAS program, and they just got the worst rating that's ever been given out by the European safety group. So I think that there's still a little bit of a learning curve from the Chinese OEMs about how difficult this is. But yes, I think the export opportunity is important for us in China. But I think we can also stabilize a decent amount of market share within China itself.

Can you just talk about your market share within -- put China aside where we know that that's been challenging, but market share in the West, how many -- what is the competitive landscape when you're going up on sort of base L2, L2+, whatever it is, type programs? Who are you competing against? Do you still have that dominant market share? I think at one point, you've been talking about, call it, winning 2/3 of the programs out there. How do we frame Western market share?

Yes. So I think on the kind of the active safety base ADAS side, where the goal is to get kind of the highest safety rating that you can, our competition is the same as it's always been. It's Bosch and Continental and Veoneer, which is sort of owned by Magna now, I guess, there's a part of it.

Qualcomm.

Well, Qualcomm bought like the software. Magna bought like the existing business. It's hard to really tell, but there's been no change in kind of the dynamic there. I think it's a balance of price and performance. So you have to be very cost optimized because the OEMs are not -- they're not really able to charge for this. So that kind of takes Qualcomm and NVIDIA out of the game in base ADAS because their chips are not like low cost enough, and we have -- we're producing over 30 million units a year. So this means that we have over 30 million units of capacity within the Tier 1 community, and this kind of leads to a lot of scale and a lot of cost optimization. And so over the last 2 years, we've won new business with all of our top 10 customers that puts us kind of with the same position with all of those groups out through the early 2030s. So like no change in kind of the ADAS competitive landscape. SuperVision is different, right? The competitive landscape is more about open versus closed systems, although we don't think either side is 100% open or 100% closed. So you've got kind of Qualcomm and NVIDIA trying to get business for SuperVision type of programs, Tesla FSD type of programs, but struggling because you need the OEMs to create the software for big chunks of these systems, and there's been a lot of, kind of, I wouldn't say failures, but kind of not optimal outcomes over the last 5 or 6 years with OEMs that have kind of tried to do this. Our system is kind of more on the -- it's basically a make versus buy decision. Our system is obviously more on the make -- on the buy side, but we've found ways to give the OEMs the control that they want of the consumer-facing parts of these systems over the last few years that we feel like has really kind of broken down this sort of road block on the make versus buy side. So really, that's kind of what the competitive landscape is. And on the advanced program discussions we're having right now, like there's not really a competitor in there. The decision is more about the technical due diligence. Do we, as the OEM, have confidence that this system will get to production at the cost they're telling us and at the performance they're telling us? And can we have that control of the user experience that we need? And we're at the point with most of these programs where those questions have been answered, and now it's more part of like a formal purchasing process. I hope that helps.

Yes. That's great. And then maybe double-clicking on what you said in China. So again, very different competitive environment. We've seen the rise of others, Horizon Robotics, I think a few others. Is it fair to say that the opportunity for some of these Chinese players to play a role in the West is more limited, given the performance requirements that you're talking about?

Yes. So I think the China competitive landscape, you also need to think in terms of like base systems versus aspirational hands-free systems. On the base systems, right now, it's essentially all about price because the performance requirements, the kind of the value of the safety ratings in terms of like consumer marketing is not anywhere close to where it is in North America and Europe. We haven't seen any kind of local China suppliers participating in bids for business outside of China with our customers. So we're not seeing that kind of level of competition at all. Like I said, the risk of kind of going with an unproven supplier is that maybe you save $5, $10 per car, you could have a massive recall, which happened to GM a couple of years ago, not with a Chinese supplier, but with a Western supplier, which happened to Honda with another one of our competitors. So I think yes, we're not seeing any sort of -- the market seemed kind of very quarantined from each other. And then in terms of the advanced systems in China, really, it's -- I think, it's all about getting systems on the road, highway hands-free is kind of a critical consumer area. But it's being seen as a real kind of market differentiator by the OEMs. And as a result, they want to have control of the software. So I think that this kind of the make versus buy decision in China is as gravitated towards make even though the cost of these systems is double what we can offer. So that's really the kind of completely different dynamics between the 2 markets, not to mention the kind of local for local kind of push down from the government.

Before I get to the SuperVision, just one more on base ADAS ASP. Is there an opportunity for mix to improve? And it's been a while since we've had an update on Cloud-Enhanced, but is there any opportunity for sort of further uptake of Cloud-Enhanced ADAS to drive sort of the core ASPs higher? How do we think about ASP?

Yes. I mean it's noisy because you've got lots of different programs. You've got like the trim level mix. So if consumers are buying less of kind of the high trim level cars, that hurts us because there's differences in pricing even within one particular vehicle model, right? And that's been a -- as we came off the supply chain crisis where trim level mix was very rich, that's been adjusting. So that's been a headwind in the last couple of years. I think Cloud-Enhanced, more platforms on the VW program, which are launching now, the addition of REM into the Ford BlueCruise program will be tailwinds for us. But overall, we kind of see a stable ASP environment for the next year or 2. I think the surround ADAS opportunity is a really big one because what drove that was kind of the clarity around late-decade test protocols for active safety in U.S. and Europe, are pushing the envelope to the point where you can't really get a 5-star rating under those test conditions with just a front camera. So you have to start utilizing the side cameras, a lot of which are already on cars for parking systems. So you have to start utilizing those cameras for ADAS, which requires more processing power, which kind of pushes the OEMs to an EyeQ6 High versus an EyeQ6 Light type of system and can lead to ASPs for us in the kind of $150 to $200 range versus $50 today. So that doesn't happen overnight. The RFQs that we're responding to now start to launch in late '26, early '27. So you would start to see the impact at that point in time. And obviously, we need to go get these programs. So they're not done deals yet.

Great. Let's talk about SuperVision and maybe just start with the near term. So I think you mentioned on the call, roughly 15,000 units in the fourth quarter. How much of this is Zeekr versus Polestar? And is that 60,000 annual run rate the right way to look at 2025 as a starting point?

Yes. So yes, I mean, if you kind of want to get really into detail, the Q4 15,000 units is probably 6,000 Polestar 4s. It's like 7,000 Zeekr 009, and then the other 2,000 is a mix of Zeekr 001 going to Europe and kind of this Volvo vehicle, this kind of low-volume Volvo vehicle we're on in China. As we look out to next year, there's opportunities and risks. Like, the opportunities are Polestar 4 doesn't sell in the U.S. yet. They have a plan to produce the car in Korea to kind of -- that would eliminate the tariff issue -- at least the tariff as it is today. And so potentially, they could sell more cars in the U.S., but this is also like a financially challenged company. So it's a lot easier to predict how many cars Volkswagen is going to sell than Polestar. So -- but there's an opportunity. FAW is an opportunity for some incremental volume. But I think we have to also kind of acknowledge that Zeekr has not been a really reliable customer. I mean they just recently talked about their in-house system in a set of models that didn't include the Zeekr 009. So that gives us a little bit more confidence on the 009 volumes continuing into next year, which we have no indication they won't. But yes, you just have to sort of acknowledge the risk. So 60,000 units is kind of where, if I was an analyst, I would be setting the number for next year. And at that point, it's like if you're kind of up or down 20,000 units, it's $30 million. So it doesn't really matter that much. So I think it's going to be a fairly immaterial part of the business next year. But the good thing is that it looks like consensus has kind of set to the kind of the proper amount for next year.

As we think about 2026, I'm not going to ask you for your VW projection or anything there. But give us a sense of sort of the preparations that are ongoing now with Volkswagen that still give you confidence that this program is generally on track and that this can sort of grow to become a material contributor to you.

Yes. No, there'll be more at the CMD, but we're on track kind of with the development, with all of the targets, with VW's work to support their own pieces of the system for launch in '26, right? And I think there's no reason to expect anything different at this time. I think more importantly, like we see '26 as just the start of an inflection point of kind of Western OEMs adopting this technology. It's definitely been disappointing. We expected China to be sort of a transitionary kind of growth engine for SuperVision in '24, '25, '26. It didn't turn out that way, which is kind of very well known by the market. But in terms of Volkswagen's desire to do quite a bit of volume with this product and then kind of the 6 or 7 other big OEMs that are on track for design wins that would support launches in '27, we really do think that '26 is the kind of the start of the inflection point. But it's too early to talk about kind of magnitude of volume in '26 because if things move around by 2 or 3 months within the year, it can change the volumes a lot.

And then -- I guess we'll learn more at the CMD, but early takes on sort of take rates or key models or broader uptake or...

The models are set. It's really this kind of architecture 1.2 vehicles from Porsche, Audi, Bentley, Lamborghini, really the vast majority of them, as far as I can tell. So there's like 16 models, and then you've got the ID. Buzz as the 17th, which is for Drive. The kind of the direction is for the system to be on 100% of the volume, give free trials to the consumers and then expect a percentage of them to pay for the technology. And obviously, like if you want to have high take rates, you need like a really sophisticated, high-performing system, which is what they think that they're going to get and which we believe they're going to get. But yes, I think there doesn't seem to be like a lot of take rate risk in terms of these models. It's going to be more 100% of the volume of their kind of more higher-priced vehicles.

Great. I'll pause. Any questions here? Okay. Maybe we could talk about your more advanced efforts, Chauffeur, AMaaS. Where are you on those? And again, back to the question I was asking earlier, to what extent has there been maybe a pivot away from these types of programs, maybe more of a resource allocation towards ADAS?

Yes. I mean we're not seeing that. I think that the Chauffeur -- the main kind of Chauffeur effort today is with Volkswagen Group and specifically with the Audi product development team. So in parallel to the SuperVision development, you have a Chauffeur program going with the Audi product development team that is targeted to launch in late '26. This is eyes-off on highways, so kind of a Level 3 capability that is not -- should not be impacted by weather or time of day or which highways have had dedicated mapping, like all the highways are mapped in Europe. So kind of a real functional, useful eyes-off program for highways on Audi vehicles and some Porsche vehicles as well. And you can do this in parallel because the technology backbone between SuperVision and Chauffeur are the same. It's the same chip. It's the same kind of computer vision technology. It's the same mapping. It's the same driving policy. Really the only difference between the 2 programs is -- from our side, is we're adding the second -- the radar-LiDAR perception system to the system. And that's one of the benefits to the OEM is they see SuperVision and Chauffeur as having a lot of synergies. The ultimate goal is eye-off. The ultimate goal is not a system where you have to like be completely engaged all the time. The ultimate goal is to use that experience of eyes-on to get to eyes-off where people can do other things when they're commuting. And I think that that's where the OEMs are going in terms of seeing a potential -- actually, a lot of them see a potential to outperform Tesla on that conversion from eyes-on to eyes-off. Everybody knows Tesla has an awesome eyes-on system, but there's real question marks about kind of what is the path to get to kind of the performance level that would allow them to let the driver turn off. And so yes, so Chauffeur is full bore. I think we'd consider that probably our most important program with kind of Audi. But like I said, there's a lot of synergies between SuperVision and Chauffeur. And then that's a consumer vehicle focused program and which is why like the view of the OEMs is that kind of the most important area for a vehicle that consumer owns is highway. If you can give them eyes-off capability on the highway, that's probably going to take care of 90% of most people's commute. Drive is intended for the robotaxi, kind of mobility-as-a-service market. And so the most important use case there is urban. So you have the same technology backbone, but a little -- some differences in the use case. And we have 4 or 5 partners in that area that we are working with to integrate our Drive system into purpose-built vehicles for robotaxi. And then the view would be those companies would sell those cars to, in some cases, their own ride-hail networks like Volkswagen has a network called MOIA, but more likely to sell to kind of fleet operators that would then plug those vehicles into demand platforms like Uber and Lyft.

As we think about that and just on the OpEx side, again, I think you said something like 60% to 70% of the OpEx is attributable to products that aren't launched. Some of this, I understand, it's going to be sort of scaling and leveraging EyeQ, so it won't really go away. But what percent of that is sort of more next-gen type products? So LiDAR is gone. How much is going towards things like radar, which are going to be exclusively Chauffeur and up? And maybe how much opportunity is there for further rationalization of spend?

Yes. Yes. So yes, about $600 million of our $1 billion of OpEx is related to the advanced products, surround ADAS, SuperVision, Chauffeur, Drive. The main bulk of it is the software development that kind of filters out to all of those different solutions, right? So we use kind of a teacher-student network where you've got like a main team working on advanced software. You've got a main hardware team that is working on the EyeQ6 High development as well as kind of the next-gen chip after that, EyeQ7. Radar is probably somewhere around 10% to 15% of that number. The mobility-as-a-service kind of specific, like support of testing programs with these different customers because all of these customers are going into closed user group testing soon, so the main -- so the kind of the on-the-ground support for those testing programs is probably another 10% to 15%. I think the idea is like when you have all of your top 10 customers engaged in one way or the other with adopting these advanced products, there's no reason to kind of take the foot off the gas with the development. And I think mobility-as-a-service is probably an area with more uncertainties, but there's a ton of activity and a ton of action in that space right now, with the demand platforms getting involved and the ecosystem coming together, and we've got the German public transit authority telling us that they want to replace like most of their kind of driven buses with autonomous on-demand shuttles. So you've got a ton of demand building up in that area. So I think our view is we need to be super rational with making sure that every piece of spending within the company has a purpose, has either an internal or an external customer associated with that. So we have done a lot of work to make sure are there areas we can take out 4% or 5% of an activity because it doesn't seem value-added. So we've done some of that. But I think in general, like we're not anywhere close to the point where we would consider taking our foot off the gas because we're seeing so much traction from the customers.

I want to wrap with one just on competitive environment for the advanced products. I think one of the ideas that we've heard is potential for perhaps some of the full EV players, a player like Waymo to scale down or even other sort of new entrants to come into the market and compete against you. To what extent you think that your presence with the core customers that you have today provides you with a moat on some of these advanced programs?

Yes. I think that, number one, the -- Zeekr's turned out to be like a difficult customer. But the fact that we launched SuperVision in China, and it's in 300,000 units and operating well on the ground in a market where there's a lot of challenges for us to launch that system in China. We don't have the same level of REM data. We don't have the same level of overall data. So that was a huge proof point to these OEMs that this is a real product. So I think that, that gives us a leg up on anybody else who's sort of coming from less of an experienced background. I think the experience as an auto supplier and kind of what that entails in terms of the validation work and 3 years of 100 people on the ground with an OEM day-to-day, like flying to Germany on a Friday afternoon because like you need to answer the questions of some executive at an OEM, like these types of things, like they are important to the OEMs. And so yes, we're -- we feel like we've got a huge leg up on any type of new competitor especially in this space where there's been -- most -- a lot of OEMs have spent 4, 5, 6 years kind of working on uncertain -- I don't want to call them science projects at all. They're not like that. But like in that realm rather than here is the exact kind of way this is going to be set up, and this is the technology that we can show you in the real world, like that experience is leading to kind of more of a focus on like we need to have certainty of launch, cost and execution. So yes, we don't see risks from these types of competitors in the near term.

Okay. I'll leave it there. Dan, thank you so much.

Thanks, Dan. Yes. Thanks. Good questions.