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

Great. Welcome back. Next up, we have a company I think everybody is quite familiar with Mobileye. And we have Dan Galves joining us, Chief Communications Officer. We also have former DB alum as some of you may know.

That's right. It's good to be back.

Welcome back to the mothership.

Hope they let me out of the building.

So a lot going on in the industry, we'll spend very little time in video on tariffs. So I don't know if that's a good thing or a bad thing. For those of you who do not know, Mobileye is a leading supplier of advanced ADAS autonomy solutions, acting both as a Tier 1 and Tier 2. And maybe we can start off in order of what I like to think of technical complexity, most complex being robotaxi. You now -- Mobileye now has a partnership actually with Uber, Lyft, Marubeni, VW. I think there's a couple of more I missed in there, but I think people get the point. You have quite a few potboiling. What's the ultimate goal here with having all these partnerships. And if we think about that by region and by time line, how do you see this playing out?

So I think, first of all, like one of the big decisions Mobileye made quite a while ago was that we don't really know how the AV world is going to play out, whether AVs are going to be deployed on privately owned vehicles or in fleets of robotaxis. So we made the decision that we wanted to be agnostic and be able to win in either scenario, which means that you have to have kind of a very cost-efficient system that could fit into the cost of a privately owned vehicle. It means the vehicle needs to be able to kind of scale geographically quickly because you can't really sell a car to somebody and say, "Okay, you can only drive in California or you can only drive in this state." And so I think that, that's something that's unique about Mobileye is we're taking kind of a very sort of efficiency based approach to the technology. Now what we've seen in the last 1.5 years since Waymo kind of was successfully removed the safety driver from their vehicles is some really positive consumer acceptance data points, like they're doing more than 25% market share of the ride-hail business in San Francisco. Today, despite the fact that they're not offering lower pricing, they're not offering faster routes. In fact, we think like maybe they're at a disadvantage to human-driven ride-hailing at the moment, but it's showing that consumers are kind of really accepting this technology in a lot of cases, preferring it. So this is -- has generated like a ton of interest from a variety of players in the industry. What we're trying to do in terms of our go-to-market is put together vehicle producers that can produce vehicles with quality and at scale, put them together with demand generators that have the user bases that would -- are going to be the ones to utilize these vehicles. So our main kind of activity right now is with VW commercial vehicles. Their strategy is essentially to own and operate the vehicles and kind of insert them into demand-generating networks. In the U.S., that's mostly kind of Uber and Lyft. In Europe, it's quite different. In Europe, they have a massive kind of public transportation infrastructure with a lot of issues, like a lot of like large buses route -- large buses on routes that are underutilized, major shortage of drivers. So there are cities and municipalities around Europe that are extremely interested in creating more efficient transportation. And we think AV is the best way to do that. So VW would be the owner and operator of the vehicle. They would kind of insert those vehicles into demand generation networks and essentially like that car would become the driver. So Uber or Lyft or the public transit agency generates their revenue from the ride. They pay the driver, which would be VW and then VW we've negotiated with them to get a kind of a piece of the revenue per mile. So somewhere around kind of $0.20 per kilometer. So our business model would be to sell the self-driving system, including software and hardware to the automaker. We would generate a good gross margin on that sale. But I think the main kind of revenue potential is around the operating revenue per mile that we would have a piece of. And I think the demand generators are really excited about it as well because, number one, I think it's probably a threat. But then there's also a lot of opportunity that if the price of transportation goes down, you could start generating much more activity than the human-driven ride-hail is today. And I think that at our cost point, there's good potential to kind of reduce that to undercut that human-driven ride-hail cost. So yes, we're excited about it. Like our main milestone is we want to remove the safety driver by the middle of next year. With the VW program we're getting kind of tracked. There's 50, 75 vehicles in testing. That data is being kind of monitored by VW for different types of interventions. That's all being tracked to the glide path that we agreed on at the beginning, and we're hitting our milestones. So we're excited about it.

A lot there. A lot of exciting developments there. How do you think about time line? Is this 2, 3 years away? I think there's some kind of no earlier than dates, I guess, in practice.

Yes. So I mean, part of the plan is you want the hardware and kind of the -- you want the system to be integrated into the vehicle during the vehicle design process and you want that to be installed in the regular factory production line. ID. Buzz, which is kind of the vehicle that VW is targeting, I don't know, maybe it's $125,000, $150,000 a year. Our robotaxi will be kind of an option within the factory. So if they wanted to scale up from whatever 2,000 to 10,000, you could do that relatively easily rather than having vehicles kind of built, delivered, you upfit the system into the vehicle kind of some third-party location. It doesn't have -- it doesn't do much for you kind of on the scalability side. So the scalable production of this vehicle is supposed to start in late '26. Like I said before, we're looking to remove the safety driver in the middle of '26, so you could start doing kind of paid rides, start the commercialization process. You start kind of learnings around apps and things like that long before that. But yes, it's hard to call the time line, but we feel pretty confident that we'll be able to kind of get to the mean time between failure rate that would support commercialization sometime in the middle of next year.

In terms of the operational aspect, I know you also -- Marubeni is a partner, the servicing, the maintenance, the support, who handles -- who is, I guess, responsible for them? What are the economics for them?

Yes. No. I think that that's going to take maybe a variety of configurations, right? I think like with Volkswagen, it appears that they want MOIA, which is their ride-hailing, kind of their mobility division to be the consumer-facing brand. So like I said before, they would sort of be the owner-operator of the vehicle like on the Uber network, whether they contract someone to do the maintenance and the charging or whether they do that themselves, like I'm not sure it will probably vary by region. We have interest from rental car companies or other kind of entities like that, that have a lot of local assets that could be useful that maybe they -- that would be an advantage for them to own and operate the vehicle. So I think it could take lots of configurations. But the key is to have the vehicle production, the technology that works like obviously very key and then kind of the user base, the demand generation platform. I think that there's a lot that each of those kind of 3 parties can provide in terms of value.

On the cost, one interesting point you brought up earlier is that it's not cheaper than Uber or Waymo is not cheaper than Uber in the market and then you got 25% market share. Is that -- do you think that's kind of capped as in you'll never really be able to take more than a certain amount of share at price parity in order to really -- let's say, I'm going to make like 80%, 90% share one day in the future. You actually have to be like significantly cheaper? Or how does one think about the consumers and the price?

Yes. I think it's hard to say. I mean car ownership varies like greatly depending on where you live, and it seems like ride-hail costs are kind of correlated to that in some ways. I think with -- the reason we like our approach is that if you are only kind of looking at operating a service -- let me start this way. So it's like when you think about it conceptually if these cars can operate 16 hours a day, like you're replacing 2 drivers. So maybe you're replacing 2 bus drivers that are each making EUR 100,000 or maybe you're replacing 2 Uber drivers that are each making $45,000 all in. So when you think of -- and you're replacing 3 years of that, right? So when you think about it that way, you're like, okay, if I can get the cost to $100,000 or $150,000, like it works. Our approach was to say, if you were to put a system like this in a regular privately owned vehicle like what would people pay, maybe $10,000, $8,000, $9,000. So you really have to get to this kind of $4,000 or $5,000 BOM cost to support that business. There's extra kind of hardware that's going to be in robotaxis, so we're not going to be that low, but not too far away. So all of a sudden, that gives you a lot of room to think about like what is the car going to cost divided by 300,000 miles, let's say, it can kind of operate that long. You do that division and you get to like a pretty low kind of depreciation cost per mile. That's well below the $3, $4, $5 a mile that Ubers are typically costing. So I think you can -- yes, you can get to the point where you can start to make people think about like, should I own a car or not? Or should I own 1 instead of 2.

At the same time, so you mentioned earlier you kind of agnostic to robotaxi versus personal autonomy. You had some OEMs pivot more towards, I guess, personal economy, maybe perhaps trying to imitate the Tesla model to some extent or the old Tesla model. Is that -- I guess, what's the -- how do you see the opportunity being different? And are those discussions being accelerated because of some of the things that are happening now?

Yes. I mean I think whereas you have -- you're starting to have like really good kind of demand proof points in the robotaxi space, like you kind of lack demand proof points in the, let's call it, navigate on pilot, right? So you don't really have any kind of L3 consumer on the road. You've got a couple that are kind of very constrained, more like traffic jam systems. So there's not really a lot to go on. China is a market where there's hundreds of thousands of sort of Tesla FSD-like systems on the road, but nobody is being asked to pay for them, right? So it's like -- it's not like they're saying we won't pay for them. They're just not being asked. And so you're sort of lacking these like what will consumers pay for this. I think the automakers feel like there's a -- in our opinion, feel like there's a very clear value proposition for an eyes-off system. Your -- maybe your commute is 80% highway. You can kind of disengage like catch up on e-mails, while your car is driving you, like that seems to be like a clear value proposition. Eyes-on hands-free, there's probably more questions about it. You've got companies like BYD sort of pushing cost down, focusing more on highway hands-free with eyes-on. So I think that there's an appetite for sort of a more efficient, lower cost system. So I think we're -- what we're seeing kind of recently is more some new interest in Chauffeur because I think there's a view that if you get there, and we think we're the only supplier in the world with a real production program for L3 eyes-off, that's with Audi, launching late next year. If you get there, it's one of the few things that you could say like, okay, this is a real differentiator in a car. So we're seeing kind of incremental interest in Chauffeur. We're seeing a lot of incremental interest in surround ADAS. We're still seeing kind of good progress on supervision, but it's just -- it's taking a while. So I think there's still a lot of appetite, maybe there's a little bit of a kind of an increased focus on eyes-off as opposed to kind of eyes-on all ODDs.

That's a good segue to SuperVision and Chauffeur. The big launch that you mentioned Audi, what should we look out for next? I think there's a lot of moving parts just given the size and given the nature of it. Are we feeling good? Are we feeling ready that this will launch on time at kind of expected volume?

Yes, we feel good. So just to recap, we have production programs for SuperVision that's being led by Porsche, but it will be on Porsche, Audi, Bentley, Lamborghini models. We have a production program for Chauffeur that's being led by Audi. It will be on Audi and Porsche models, and then we have kind of the production program for Drive, which is the robotaxi. So yes, like we're like on time, on progress for SuperVision and Chauffeur, like the big milestone was getting the EyeQ6 high ECU converted into the test vehicles replacing the EyeQ5 high ECU with EyeQ6 high. EyeQ6 high has kind of 10x the processing throughput as EyeQ5. It was designed for a very kind of different software stack than EyeQ5 has with a lot more kind of transformers and foundational model type of stuff in there, a lot of new software engines that are to like deal with specific categories of errors that we're seeing with the new kind of LiDAR net and RADAR net processing as well. And so now the hardware is in all the prototype vehicles for SuperVision and Chauffeur. With the EyeQ5 software, it's up and running on the road. Now we add the kind of new software engines over time and start watching the MTBF progress happen, which we're seeing in the lab, but now we need to kind of prove it out on the road. So I think we're being tracked like day by day, like that's the value of having these production programs because it's -- Volkswagen holds you to a very high standard, is tracking you kind of time line, et cetera. And so everything like looks good. We'll start to be able to put people like normal people like you and me into nonautomaker employees into the cars starting in the second half of this year, hopefully at IAA. And so kind of we're looking forward to that because I think people will see a difference. You're not going to drive it 500,000 hours to see if you have a failure, which is -- or 500,000 miles. But I think in a half an hour of driving, you're going to see like a kind of a very robust system.

Well, I will be at IAA. I would hold you to that. There's a couple of other automakers out there. You have GM kind of integrating cruise stuff. Rivian has become much more vocal about it recently. I guess perhaps intends to kind of not have to rely on you. What are your thoughts on that? Is that wise?

On Rivian?

Yes. Or on both.

I lost my train of thoughts, Tesla and Rivian?

GM. GM cruise.

Yes. Got it. So yes, I mean, I think we've seen a lot of kind of ambition for in-house software development across the industry for the last like 5, 6, 7 years. We haven't seen a lot of success stories. We've also seen sort of a desire to kind of exert control, design control of a program by utilizing 5 or 6 different suppliers for different components. We think that that's really going the other direction now because kind of cost has become kind of very primary focus, ECU consolidation, like not having 4 or 5 ECU within the same system. And I think we're one of the few suppliers that can provide a full stack solution. So we do think the pendulum is swinging back towards like a lot of openness to a supplied solution, but we're the solution, we're not the product right? So like for Porsche and Audi, like they're not going to call their solution SuperVision or Chauffeur, they're going to call it their own name, and they should because they're the ones that taking that technology and turning it into an actual product deciding kind of how the vehicle should act in certain scenarios, how cautious, how aggressive, being able to kind of show visualization on the center screen. So there's a huge amount of work that the OEM needs to do and can rely on our core technology. So like I think our view has always been like they shouldn't try to get into like the core technology of perception or driving policy, they should focus on taking the outputs of the system and creating like a product that people will love. And I think like we've been able to provide new tools for the automakers to do that. And I think it's working well.

On the question of cost, I think it's a good pivot to surround ADAS, which you have a big win on recently with the VW mass market brand. And based on the chart you had in Munich, there was quite a few others on there. What's the ultimate kind of trajectory of surround ADAS? And I ask in the context of -- it seems as if it's a very cost-effective solution to get actually a lot of performance that a few others can match internally. So does this become eventually the new norm maybe for developed markets?

Yes. We think it's a possibility. So we're -- there's a couple of -- there's a few market drivers that are happening that we feel like are creating tailwinds for this product. One is that the safety ratings tests every 2 years, the kind of safety ratings groups will kind of publish to the automakers like this is what you should expect 4 years from now. And this year, for 2028 tests or last year, kind of all the new criteria that they're putting in like a lot of kind of side risk, side dangers basically make it so we don't believe you can get to a 5-star crash rating with just a front camera. So it's forcing multi-camera systems. So I think like future-proofing, safety rating compliance, there's new rules in the U.S. as well that are kind of doing the same thing. There were already parking like these kind of short-range wide-angle parking cameras on vehicles. You can utilize those. So like it's not really that much extra hardware costs. So anyway, future-proofing, safety compliance around ADAS, we'll deal with that. Getting to a highway hands-free like Level 2+ system that is cost-efficient compared to like what I was talking about before, these kind of multi-supplier sort of like OEM-directed systems with too much -- too many ECUs, too much cost. We feel like surround ADAS is kind of a vertically integrated single SoC, single ECU. If you look at the Volkswagen announcement on this program, that's what they were focused on was hardware and software sourced from the same place, single ECU, single SoC. This all reduces cost. So that's another kind of market driver. And then I think like -- I don't know if I mentioned it already, but like the BYD God's Eye announcement saying like, hey, we're going to put highway hands-free system on $20,000 cars for free that really got the attention of the industry because it starts to look like this is what consumers are going to expect in the future. So yes, we have seen a lot of incremental interest and traction for this product. And we do see potential that it could be sort of like the new ADAS of the future. And it's -- considering it's triple the ASP for us, it would be a big revenue driver for Mobileye.

I want to spend the range kind of more on the base ADAS side, production schedule visibility. I think you've been pretty conservative or you guys have been pretty conservative on the last earnings call. Has that improved at all based on some of the tariff stability?

I mean you've done a good job like up-to-date on every action OEM has taken, and there hasn't been really a lot of kind of disruption that we've seen. So at the time that we reported in -- I think it was April 24, it felt like the world was going to end. And we were seeing stability in Q2, and we kind of gave an outlook for Q2, it indicated that we would -- based on the midpoint of our full year guidance, it indicated that first half would be a lot higher than the second half. That was to account for uncertainty, like there's still a lot of uncertainty, but I would say that kind of incrementally, we feel better about kind of where the industry is, and we've seen fairly stable schedule. So nothing to report really. But yes, it feels like compared to what we were thinking in April, things have become more stable, less risky.

One area of outperformance, I think you have called out in both 1Q and 4Q, China JVs actually performed better. Is that something -- were those kind of one-offs? Or do you think that's actually holding up?

We were actually referring to the China OEM. Foreign JV production in China has been a pretty big headwind for us the last couple of years just because like those companies are underperforming in the market in general. China OEMs yes, we needed to kind of reestablish kind of a new way of doing business with the China OEMs. We see a lot of opportunity to help them with their export business where you really need to -- you've got very tight kind of safety rules, recall rules. And we have good kind of solid kind of business with them for their export, but it takes some resource, right? So we want commitments on domestic volume as well. And so kind of we were able to get to kind of a level that I keep on saying stability like that's kind of where it is. Like since the third quarter of 2024, we've been $2 million to $2.5 million annualized run rate with that group of OEMs and kind of that's where we were a little bit. We had kind of forecasted $2 million for the year. We -- our run rate has been higher in Q1. We were expecting a higher run rate in Q2. And if that continues in the back half, you could see some upside there as well. So yes, no, I think things are pretty -- going pretty well.

Then on Europe, we have seen some rumblings recently of some call volatility. It seems to not be that meaningful, but I wanted to check in with...

Yes. I think there's going to be volatility like we've been sitting in like for the last 3 quarters and then based on the Q2 outlook, we've been sitting in this kind of $8.5 million to $9 million per quarter range. And we feel like that matched up with end demand. The second half kind of to the midpoint of the guidance would be more like low 7s, right? So -- no, no, like a little bit more than 7.5% per quarter. We haven't seen anything stark enough that would cause that type of a headwind, but you still have a long way to go for the year, right? Like there's still kind of risk for the consumer out there, what's going to happen to pricing. So it's -- we're being very cognizant of the market, understanding kind of where looking at end demand very closely. And so far, we've been encouraged, but we'll talk more about it in July.

Switching to -- on the cost side, I think last quarter was also pretty solid cost execution helped by the LiDAR restructuring. Can you remind us how we're thinking -- how to think about the OpEx trajectory for the year?

Yes. So we 2/3, a little bit more than 70% of our OpEx is related to advanced products that aren't generating a lot of revenue yet. So we're definitely like if you looked at the base ADAS business stand-alone basis, it would be a lot higher margin than we're showing right now as a total company. I think that's a positive potential for the future. And I think we've increased R&D a lot over for a several year period, but feel like we're kind of at a steady state right now where we have the right resources in place to support these 4 new products that we're bringing out to support the production programs with the automakers, and we would expect like kind of comp inflation to be the only real growth area over the next few years, so 5%, 6%, 7%. Comp inflation is higher now than it used to be.

On CapEx, I think it's been asked you in the past a few different ways. But if we take into account everything we just talked about on autonomy, robotaxi, your CapEx has been actually fairly low. Do you, at some point, consider increasing that to either accelerate some of these advanced efforts, own more of the stacks. I think you've been asked before like some on the GPUs, do you need to own more to kind of do the training aspect of the gen AI. Is CapEx kind of -- is that something that could move a lot? Or would you consider moving that a lot?

So a lot of our CapEx is related to AI training infrastructure, and we've been buying $50 million, $60 million of GPUs for a long time. So we've got a very kind of solid base of kind of processing capability. We have 300 petabytes of data that we're using for training. So it's like a very, very large data set. So I think that we don't feel constrained by compute. We also leverage AWS, also significant spend on AWS, like $40 million, $50 million a year inside of our OpEx. So we don't feel like we're constrained at all on training infrastructure. We're trying to stay capital light. That's one of the reasons why we're pursuing kind of the business model. We are in the robotaxi business and not wanting to own fleets. So we don't see a lot of risk that CapEx needs to go up maybe modestly, but not any kind of step change.

All right. I think we have time for one question, if anyone in the audience otherwise has. So back in Munich, we obviously grow in cars, and it was impressive because we have a couple of other cars. What do we sort of expect next? What are we expecting next in terms of -- is the focus on robotaxi with all these partnerships? Is it on the SuperVision customer because I think the Japanese one has been a little bit shaky. Or is it huge volumes on surround ADAS? What is the priority amongst all these things that we talked about?

I think like the main priority for us executing the VW programs. Like I think me as a sell-sider back in the day, it's like you get a design win and it's like 2 years from now, you're going to start generating revenue, but it actually takes like a ton of work to remain on time and actually produce a really good product. So we feel like the VW programs with SuperVision, Chauffeur and Drive are like the ultimate proof points for us, right? And so we have to execute those. We have to remove the safety driver middle of next year, so we can start to ramp the robotaxi business. We've got to get to L3 highway so we can prove out that this can be done in a safe kind of transparent, explainable way. So that's the main priority for the company. Obviously, like we would love to have like another 2 or 3 VWs where you've got this sort of like synergies between the different programs and a company sort of aligning behind your portfolio like we think that, that will happen. So we're definitely looking to kind of close and convert deals with new customers, but we can't keep our eye off the ball with the VW programs because that's going to be the kind of the ultimate proof point for the industry that you can do these kind of low cost efficient, high accuracy, high precision and high availability systems, primarily with cameras, but also with RADAR and LiDAR.

Fantastic. On that note, we're just about out of time. Thank you, Dan.

Thanks, Edison. Good job. Thanks.