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spk00: Hello, ladies and gentlemen. Thank you for standing by for Hersey's Group's first quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. Please note that today's conference call is being recorded. I will now turn the call over to our first speaker today, Yuan-Ting Shi, the company's Investor Relations Director. Please go ahead.
spk03: Thank you, operator. Hello, everyone, and thank you for joining Herstead Group's first quarter 2024 earnings conference call. Our earnings release is now available on our IR website at investor.hersteadtech.com, as well as via Newswire Services. Today, you will hear from our CEO, Dr. David Lee, who will provide an overview of our recent updates and address our financial results before we open the call for questions. Before we continue, I refer you to our safe harbor statement in our earnings trust release, which applies to this call, as we will make forward-looking statements. Please also note that the company will discuss non-GAAP measures today, which are more thoroughly explained and reconciled to the most comparable measures reported on the GAAP in our earnings release and SEC filings. With that, I'm pleased to turn over the call to our CEO, Dr. David Li. David, please go ahead.
spk04: Thank you, Yuanqing, and thank you, everyone, for joining our call today. We demonstrated great financial resilience in the first quarter, navigating typical seasonal factors as well as slower demand in our robo-taxi business compared with the previous year as guided. Despite the challenges, our dedicated effort yielded first quarter net revenue and total LIDAR shipment exceeding our earlier forecast. Moreover, our effective cost management endeavors and the flywheel strategy we have implemented brought us closer to achieving profitability in the fourth quarter of this fiscal year. As automotive industry landscape continues to evolve, it's essential to understand the development trajectories and strategies that will shape our future progress. Let's start with a brief review of the LiDAR industry in recent years. The past decade has been a pivotal period for the LIDAR industry marked by significant growth. LIDAR applications have expanded from robo-taxis to ADAS, transitioning from prototype to product, and presently to merchandise, where customers now seek a balanced blend of price and performance. Looking closely at 2024, we believe it's likely to be a decisive year for the LiDAR industry's leap to mass market popularity. According to GGII, a renowned automotive research and consulting firm, the LiDAR adoption rate among EVs priced above 150,000 RMB is projected to surpass 16% this year. varying towards 50% in alignment with the famous crossing-the-cages innovation adoption model. Given this industry's inflection point, we need a flexible and competitive product roadmap to support HSAI's future development. To better explain our dual-strategy approaches for ADAS LiDAR development, I'll refer to Moore's Law, which delineates two pathways for technological advancement. ultimate performance and ultimate value to cost. First, a quick comment about ultimate performance. The trend towards more advanced ADAS function is clearly gaining traction among OEMs, particularly global players, driving demand for high-performance LiDAR with significantly enhanced specifications to power advanced features for level 3 autonomous driving. In response, Hesai has leveraged its technical know-how to define the next generation of groundbreaking lighters with products such as AT512. This 512-channel ultra-high-performance LiDAR sets new industry standards by pushing the boundaries of every core performance metric for long-range LiDARs, boasting a detection range of over 300 meters at 10% reflectivity and image quality with a point rate of 12.3 million points per second. We designed AT512 to provide our OEM partners with the necessary components to craft autonomous driving solutions with the highest level of safety. In terms of ultimate value to cost, LiDAR technology's expansion to mass market is an inevitable trend poised to reshape the landscape. As mainstream consumers increasingly appreciate LiDAR's intrinsic value through its integration into autonomous driving systems and its pivotal role in enhancing safety, LiDAR is playing a great role in decision-making for car buyers. On the OEM side, LiDAR has become a necessity as it enables OEMs to quickly and affordably elevate their autonomous driving features. Current market dynamics support this view. LiDAR technology once exclusive to premium car models, is now being integrated into more affordable vehicles. The growing demand for mass market LIDAR presents a golden opportunity for us, revealing an enormous market with a potential tens of million level shipment volume. We've implemented a flywheel strategy to capitalize on these prospects. By leveraging our strong capabilities in vertical integration, our higher value-to-cost products will empower us to crack larger LIDAR markets and elevate shipment volume. Economies of scale will further dilute cost per unit, creating a self-threading virtuous cycle. This flywheel strategy derived from our deep understanding of the industry's competitive landscape has been steadily gathering momentum since the inception of our aid assistance and will be the driving force behind our future triumphs. By the end of the first quarter, HSI has cumulated the shift over 380,000 LIDAR since our establishment. Our leading-edge technology and proven track record create tailwinds that propel our success and amplify the long-term benefit of scale. We are beyond thrilled to unveil recent collaborations with esteemed new customers, including two additional top-ten global automotive OEMs by revenue to provide aid as LIDARs for their upcoming series production programs. We have now secured design wins with four prominent global OEMs, including three global OEMs joint ventures, and most importantly, one global automotive OEM with worldwide shipping programs. These partnerships are landmark commercial wins for us, showcasing the trust we have diligently established with esteemed global OEMs' renown for its highest standard in vehicle safety and performance. Notably, some of those customers had prior engagement with our peers but have now chosen to partner with us for the first time. We are genuinely excited to receive their votes for confidence in our LiDAR technology, and we couldn't be more thrilled to play an integral role in the next phase of this global OEM satanic journey. Domestically, we forged a partnership with another new customer, GAC, one of China's leading OEMs, to jointly develop and integrate our next-generation LiDAR products into their forthcoming line of passenger vehicles. These global and domestic partnerships reflect a substantial and steady stream of opportunities ahead. As our market share and delivery volumes continue to climb, our production cost per liter will decrease, bolstering our competitive edge in terms of value to cost and making our value proposition to partners even more attractive. While our flywheel strategy has already produced tangible positive outcomes, they are just the beginning of our journey. Our latest innovation, the ATX, a cutting-edge, ultra-compact, high-performance, long-range ADAS LiDAR, embodies the next phase. This groundbreaking innovation, where the X symbolizes endless possibilities for every vehicle, is priced competitively among similar products. while offering better performance across key metrics, representing a significant leap forward in our commitment to excellence and scalable safety. The ATX inherits the main capabilities of our best-selling AT128 LiDAR, retaining its market-validated, one-dimensional scanning architecture while featuring a broad array of technological advancements. First, Leveraging our state-of-the-art fourth generation technology platform, the ATX demonstrated our mastery in seamlessly integrating internally developed core components. Boasting a maximum detection range of 300 meters and the world's first 140-degree horizontal FOV in a long-range ADAS LiDAR, the ATX sets a new standard for mass market LiDAR. With its 7x optical zoom capability, the ATX maximum detection range can be extended even further, reaching 500 meters with a more concentrated FOV. This versatile feature enables the ATX to flexibly provide either a wide view of complex road conditions, such as in nearby vehicles and pedestrians, or ultra-long range of visibility, depending on the situation's need. Additionally, the ATX optimized optical and mechanical design makes it 60% smaller and 50% lighter than AT128. Its accurate structure not only optimizes bomb cost, but also simplifies several manufacturing processes. This makes scale manufacturing significantly more efficient, boasting our flywheel strategy. In addition, the ATX's delicate and compact design coupled with its ultra-low power consumption of only 8 watts enables ATX's versatile installation in various locations within a vehicle. Whether mounted on a car's roof, behind a windshield, or integrated into a headlamp, the ATX offers unparalleled flexibility. On a related note, we're proud to announce the strategic collaboration with Morelli, a global leader in automotive lighting, to integrate the ADX into Morelli's innovative headlight designs. This ingenious placement provides the vehicle with extraordinary environmental protection capabilities, significantly improving safety. On top of that, it saves cost without altering vehicle's appearance and aerodynamics performance. Last but not least, the ATX is equipped with HACCP proprietary first-of-its-kind intelligent point cloud engine, IPE, which integrates 256 waveform processing cores and features a high sampling frequency of 24.6 billion per second. This innovation enables the ATF to intelligently mitigate the impact of rain, emitted gas, dust, etc., effectively filtering out 99.9% of the environmental noise. It also ensures reliable recognition and minimizes false triggers, providing all weather safety perception for intelligent vehicles. Moreover, the ITE alleviates pressure on the OEM to develop algorithms with similar functions, showcasing our deep understanding of customers' needs and pain points. With its cutting-edge features and robust design, the ATX has already received design wins and collaborative programs from four leading global domestic OEMs, including a leading domestic traditional OEM, a top-tier EV manufacturer in China, a leading new EV maker in China, and a major global OEM joint venture. These partnerships reflect industry-wide recognition of the ATX potential to revolutionize intelligent vehicle technology and catalyze widespread adoption of LIDAR across various vehicle types. The ATX is expected to enter production in the first quarter of 2025, further propelling our flywheel strategy. Now, Let's briefly go through our operating and financial results for the first quarter of 2024. To be mindful of the length of our earning call today, I encourage listeners to refer to our first quarter earnings press release for the details. We delivered a resilient financial performance for the first quarter with a net revenue of RMB $359.1 million, U.S. dollar $49.7 million, at the higher end of our forecast, in line with our expectations, factor in typical seasonal effects. Strong growth in domestic ADAS adoption drove quarterly total ladder shipment over 59,000 units, a 70% year-over-year increase, offsetting slower demand in our robo-taxing business compared to the previous year. Particularly noteworthy is our progress towards achieving profitability by the fourth quarter of this fiscal year, driven by effective cost management and our flywheel approach to cost and scale optimization. Now, moving to our financial outlook. For the second quarter of 2024, we expect net revenue to be between RMB $440 million, $60.9 million, and RMB $460 million, $63.7 million, representing a year-over-year increase of approximately flat to 4.5%. For the full year of 2024, we anticipate annual revenue to be within a range of RMB $2.5 to $2.8 billion, roughly U.S. dollars $350 to $400 million as compared to our previous guidance of U.S. dollars $400 to $450 million, an adjustment around 10%. In terms of shipment, we expect total LIDAR shipments to reach approximately 90,000 units in the second quarter of 2024 and over 500,000 units for the entire year of 2024. This updated forecast reflects our prudence in LIDAR fluctuation in downstream EV sales during this year. With this adjustment, the contribution from high-margin robo-taxi business is expected to increase to roughly half of our total revenue in 2024, pushing our blended gross margin guidance toward the higher end of 30% to 35% range. Meanwhile, we anticipate that the proportion of the revenue derived from the U.S. will be less than 20% of the total revenue in 2024, driven by increasing demand outside the U.S. This outlook is based on the current market conditions that reflect the company's preliminary estimate of market and operating conditions and customer demand, which are all subject to change. The automotive industry worldwide is undergoing a significant revolution, driven by the rapid advancement of autonomous driving solutions. We're thrilled to be recognized as a pioneer leader in this transformative way. To date, We've secured eight design wins with a total of 18 OEMs and Tier 1 suppliers globally across approximately 70 vehicle models. With a robust pipeline of SOP, we eagerly anticipate an exhilarating second half of the year and beyond. As we look to the future, we remain committed to leading through innovation and Using our technological capabilities to enhance safety, save lives, and create a more intelligent global transportation system will continue to foster our financial strength and global competitiveness as we progress towards profitability by the fourth quarter of this year. Thank you for your steadfast support and trust in our vision. We're excited about what lies ahead and remain confident in our ability to maintain our leading position and achieve sustained growth in our dynamic automotive industry. This concludes our prepared remarks today, and operator, we're now ready to take questions.
spk00: Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star then 2. If you're on a speakerphone, please pick up the handset to ask your question. For the benefit of all participants on today's call, if you wish to ask a question to management in Chinese, please immediately repeat your question in English. For the sake and clarity and order, please ask one question at a time. Management will respond and then feel free to follow up with your next question. The first question today comes from Stanley Wang from Morgan Stanley. Please go ahead.
spk07: Thank you for the opportunity. So my first question is on Li Auto. Would Hesai be the sole supplier to Li Auto's upcoming BEV model launches? And if so, what would be the latest impact following their delay of some of those launches to first half 2025? Thank you.
spk04: Thank you. This is David Lee, the co-founder and CEO of HESAI. As far as we are concerned, we are the only supplier moving forward. Of course, in the end, it's LiAuto's decision, and so the answer is yes. And the second question is, how does the fluctuation on LiAuto's volume change our shipment? Of course, it does impact us, but I just wanted to point out the fact that we have quite a few major EV makers we're shipping with, and LiAuto is only one of them. And I tend to think that the aggregated amounts tend to be stable, especially given the fact that the China EV is growing very fast and the adaptation rate of the LiDARs are increasing very rapidly. So overall, we remain long-term optimistic about the volume.
spk07: Great. Thank you. Very clear. Second question is on the recent global OEM project wins. Could you elaborate a bit more on the scope and timing of these design wins and when will mass production begin for them and whether they will start from China or take place overseas initially? Thank you.
spk04: Thank you. I'd like to be a little more careful as we have a very strict agreement on what we can or cannot disclose on this program. What we could tell is that it is a program that shifts globally, and it's not a China-only program. And the second thing is I wanted to point out the development we have recently. We explained that we have two additional top 10 global OEMs, And when we say top 10, it's ranked by revenue. And we have two additional programs. So now, if you look at the total top 10 global OEMs by revenue, we have six of them. Four is true global OEM. In total, out of the four, three are with the joint ventures. The other one is a program platform that shifts globally. And of course, this is either directly or through their entity in their group, and those are designed when selected by the customer. Actually, some of these customers have engaged with our peers previously, so we're not the first LiDAR company they work with, but they have concluded that we are the better fit for the programs. and they recognize our outstanding track record of delivering on time with the highest quality as well as the high performance and robust pipeline of the future advanced technologies. I like to think that Securium's first worldwide shipping program is a landmark achievement for HSAI as a LiDAR company, given that these global OEMs have renowned for their stringent standard of sorting and verification, And we remain very hopeful that we will continue to work with more and more global OEMs.
spk07: Got it. Thank you. Thank you for the answer, David. Thank you.
spk04: Thank you very much.
spk00: Thank you. The next question comes from Jeff Chung from Citi. Please go ahead.
spk05: Hi, David. Thank you for taking my questions. This is Jeff. I have two questions. First is the excellent GP margins that was achieved in the first quarter. So could you give us a little bit more breakdown on the GP margins by products? And compared with the peers, I think our ASP seems to be much higher. So is it going to be sustainable going forward? This is my first question. And the second question is about the second quarter. volume and the margin trend guidance. And last but not least, could you give us some more updates on the overseas achievement? Thank you.
spk04: Thank you, Jeff. Two questions. One is The breakdown, unfortunately, we don't provide additional information on the breakdown between ADAS and the Robotaxi. I do want to point out the fact that Robotaxi is a smaller volume, much higher ASP, relatively higher margin business that we have always had as a very important part of our business. And the ASP, even for the RoboTaxi, has gone down, but it still remains at a much higher level than the ADAS. Again, also at the growth margin. That's one of the key reasons that we have the opportunity to have a reasonable blended growth margin. I think the second question is on the global OEM. I think I have just mentioned that we have six out of the ten global by Fortune 500 revenue. Was there an additional question you want to ask on this topic?
spk03: About the 2Q guidance.
spk04: Oh, the 2Q.
spk03: For the 2Q, we are guiding total shipments to reach approximately 90K units in the second quarter. And also we adjusted our annual target to over 500K for the entire year. And the updated forecast reflects our prudence in light of the fluctuations in the downstream EV sales. However, on the other side, I think we are adjusting our gross margin guidance as well because the high margin robo-taxi business will reach around half of the total revenue in 2024, which will bring our blended gross margin of 2024 to the higher end of our guidance before, which is 30% to 35%, and we will reach the higher end of the guidance, which is 35%. So in light of this, I would say the flywheel strategy we are having now will help drive the benefits of economies of skills. And on the other side, our high-margin Robotech students, they will still contribute a lot to our total gross profit as well. And we are very confident that we will reach our gap-level profitability by the fourth quarter of this year.
spk04: And then on the global side, I think one piece of information we didn't specifically mention for this call is that we now have 12 RFI slash RFQs with nine leading global OEMs. Of course, with the recent design win, one has been converted, but most of them are expected to conclude in the following less than 12 months. And we definitely believe having a top-tier OEM picking us It's very helpful for the rest to understand our capabilities in developing, delivering products to the car platforms that are shipping globally as a Chinese company. So we're super excited to continue to rise the momentum to hopefully add a few more to the list by this year.
spk07: Thank you, David.
spk00: Thank you. Thank you. The next question comes from Tina Hu from Goldman Sachs. Please go ahead.
spk09: Thank you for the management for your time. I have two questions. The first one is in terms of ATX, it's a very exciting new product. Just wondering in a steady state, what kind of volume contribution would ATX be considering it's much more economical and then more like mass market models? is able to adapt that so that's the first question the second question is in terms of like volume from the customers so if there's any like fluctuation or the customers turn out their volume is lower than expected do we have any like pricing protection in place for for us because we need to prepare the inventory and production lines for the customers we're just wondering if Would we get like higher price if there is less volume than expected from some of the customers? Thank you.
spk04: Thank you. Thank you, Tina. I will probably do the second question first because that's kind of an easier question. So it's always a step pricing. So normally when we have a design wing and a production contract with an OEM, it usually has ties tied to two conditions. One is, of course, timing by year. The other is volume because normally when we offer a competitive price, it's under the condition of they will take this many units by this year. If they don't, they always have to renegotiate with us on a higher price or just fit back into the original stepping price, which is a slightly higher price if it's a lower volume. So that's the standard for the industry. And the other question is, you wanted to explain more about the volume and some of the transitions of the 128B and ATX. So the ATX start production in 2025, but AT128P accounts for the majority in the volume. The 128P annual decline is in the 10th of the 10th. And the ATX is a very competitive price. competitive for the price among the similar product in the category and we expect more than a million units in the year 2025. And in the year 2026, we expect the ASP for the rest of the product also remain stable. I want to point out the difference between the two products. It's very clear that the ATX is designed for mass market adoption. Actually, a lot of those customers are expecting ATX to be a standard configuration. Standard meaning that they're going to ship ATX with every car they ship. which is a bold move, but I think it's the right choice. Here's how we look at it. Historically, the AT128 series was mostly on the relatively higher-end trim of the car with more advanced ADAS functions. We call them the functional parts, meaning that if you pay for the price, you get more functions. But now with the penetration rate and the public awareness of the AEB function, automatic emergency brake, What's happening is that people see that more as like an airbag seatbelt type of a product as opposed to something that with additional function. Now it's something with additional safety. This is a very pivotal moment for the industry because look, if you're buying LiDAR because you believe and it's true that you're getting additional safety, It's a pretty difficult decision when you decide not to take a LiDAR. It's like when you have an airbag that you decide not to take because of the price reason. So that's the biggest reason a lot of the people are expecting the ATX to be a much more affordable product than AT128P, which is, of course, the case. And also, a lot of people are expecting the penetration rate dramatically increase as we ship.
spk03: And in response to your question, Tina, I understand many analysts would be interested to explore more information about the ASP and volume of our ADAS products. So let me share some more insights on this. So in 2023, our ADAS LiDAR ASP is around $500. And in 2024, as we got it before, the AT series LiDAR, which is the ADAS LiDAR, the ASP will be below $3,000 as we got it. And that... that shares the same view as we want to make the LiDAR business as a long-term and sustainable business. So our ASP is in a very healthy range. And in 2025, because we are going to start production of our ATX product, which is a more value-to-cost product, but we still expect that in 2024, it would be just the beginning of production of the ATX product, which means that the original AT-128P product will still account for the majority of the shipments in 2025. And the total LIDAR shipments we expect in 2025 will be over 1 million units. And in 2026, I think the ATX product, which is the higher value-to-cost product, will account for the majority of ADA's LIDAR shipments. And in 2026, we expect the total LIDAR shipments will be over 2 million units. So hopefully that will answer your question. I would like to say something about the industry trend. So we are witnessing a very rapid increase in the adoption of LiDAR. So this is driven by the swift development of the intelligent driving functions and a growing awareness of safety among the consumers. So both factors actually significantly contribute to the widespread acceptance of the LiDAR. And while cost remains a very crucial consideration for these OEMs, I would like to say that it is not the sole determinant I think the paramount or the priority of the OEM is still to get the optimal value-to-cost ratios, where the value encompasses not only the product, but also the performance, the reliability, and the mass production capability we have. And these are the areas where we or the HRSA excel. And a good example is our customer's latest car model. So the car model was even priced below $150K, but it now features a LiDAR configuration. I think that is a good trend, and we are very confident that in the next year or two, more and more of our OEMs will go into SOP phase, and that will bring our shipment of the LiDARs to go to the next stage of development.
spk09: Thank you very much, David and the UN team. Thanks.
spk07: Thank you, Tina.
spk00: Thank you. The next question comes from Bin Wang from Deutsche Bank. Please go ahead.
spk01: Okay. My question is about the assumption for your break-even in the number four quarter. Can you provide, for example, the volume assumption in the number four quarter and the gross margin? Is that the break-even being driven by the huge amount of the low-bought taxi rider So that's number one question. And number two is about the product. You mentioned it's 18 OEM on the tier one. So can I know if 17 OEM on one tier one or if 18 OEM with another additional tier one? And especially for the Meridi, right, if you go to Beijing Auto Show, we found that Meridi lights actually based on a BMW vehicle. Can I assume you actually indirectly supply to BMW via Meridi? Thank you.
spk04: So I will answer again the second question first. So we do work with Morelli as a publicly announced collaboration in which we put in a lot of innovation to try to integrate the LiDAR into a headlamp. And it's actually very smart in the sense that you can do multiple configurations at the headlamp one or two Looking at it forward or tilted sideways, and that it has the benefit of ease of cleaning and installation. It just makes a lot of things easier, especially for Western, like European-American OEMs. Not having a light or sticking at the top of your vehicle is actually helpful. I would argue the China market probably thinks a little differently. But for the European and American traditional car makers, they do it by not having to deal with the roof-mounted LIDAR for the ease of installation reasons. But it was just a demo kit that Morelli built. I would not overread that because, you know, the headlamp has to be installed on any car, and it does not necessarily mean that this will be the... the decision and the OEMs that we are already have contract with. So I would not over read that.
spk03: And let me clarify that Morale is not currently counted in the number of 18 OEM and tier ones. So when we talk about 18 OEM tier ones, they are largely customers of us who we have to deal with. And also, in response to your question about the fourth quarter, so for the fourth quarter we are expecting more than 200K units of LIDARs to be shipped with a very healthy gross margin level. So we guided for the four years the gross margin will reach the high end of 30% to 35% range. that will be applied to Q4 as well. And by Q4, we are expecting to reach the gap level profitability. And for the fourth year, I think the operating expense overall for the entire year will be very healthy, and we are adopting very effective expense management on this. So we are expecting, conservatively guiding, we will be having 10% to 15% of operating expense increase And that will be coming from around 10% to 15% increase from the R&D. I think GMA will be relatively stable, and sales and marketing account for another 10% or 15% of increase. So by the fourth quarter, because the fourth quarter will be our largest quarter during the year because of the seasonality, so we're expecting the profitability will be achieved in the fourth quarter.
spk07: Thank you.
spk00: Thank you. The next question comes from Jesse Lowe from B of A. Please go ahead.
spk10: Thank you, David, and thank you for taking my question. So first question we'd like to ask about our other clients that are supposed to SOP this year, because I understand that we are lowering the number because of our large clients, but then how about the other clients such as BYD, SIC, Xiaomi, Chang'an, Limotor, Greatwater? That's my first question.
spk04: Yeah, thank you. So again, I want to quickly remind people that we're really shipping with a large number of OEMs this year, especially Next, right? And a few of them, we didn't have the permission to mention their names, but you have LiAuto, you have Xiaomi, Chang'an, Great Wall, Leap Motor, Lotus, Neta, Nezha, and ROX, Jishi, and SIG, GAC, FBW, and quite a few other JVs that we haven't announced yet. So the aggregate amount for this year is pretty special, especially if you're – it's I think it's public info that quite a few OEMs, especially like Xiaomi, is getting a lot of traction, and we definitely expect significant volume from Xiaomi as well this year. And we're also very hopeful for like China and Great Wall, and they're all shipping this year. And so, again, when you add them up, we are pretty confident that we will deliver the number we expected.
spk03: Yeah, and on top of that, for the four-year 2024, I think for the volume guidance, Li Auto will still take the majority of our ADAS shipments in 2024. And for the Tier 2, there are several companies, including Xiaomi, Chang'an, Great Wall, Leaf Motor, and also the large EV maker.
spk04: Yeah, there's also another large EV maker that we didn't specify the name for, right?
spk03: Yeah. And each of the companies in the Tier 2, as we just mentioned, will account for around 20 to 100K units each. And the Tier 3 companies, as just David mentioned as well. So added up together, I think these ADAS clients will deliver around 450 1,000 units of LiDAR in 2024 and adding another around 30 to 40K or some number around that, we will have total shipments in 2024 to reach over 500 units of LiDAR to be shipped.
spk10: Got it. Thank you. And then also my second question is about is there any update on the DOD list and our lawsuit and then how much of the lawsuit expense are we expecting right now?
spk04: Sure. So you're talking about the 1260H, right? So I have an answer for you. Following the company's inclusion on the CMC list, Hasai has faced significant challenges. Additionally, Hasai has been the focus of intense media scrutiny, which has, at times, inaccurately portrayed our business activities. These developments highlight the urgency and importance of addressing and rectifying the situation to mitigate the impact on our operation and the stakeholder confidence. It's clear the misinformation spread by some of the competitors before found their way to the government agencies. With our continuous effort to clear the facts, we have successfully convinced the U.S. government and its agencies to revise their evidence containing certain misinformation about HSAI, and those revisions have been updated publicly. We'd like to clarify and emphasize again that HSAI has strictly operated within the civilian sector and has no connections or affiliation with any military. Our products are designed exclusively for civilian application and are not designed or validated for military use. We remain undoubted in our commitment to developing market-leading LiDAR technologies that reduce accidents, save lives, and make mobile transportation safer for everyone. protecting the interests of our shareholders remain our top priority. We filed a lawsuit to defend ourselves. We seek to open dialogue with UD to better understand why they added us to the list. Ultimately, we want to understand their concerns and are very willing to find a mitigation solution together. The lawsuit is ongoing because we are, because of Because of that, we are limited in what we're able to discuss at this time. We'll continue to keep our shareholders and investors updated on any significant development. I hope this answers your question.
spk10: Okay, got it. Thank you. Thank you.
spk00: Thank you. Once again, to ask a question, please press star 1 on your phone. The next question comes from Shang Yu from Huatai Securities. Please go ahead.
spk06: Thank you for taking my question. My first question is about the robot tax error. We noticed that Tesla is about to release the robot tax on August. What do you feel about the robot tax in that year? Is it warming up in the third quarter or the fourth quarter?
spk04: Sorry, you asked about Tesla, right? And can you repeat the second part of your question?
spk06: My first question is what do we feel about the normal tax industry? Is it warming up in the third quarter or the fourth quarter?
spk03: Excuse me, John, would you mind if you repeat your question in Chinese and we can answer in English?
spk06: Okay. I think as of now, we didn't...
spk03: guide specifically for the RoboTaxi business in the second half of the year. But overall, for the entire year of 2024, we believe that the RoboTaxi business overall accounts around roughly half of our total revenues in 2024. And in the RoboTaxi business, we are seeing a very fast-run path of the non-US business. That includes some of our leading level four players, such as Baidu and Pony AI. I think for one of the largest US clients we had, I think for them we are seeing a good positive update, seeing that they are reopening their testing rights. I think that's a good sign, but as of now we didn't account the potential upside in our current guidance.
spk04: So I would answer in a slightly different angle. First is that the fact that Tesla is spending effort in trying to bring RoboTaxi to a more general public and even possibly in China is a good sign. And it's been consistent with what Elon has said and their strategy of believing that in the end, the biggest product company biggest productivity boost is coming from RoboTaxi, right? So they're maximizing that. It does not necessarily mean that we will use LIDAR, but it's pretty clear that they believe there is enormous amount of value being created in this industry. And we are seeing steady development, not the exponential growth for the robotaxi industry globally as people were expecting a few years ago, but it's a steady development. What I do want to point out is that when we talk about robotaxi, it's a fluid concept in the sense that if you're only talking about steering wheel-less, people-mover, that type of robotaxi, that's really just one kind of application. What we see today across the globe on the industry is that you can really just do quite a few level four applications without using the strict concepts. For example, there is robo-truck, there's robo-sweeper, there's robo-grocery delivery box. And if you use that more stretch the definition of robo-taxi, Those are all growing steadily. We're actually seeing a lot of volume increase this year on those type of applications in which you need a slightly lower performance LIDAR, more affordable, but they have bigger volume and the practicality of those technological products are much more tangible than the most challenging application, which is a people mover. So if you look at Robotech taxi as a whole, we're actually pretty optimistic that this market will steadily grow. But I wouldn't necessarily say we're counting on Q3 or Q4 because we're the biggest player in this industry already. We expect the industry to steadily grow.
spk06: Okay, thank you. My second question is about My second question is about AT512. We see the performance of the AT512 is really strong. Is it possible to replace the QT in the Robotaxi?
spk04: Yeah, I think the answer is clearly yes, right? So if you're saying that, you know, do I always expect RoboTaxi to only use Bineliner? I don't think we ever said that. The truth is that if you look at the latest product launch of the Baidu RoboTaxi, Baidu is also a long-term partner and has been the investor, they actually use our AT128 series. And then I think they publicly said that they are expecting to deliver over 1,000 robo-taxi vehicles. So first, I hope this helps your assessment of the situation. Then AT512 is a much more powerful product than 128 in two regards. One is it has eight more times of resolution going from... And the second one is it is expecting to exceed 300 meter range. I think what's more interesting as we see is that If you look at the name, it's all AT because it's the similar architecture of 1D scanning. So the beauty of our architecture is that we could go with a more affordable model, which is ATX from the AT128 platform, and we go the other direction of AT3D. 512, which is a much more powerful product, also with the same platform. So I think the takeaway is that, I publicly said this, everybody wants to ride on the wave of the Moore's Law. But if you carefully read what's in the Moore's Law, there are really two ways to do that. One is you keep similar performance and over every 18 months or even shorter amount of time, you can halve the price. Or you can keep the similar price level and then you can greatly enhance your performance. As I said, eight times resolution with a similar price range, which is of course 85 to 12. And then we expect the higher end 8512 platform to be widely adopted for the Western, the European, the American OEMs for their Level 3 application. And we expect the ATX to be the affordable model. It's little brother to be widely used by the COEMs Level 2++ applications. And we're very glad that for both assumptions, we already have enough data points as design wings, both globally And especially in China, there are many customers have already decided to pick us for the ATX. So I think the more laws of implementation in both paths are already being fully validated.
spk06: Okay, thank you. That's all my questions.
spk04: Thanks very much.
spk00: Thank you. The next question comes from Michelle Jing from HTI. Please go ahead.
spk08: Hi, everyone. This is Michelle. I'm so excited and appreciative to hear our wonderful performance and also our innovation. And my question is kind of based on the questions from the previous analysts. As you talked about, penetration rate increased tremendously, and we expect more later products that are going to be used in 100K to 150K products. price of products, so vehicle models, I mean. So as you previously talked about the price expectation, can you please share how does the company view and respond to the future competition? And on top of the competition, can you please talk more about your future cost and scale optimization strategy and just strategy in general? Thank you.
spk04: So your question is on on the price competition becoming more intense as we dive into the category of below 150k RMB, how do we fight this competition as a company strategy-wise, right? So I think the biggest problem strategy we have on this is internalization and in-house ASICs as we always explain, right? So, China market is very interesting in the sense that it's almost relentless in wanting something that is even slightly cheaper. There is no secret on that and we have to address that and we have, right? So, and instead of just losing money to win business, we work on innovation to own our supply chain and to continue to have better integration and internal development to reduce the cost to return to the reasonable margin that we're expected to be at. I think I'm pretty confident confident to say that we are on the right path and we were the earliest one in trying to do that in the industry and we've gone the furthest in the internalization rate of our product as well as just the sheer amount of development on the number of semiconductors we have as a company. And on the other side, I do want to point out that price isn't the only factor in any competition anywhere else, even in China, because if you only want something that's extremely cheap, you really just don't have to use lighter. Why do people use lighter at all? So I think the reason for most OEMs is that they want to build a car that is either really smarter or at least perceived to be smarter as intelligent driving. For that reason, being able to tell your customer, the OEMs being able to tell your customers that we are equipped with Hosei LiDAR, with the highest performance in the industry, with the biggest brand, and this is also the similar platform that most of the world-renowned car makers are using. As we said, we have collaborations with six out of the ten players in different forms. That is actually very helpful to Chinese customers. So instead of asking the OEM to pay for it without the justification, we try to see as a way to help promoting the OEM's product. The money they pay on LIDAR is supposed to give them a ROI of multiple X because they can recoup the investment by having a much better vehicle volume sales. So I think that's the goal. And for that reason, we need to control our costs first, and in the same time, continue to build our brand and continue to expand globally to make this product the go-to LIDAR for every vehicle. And then in the end, we will be able to penetrate, hopefully, to all of the passenger vehicles.
spk08: Thank you.
spk00: Thank you. That does conclude the question and answer session. I'll turn the call back over to the company for any closing remarks.
spk03: Thank you once again for joining us today. If you have any further questions, please feel free to contact our IR team. This concludes today's call and we look forward to speaking to you again next quarter. Thank you and goodbye.
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