At the end of October the state of California ordered autonomous robo-taxi hopeful Cruise “to immediately stop operations of its driverless cars in the state.” I guess rolling over a struck female pedestrian and then stopping on top of her was something that had yet to be considered in the cars programming. Cruise would eventually be forced to conduct an investigation and halt operations, and a few days ago announced some rather drastic layoffs. Anyways, it turns out that a recent Chinese IPO called Hesai Group (HSAI) is the dominant supplier of LIDAR and ADAS systems to the autonomous driving world and services customers including Cruise, Zoox, and Aurora (and a host of other names I have never heard before). That Forbes piece cites some studies that think the overall market (including both autonomous and driver assist modes) will expand 15x over just the next 5 years from around $400M to over $5B. With HSAI the dominant player commanding two-thirds of the fully autonomous driving market and around maybe a quarter of the driver assist market, and should HSAI somehow be able to maintain those market shares, that would mean a revenue ramp over the next few years into the $1.5B range from 2022’s $175M. With a total of maybe 135M or so fully diluted shares outstanding at around a $9 stock price, that gives this company a bit over a $1.2B market cap and around 5x expected FY 2023 revenues. Slap a 5x revenue multiple on 2028 revenues and it should be off to the races, right?
The first rule of any competition is you have to play the game. Q1 2023 revenues were $62.6M, up 76% year over year. In Q2 that number was $60.7M or up 108.5% yoy. Q3 was $61.1M and 33.5% yoy. Sounds pretty flat for something that’s supposed to be going bonkers in just a few years. Q4 guidance points to a $75M quarter, also up only about 33% year over year. Perhaps the revenue ramp will prove to be one of those out-year stories?
Will Q4 shipments expand at all? Total LIDAR shipments in Q3 2023 were 47.5K units, flat with Q4 2022’s 47.5K. Q2 2023 shipments were 52K, and if they plan to hit their revenue target and assuming they can keep the same average unit economics, they will have to ship around 58K units in Q4.
More dual-class listings. The 3 main founders behind this thing own around 25% of the equity but have 75% of the voting power. German industrial giant Bosch owns around 7.6M shares as well.
More than half of 2022’s growth came from a single OEM. Like most Chinese outfits, they don’t file real quarterly reports so there isn’t anything regarding customer concentration on a quarterly basis, but 2022’s revenues contained a new 24.3% customer that supplied over half of the revenue gains vs. 2021.
Unit economics appear to be declining. In Q1 if you divide their total LIDAR shipments by revenues, you get around $1,800 per unit. In Q3 that number declined to around $1,300 per unit.
Gross margins follow. Gross margins in Q1 were 38% while they were 31% in Q3.
And the losses continue to rise. If you imagine a world where stock-based comp isn’t a real thing, back in Q1 2023 the company would have been about break even, while in Q2 2023 the losses widened to $5.6M and in Q3 they stood at $14M.
Geographic distribution shows a high reliance on Chinese auto OEM’s. Again, the company doesn’t break out quarterly metrics, but 2022 North America revenues were basically flat with 2021, while Europe was up around 30% but off an extremely low number. Chinese revenues, meanwhile, were about 2.5x higher. In 2021, by the way, North American revenues were actually higher than Chinese, while in 2022 that completely reversed and Chinese revenues were almost double.
LIDAR vs. RADAR. RADAR would be preferable were it available and cost effective. There are companies trying to make that happen, so the science and technology don’t appear to be settled.
New LIDAR announcements expected at the upcoming CES show. Companies such as Aeva and RoboSense have some new LIDAR designs and capabilities in store for a CES unveil.
I have enough bullet points to make up a story on these folks, but I still lack a sense that they’re actually behind on the technological curve which should continue to translate into flatlining/declining revenues and thinner margins and bigger losses. Another couple of quarters should give us some more visibility. They may have been quick out of the gate, but that doesn’t always mean they will be a long-run winner.
On the plus side, HSAI has a stable of A-list underwriters, including Goldman, Morgan, and Credit Suisse, so unlike most of the recent Chinese IPO’s out there, these folks have some real analyst coverage along with some decent liquidity. Perhaps those underwriters can make some introductions to additional non-Chinese OEM’s so they can gain some traction in the rest of the world as well.