Luminar Technologies, Inc. (NASDAQ:LAZR) J.P. Morgan 21st Annual Tech/Auto Forum Conference Call January 5, 2023 5:00 PM ET
Company Participants
Austin Russell – Founder and Chief Executive Officer
Tom Fennimore – Chief Financial Officer
Conference Call Participants
Unidentified Analyst – J.P. Morgan
Unidentified Analyst
I have the pleasure of hosting Austin Russell and Tom Fennimore from Luminar for the next session. And I think what we’ll do is maybe start off with the announcements that you had yesterday in which you provided some updates on the business.
I was mentioning to Trey here, you said a lot without saying much, but hey, looks like you had strong momentum ending the year. So, maybe talk about some of the parts of the announcement, including momentum ending the year.
Austin Russell
Yeah. So, I mean a lot of different things going on and a lot going on here at CES. So, first and foremost, we got the North American debuts of both the new SAIC R7 vehicle. It’s from the new electric brand Rising Auto. SAIC is the largest automaker in China and it’s already starting — well, the SOP milestone. We had the SOP milestone them. It’s now in consumers’ hands driving around across China. So that’s a great start to the year, and I should say maybe a great finish the end of last year that was in Q4. But in addition to that, we did announce that we complete our four key 2022 milestones and targets to be at set forth. I think a lot of people thought they were pretty ambitious, which they were, but we actually were able to execute against that obviously, with the start of production with the SAIC vehicle, but also releasing the beta version of our Sentinel software stack, which you can actually see here live at CES. We’ll talk a little bit more of that. There’s four different things that are going on there.
In addition to that, in terms of major commercial program wins. We originally forecasted 40% growth, increased that to 60% growth. It’s a target. I’m proud to say that we have exceeded that for the past year. And in addition to that and getting embedded on more production vehicle models from automakers, we have also — when it comes down to the financial standpoint, for the forward-looking order book exceeded that 60% target that we had. And that’s not just 60% over a given year. That’s actually 60% more than the entire cumulative order book and same with the major commercial wins. So, there’s really just a lot being added to the flywheel, so to say, continuously with this as we give this huge momentum.
But when it comes down to and in addition to that, meeting those milestones during the SAIC launch out here. We’re also launching to the North American debut of Volvo EX90. So that’s something that you could actually already order today off of Volvo’s website, and we’ll start shipping to consumers before the end of the year. So that’s something — that’s pretty exciting to be able to get wrapped around. And I think it’s cool to see is a huge vote of confidence that — I mean, I’m sure as many here in the room a familiar, I don’t think you’ll ever see another example where OEMs will actually do car launches for regions or anywhere in conjunction with a supplier to them. So, it’s something that I think we’ve sort of broken out of that category as part of a new class of leading automotive technology companies that are able to drive the future of what’s possible and change the driving experience as opposed to just an incremental feature. So, all of that’s really coming together.
And the one other kind of major update that we have is as it relates to maps and mapping. That is something we’ve been working on very heavily for the past year very quietly. So, we did announce that yesterday that we acquired a company, which is one of two leading companies in this space for HD 3D mapping. And actually, it was the only remaining company that was there up, the other one was acquired. And they’ve got a great incredible technology foundation to be able to build these live HD 3D maps that we were able to build up and productize over the course of the past year.
And now for the first time — well, for anyone in terms of been able to show a live crowdsource 3D map. We actually showed it as an example from a couple of different vehicles that we’re driving around Las Vegas that morning. And they’re actually continuing driving around. You can even see in our booth if you take a meeting there, too, with some of the team members, we have on the screens that are showing that 3D map being constructed. So, the overall vision of what we have for mapping is to be able to create the most up-to-date comprehensive view and world view of map that’s — well, ever been created. And it will be a first of its kind considering that you take a look at like the largest fleets of vehicles out there the way that people collect maps now is for — between folks like Google and Apple and other stuff, Google is like 1,000 cars, Apple has 250 cars here in TomTom in the order of 75 cars each. They pay drivers to go and kick up these huge rigs to the roof to constantly drive around collecting data to be able to create these 3D maps. But the thing is, is that there’s a huge amount of limitations to what you can do when — and it’s not going to be very up-to-date or instantaneous by any means when you have to be constantly driving these around the world. You’re talking usually on average is the cycle times as long as years by the time it actually gets successfully updated.
So, with this, proud to be able to say that in Luminar case here in the coming years and by second half of the decade, we expect to have over 1 million Luminar-equipped vehicles out of the road. And that’s going to enable a completely different level of comprehensive view of what’s out there. And part of the whole reason why something like this makes a lot of sense for us to really get into is because we control and build that LiDAR technology that enables all this to be possible. It’s very, very difficult for these companies to actually truly survive on their own like in this kind of market environment and condition not independently. So, absorbing that into Luminar just made a ton of sense and something to — I mean, even the mapping — the TAM for HD mapping there too I think is some estimates on the order of $1.5 billion today and expanding up to $16 billion, $17 billion by the end of the decade, which is a subset of the overall mapping market that I think by many estimates is a multiple of that, but it’s growing significantly as a percentage of that mapping market for obvious reasons. So, it’s an essential part of the autonomous vehicle stack, and I think something that’s very — and not just for autonomy, also for ADAS, but something that can be very overlooked in terms of the capabilities of what’s out there.
So that’s the last piece of the puzzle that we really wanted to have from a software standpoint to be able to provide that comprehensive solution. And that’s really what you can start to see out by the booth and out in the parking lot a lot it out here.
Question-and-Answer Session
Q – Unidentified Analyst
Okay. So, maybe just a couple of follow-ups there as I sort of hear your vision on maps. Firstly, is this going to be tightly integrated to the hardware? Or are you going to be open to selling it as a pure software in the future?
Secondly, if I’m hearing you correctly, you’re saying the update on sort of the map itself can be done by the point cloud that you collect through the LiDARs. Or do you need integration with the other sensors on the car as well to populate and keep updating the map?
Austin Russell
Yeah. So, we don’t need any other centers. We don’t need anything else. That’s just to say that you can’t use it. It’s — GPS can be helpful and certain things like that. But when it comes down to it, the — you don’t need Luminar — well, one interesting point actually that you bring up, technically, you don’t actually even need Luminar on your car to be able to utilize these 3D maps. In fact, one thing that I think I can — I actually don’t think we mentioned this there too before, but I can say today is that we’re actually already selling mapping data, for example, to customers that — yeah, are not even automotive using the LiDAR there, too. There’s actually huge applications for mapping that extend even beyond that. So that makes a huge difference because this — but you do need the LiDAR to actually collect the data in the first place to get that even up.
Now, of course, it’s obviously very valuable. When you have a LiDAR in the car, generally speaking into one — a single forward phase in LiDAR there too. So it’s still very helpful to have a map of everything going on around you for either accuracy, redundancy and get the 360 view. But …
Tom Fennimore
The way that I would say it is you need our LiDAR in order to collect the data and build the map and maintain the map. You don’t need our LiDAR to benefit from that HD map. As Austin mentioned, we’ve already started to monetize that. I think one of the reasons why we’ve been working on this for a year and only start talking about it now, it’s two reasons. One is we wanted to show that this is a commercially viable product, and we’re already getting revenue from it. And then two, we also wanted to get the product to a point where it was ready for prime time to show off our customers and others, which is what we’re doing here at CES.
And so, it’s a great extension in terms of this ecosystem that we’re creating. All the maps out there today are two-dimensional maps, even the HD maps. And there’s a lot richer value you can get from these maps in the 3D world. And what we’re doing here is you need our LiDAR to collect that data. And because our LiDAR is going on a lot of vehicles here that are going to be on the real world, we believe that we are very well-positioned to be at the epicenter of helping to create and maintain and ultimately monetize this 3D mapping data.
Unidentified Analyst
Okay. The second part of that in sort of the announcements that you had is obviously the strong 4Q that you had in terms of helping you meet your — with your order book targets, your commercial wins. And I know one of your competitors has said that most of the wins on the LiDAR with major automakers are going to be decided within sort of by the end of 2023. So, how do you sort of compare that to where the investor sort of sentiment is today where 2023 is perceived to be a tough year? A lot — there are sort of this underlying expectation that automakers will push out decisions given the tough macro. So, maybe compare — help us think through that.
Tom Fennimore
Yeah. And we’re going to talk more about these wins in the near term here. We — because we set out these four major milestones for 2022. And 2022 now over, we wanted to be in a position that we met them. What I would say is these wins that we have, these were non-RF processes. The days where we were in there working directly with the OEM. They didn’t do a marketed process to other LiDAR companies. So, it doesn’t surprise me that other companies were unaware of this. And we can — I think once we unveil who they are, we can go in a lot more detail on why that is the case.
Austin Russell
But I’d also say this is that when it comes to, like, I mean, the obvious answer is Luminar declared — I mean the reason why I didn’t run a process is, frankly, like even if there were other solutions, I think, for multiple other reasons it wouldn’t be viable in terms of being able to implement a practical standpoint, economic standpoint, economies of scale standpoint, data standpoint, et cetera, that there are. But when it comes down to it, I think there — addressing the question around the expectation for 2023. I do think there is something to be said about a somewhat dramatic disconnect between this perception around what’s going on to some broader economy like actually having material impact, much less a huge material negative impact to the kinds of economics of what we would ultimately realize or like for a company like us or for a lot of other folks in the space.
I think the reality is the vast majority of the value of what we have, contracted value and everything is like in the second half of the decade. It’s not even necessarily — like I mean, don’t get me wrong, like yeah, sure, we’re able to get some business and get some revenue and get some other stuff like more than pretty much any other 3D company, so to say, for the near term. But like the value — these are like 15-year type arrangements with automakers there too, than what you have to — for how long you have to support. It’s not a year-to-year thing.
So, I think that when it comes down to it, we still — even with — even having more major wins than everyone else in the industry combined probably tons or multiple, it’s still only a tiny, tiny, tiny slice of the overall a market opportunity that’s there. Like, I mean, we’re talking what probably on the order of 1% of the market that’s there in terms of, I mean, global auto sales and whatnot in terms of what you get to. So, I think the opportunity is still to try and actually be able to leverage and expand within that, like how much car sales fluctuate on an annualized basis by plus or minus 5%, 10% or even 20% is like irrelevant to the bigger picture scheme of things for how we actually realize and materialize the business over the long-term. And it’s really all about, from a commercial standpoint, how many vehicle models are you getting embedded on?
And are these — is it trending more towards not just the super high end selective models, but actually more mainstream vehicle models? That’s how you get the huge volume. That’s how you get those multiplier effects. So, I think that’s the perspective that I think is obviously one that we have. But when you actually zoom out a little bit there too, I think you end up seeing what really matters to us.
Unidentified Analyst
Yeah. Just moving to sort of another part, which is you are one of the first companies to get to series production or probably the first company to get to series production amongst the newer sort of LiDAR companies here. What were the learnings? And firstly, getting to series production? What does that give you in terms of competitive advantage because one would assume that now you’re on a series production vehicle, the engagements with automakers should sort of dramatically accelerate [ph], but just help us through sort of what are the implications that you’re seeing? Are you seeing sort of that on the ground or not?
Tom Fennimore
Yeah. The answer is we’ve learned a lot so far. We’re learning a lot more every day. This is tough, right? Our team has worked around the clock to industrialize this product and now focusing on scaling this product. We had the former President of a major OEM down to visit us in Orlando. He’s been advising us a few weeks ago when he took us out to dinner and he goes, look, here we walk you through. Here is the issues I’m seeing with you guys, but I’ve done over 100 automotive launches and they asked me how many of them went without any difficulties. And he said they were not — like they were all hard. They’re all difficult. You work through the issues. What you guys encountering is nothing new in the industry. Now that we have real vehicles on the road, we’re learning a lot from that as well.
What I would say is — when we do this the next time, we’ve learned a lot, and we’re going to be more efficient, and we’re going to be a lot better at this. Building these complicated optoelectronic device is extremely difficult. We figured it out. There’s a lot for us to learn, but this is a way for us to continue expand our competitive moat, right? We’re the only LiDAR company of the newer ones that can actually show vehicles that are out on the road there with us. The cars that are booths are not ones where we’ve kind of duct tape our LiDAR to. These are real cars that our customers are making today or will make later this year that is going to have our technology on. No other LiDAR company to do that. I’ll tell you, it’s not easy to do this. Taking it from a PowerPoint slide to actually putting it on a car in the real world and meaning all those tough automotive standards and building in scale, it’s tough.
Austin Russell
Or even digging in from — there’s PowerPoint product and then product to industrialized series production, which is that’s — I mean even with the best experts on the planet what we’ve been able to leverage and achieve, I mean, it’s still on the order of $1 billion that are part of a decade worth of time to be able to actually — and hundreds of some of the most specialized engineers plan it to actually see this through and make this happen. And I think that process is key.
But to Tom’s point on that too, and I think what’s interesting is that we’ve generated a ton of incredible — we’ve converted those learnings into incredible amount of IP and know-how when it comes to not just the technology itself, but even the process for how you build this technology that we’ve learned a ton about over the past few years. And that has really been incorporated into generation of product in the future — I’d say, initial generation as an initial series production generation and then future products as well. So that’s being highly leveraged, thus you continue to optimize the margin.
But I think the key thing is, is that after you hit SOP is the momentum keeps building. I mean, if you take a look at it, it took us, what, seven years, eight years to get our first series production win. And then now we have, what, a dozen major commercial wins that all happen in the following 18 to 24 months. So, it kind of — again, it kind of snowballs in terms of that effect. It’s just a ton of upfront work and investment. So, anyone that’s trying to do this today, I mean, basically, you’re talking about closer to a 2030 timeline by the time you could have some kind of industrialized product that’s scalable, that implements all of that. Like there’s — I think that’s one thing that is just – can be very tough to appreciate with these kinds of new technologies. They need to really get it on to a vehicle. It’s very, very, very hard. So…
Tom Fennimore
We’ve also been able to attract a lot of new talent, particularly in this environment. Luminar is an attractive place to work. As a lot of the traditional automotive companies are coming back on their autonomous business and investment as other technology companies or either dying or cutting back as well, we’re continuing to grow. We’re going to do it at a much more disciplined and moderate space. And as we bring on the new talent, we’re able to identify significant improvements.
Our new Head of Manufacturing came in, and he’s made a lot of improvement. So, 18 months ago at our events dvance manufacturing line in Orlando to produce one of our Iris units, you would probably need a manufacturing footprint about the size of this room with maybe not quite as many people, but a lot. He was able to develop in an automated line that we’re going to be rolling out soon to our contract manufacturing partners. It’s about the size of this table. It only requires two people to operate. And so, over the last 18 months, we’ve required about the size of this room in our events manufacturing line and a lot of people to make an Iris now it down to about the size of the stable with two people highly automated.
We’re learning a lot, takes cost out of it. It improves the efficiency. It improves quality. And being in that real-world environment, these are lessons that we’re learning that nobody in the industry has learned.
Unidentified Analyst
Yeah. Let’s maybe talk about you have the series production now that you’re obviously ramping on. In terms of then where the industry is today as ADAS, largely sort of ADAS features being rolled out on vehicles in getting from there to where you have high vehicle autonomy, what are the sort of process — processes you need to figure out? What are the sort of hurdles that you need to clear? How much of that is technology? How much of that is regulatory? How do you think about that? Because with Volvo EX90, for example, you have sort of outlined plans to rollout highway autonomy at some point based on sort of how the testing, et cetera, goes in certain cities. So — but how do you think about how much of it is a function of where the technology is, what you need to fine-tune in terms of hardware or software versus how much of it is regulatory?
Austin Russell
Yeah. Yeah. Totally. So, when it comes down to it, I would say that there’s no question there’s going to be a huge amount of for autonomous upgrades, features on the vehicles. And I think this is where you get to realize these benefits at the same hardware that you get to use for next-generation ADAS is the same hardware that you can also use to enable highway autonomy highway — as advanced highway assist, type functionality. And that’s generally the business model that most of the automakers are planning for is that leverage a LiDAR with us to dramatically improve the kind of the base ADAS safety case there and then expand beyond that.
And at the same time though too, I think it should not be underestimated or understated about just the dramatic improvement that you can make from an ADAS standpoint. That’s part of what we’re showing out here with proactive safety. If you guys haven’t seen it, it’s out in the parking lot right in front of the West Hall. You can see how you pick — you actually have a setup where you can pick pretty much what some of the bestselling vehicles in the market there too to be able to show as a comparison to drive towards just a static pedestrian dummy that’s right in the front of the car. And virtually, every time it doesn’t come to a safe stop. It will just load the pedestrian over. Whereas when you have that LiDAR equipped and you know the exact distance of what’s ahead of you, it can come to a safe stop. And that’s something that isn’t even like — that’s technically not a Level 3, 4 or 5 feature that’s actually — if you go by the strict definition, that’s actually a Level 0 feature. So, the problem is, is that everyone thought that these things were solved problem. And it’s really not cars still got — all the time even with the most advanced technology on it today. So that’s where we see that huge step function advancement.
Of course, the autonomy stuff is absolutely fantastic, and that’s going to come more and more over time. Of course, the highway environment is what we’ve been focused on because believe that for urban autonomy, that’s — I mean orders of magnitude more difficult. That’s actually what virtually every autonomous vehicle company has been focused on. But that’s more of a decade long plus problem, whereas focusing on highway scenarios is much more straightforward. And with the LiDAR that can see it long distance to operate at high speed is very, very useful.
So, I mean that’s — that will be continuing to rollout and continue to improve over the years now with SAIC, Volvo, with other automakers that we’re working with. And it’s the same reason why, for example, Mercedes even made switch over to us. Like they actually have a system and they start out with a really basic first generation LiDAR that can get it to work up to — on the order of 30 miles an hour, and it’s like now they’re expanding it. So, you can operate at full highway speed and being able to enable that advanced functionality from safety standpoint and from an autonomy standpoint.
So, all of that’s really coming together, and I think it will be a key part of the holistic value proposition to be able to get additional software upgrade features that are had on vehicle beyond the safety case.
Unidentified Analyst
Yeah. Let me check — questions. Go ahead, sir.
Unidentified Analyst
[Indiscernible]
Austin Russell
Yeah. Absolutely. And I can talk a little bit more about that. I will say a couple of things that are interesting is that I think — and I think it’s a pretty solid viewpoint in the overall competitive landscape more holistically. And — but I want to preface it by — I think there’s oftentimes an overemphasis actually on details of how much companies sort of compete with each other or whatnot, particularly at such an early stage of the industry. The reality is, is that any opportunity for this kind of technology get embedded on a vehicle is great and is fantastic because, like I said, it’s still such a tiny, tiny slice of the industry. Like to meet our — what — to get — I mean even for our long-term financial target like for the end of the decade, if you want, $5 billion revenue, $2.5 billion EBITDA and a $60 billion forward-looking order book, I think you estimated that was like 3% to 4% of the overall vehicle market. It’s very tiny. So, I think seeing that growth is great.
Now listen, I’ll say from a Luminar standpoint is that we really dominate when it comes to the technology of dialing that in of — having this chip level up and develop, so not using off-the-shelf parts that’s enabled us to get this extreme level performance with the economics that can make sense, and at the same time, cover those — both of those use cases for both the safety case as well as sort of enabling these advanced autonomy features and even future proofing it for what’s beyond so that you can continue to update software alongside and with it.
At the same time, we’re pretty uniquely positioned. We’re the only company in this space has actually done both the software and the hardware together as part of holistic solution. That’s been incredibly valuable on a number of fronts.
But I’d say why are we seeing this traction here? I think as you rightfully point out, I think it’s very rare — and I don’t even think there’s any other example a company outside of China, most as a U.S. company actually being able to make headway in such a major way in capacity into some of these major Chinese operations. I think that’s largely just — it’s because of the technology and the breakthrough that we had in the first place. It’s the same reason why I was kind of half joking, but serious about it is that when people are asking like how on earth did OEMs actually start working to you in the first place? I kind of they do that? I know I was saying, I think, well, honestly, we last company that they ever wanted to work with in the early days of this too to like bet the future of their whole business on like a startup for what’s there. Obviously, we had to do a lot to be able to successfully prove ourselves out. And now we’re in a completely position, but those initial wins make all the difference.
But I would say this is that we still have by far the strongest technology that’s in the industry and are continuing to lead in that dimension. But having that combined value proposition and solution and continue to expand into things like maps and other things that’s going to — it only solidifies that moat more and more and more and more. I think the important part is as well from an economics and cost standpoint. It’s very easy to be able to have a low-cost LiDAR. You can go down the street to Best Buy 10 minutes away and get a $50 LiDAR. It’s a golf rangefinder, and you will see 200 meters, but only one point. So, the question is, how do you make a high-performance system that can actually accommodate it? This is like 1 million times the performance of that golf rangefinder. So, it’s all about finding the right balance. But the thing is, is that at the end of the day, this is a technology and capability where people’s lives are at stake. And trying to be able to compromise by having an auto grade system that maybe kind of work some of the time and only has some incremental benefit with it is not something that we really see automakers adopting ultimately. So…
Tom Fennimore
Yeah. Let me give you some data on China. So, about half the market in China is foreign brand. So Volvo, Mercedes-Benz, GM, whatever, selling into China. What we’re seeing now for the advanced technology decisions, those decisions are made by global purchasing and are typically global decisions. And we’re going to get that part of the China business, you win Volvo, you win Mercedes, you win the global brands, you got that half that market locked up.
The other half is the local brands. And then if you dissect that there, some of them are going to be low priced vehicles. If you’re selling a $10,000, $15,000, $20,000 China vehicle, you’re more likely to use the 300 LiDAR than our LiDAR, which is more premium. However, the higher end of the local brands segment, which is where SAIC R7 is, that’s about a $45,000 price tag vehicle. That’s area where they want to distinguish themselves from a technology perspective. And so, we’re open to that market.
So, you’re right. There’s going to be areas of the Chinese market, particularly the low end that are more likely to go with a “cheaper” LiDAR. That really isn’t our market. And — but over time, as the Chinese consumer continues to develop and move to price point, they’re going to naturally move towards technology. And then the other half of the market is the global brands, which will win as we kind of win the non-China part of the business.
Going to your Mobileye point, my understanding is after the Mobileye IPO that — LiDAR that Mobileye was working on is actually being retained by Intel. So, my understanding is like Intel is still developing that LiDAR for Mobileye. Right now, Mobileye is using our LiDAR for their mobility as a service system. I think they said publicly that, that LiDAR may be ready by 2025. Look, we’re not sitting still. Our LiDAR is continuing to develop. As we said before, making LiDAR isn’t easy, and we’re also building their —
Austin Russell
Every tech company, every Tier 1, every OEM throughout the years, they’ve all tried to build a LiDAR. Like this is not — I mean it’s not like they just gave up on this without a fight, right? Everybody was fighting like no tomorrow to be able to try to win this out. And it’s just really, really, really challenging to try to do it. And it’s a completely different kind of thing that you have to develop than any other kind of chip or system like — when we’re developing chips, it’s like custom indium gallium arsenide, special three, five material chips that have these very specific parameters that only five people in the world know about. And of course, we make sure they all work for Luminar, but…
Tom Fennimore
My understanding is Mobileye was working on both the — their own radar and their own LiDAR. They took the radar with them after the IPO, but left the LiDAR with Intel, so read into that.
Austin Russell
But ultimately, I think I would maintain I do think that this is going to — this industry is going to have a natural tendency towards a winner-take-all type system and solution. And I think we saw that successfully happen in the Mobileye case for the E&S market or winner-take most. And I think that’s happened all over again LiDAR with us.
End of Q&A
Unidentified Analyst
Well, we’re out of time, but thank you for coming to the conference and thank you to the audience as well.
Austin Russell
Yeah. Thank you, guys.
Tom Fennimore
Thank you for having us.
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