Luminar Technologies Inc (LAZR) 2022 Q2 法說會逐字稿

Well, I hope everyone enjoyed the video. Similar to last quarter and in the spirit of continuously improving our shareholder outreach, we'll be addressing some of the top questions submitted online on the Say platform at the end of our prepared remarks today, followed by analyst questions.

Before we begin the prepared remarks and Q&A, let me remind everyone that during the call, we may refer to GAAP and non-GAAP measures. Today's discussion also contains forward-looking statements based on the environment as we currently see it, and as such, does include risks and uncertainties. Please refer to our press release and business update presentation for more information on the specific risk factors that could cause actual results to differ materially.

With that, I'd like to introduce Luminar Founder and CEO, Austin Russell.

All right. You guys hear me okay? Sounds good.

Perfect. Cool.

Well, thanks, everyone. And we're actually here live from Orlando. So with the -- just give me a moment, and we'll get everything ready to go.

Okay. So well, first off, yes, just welcome everyone. Like I said, we're live from our headquarters here, needed to -- and from -- thank you, Trey, as well for giving some of the comments. Hopefully, the video was helpful in giving a little bit of context in terms of what we've been doing and the latest from the path of production. Obviously, some new, exciting stuff. But jumping right in, I think we can go into this, that since our last update, we've remained intensely focused on execution, leading up to the series production launch by year-end. So I'm proud to say that we remain on track to meet or beat each of our 4 key 2022 company-level milestones, which Tom will be outlining in greater detail here next to me in a few minutes.

So as we continue to successfully prove ourselves to major automakers, our traction is continuing to be able to accelerate as they build further conviction and expand business with us. So as a result of the strong execution to increase customer demand, we are increasing our commercial and financial guidance for this year, including increasing the growth rate from 40% to 60% for both major commercial program wins as well as our forward-looking order book metrics.

So that's already actually a 50% increase in growth rate than what we were expecting, which I think it was actually pretty strong in the first place as well. But our performance may come as a surprise considering some of the broader macroeconomic headwinds this year, with a market downturn impacting many of the cutting-edge technology companies the most. But with most of the autonomous vehicle industry centered around driverless global taxis facing challenges, I think the critical part is that Luminar has had a different strategy and different market the whole time, addressing the existing multitrillion dollar consumer vehicle market and using autonomous capabilities primarily for safety and improving the driving experience rather than just trying to replace the driver altogether for ridesharing purposes, as many of you guys know.

So as a result, our business economics and the overall market are well on track and accelerating and showing no signs of slowing down, so in a world where there's been a lot of overpromises and underdelivery as we aim to be the one that will overdeliver on key commitments.

So doing a little bit of a deeper dive on a few of the drivers and highlights this past quarter. Number one is on execution. Number two is scale and number three is technology leadership.

So first, execution. Our progress execution on Iris, Sentinel and commercial programs remain strong. The biggest effort and focus right now is on industrialization of Iris and execution of the key customer programs leading up to the launch of Iris and series production by year-end. In parallel, we're also successfully executing against our plan for developing Sentinel, our software solution for proactive safety and highway autonomy capabilities. We have a bigger update on this front next quarter as we approach our release for the beta version of Sentinel.

On the OEM program front, our teams are focused intensely on program execution to support the multiple OEM partners that we aim to prepare for launches with over the course of the next 24 months. In Q2, we successfully completed the first phase of the series production program and associated milestones with a major OEM. Our automakers continue to be encouraged by our progress and are counting on Luminar to power the future of their technology road map, including next generation safety and ultimately autonomous capabilities.

Another market that's continuing to rapidly develop that has a lot of potential for us is China. So we're expanding our presence in China significantly and investing to win. So we've been working closely with the large automaker there, SAIC in Shanghai. And in Q2, we also partnered with ECARX, a mobility tech company affiliated with the Geely Group and associated brands, which will help accelerate our presence in China and even beyond.

So secondly is scale. Following the successful execution of product industrial and product industrialization, scale is that next critical phase. So prepping for large-scale manufacturing of a complex product takes a significant amount of lead time, capital and some of the brightest minds to make it all come together and work. So following some of the increased customer demand, as we saw in the video, we're now expanding and expecting to build a dedicated high-volume manufacturing facility to expand upon the existing facility with our contract manufacturing partners.

For the new facility, we're now building a highly automated manufacturing line in partnership with Calvary Robotics to enable the build capacity of up to 250,000 units per year with the initial line. The scale initiative adds to our existing capabilities of capacity, which includes the expanded pilot line which our advanced manufacturing team we have here in Orlando is working on. And the series production facility in line, we already have in place at Celestica in Monterrey, Mexico. We remain on track to be series production ready by the end of this year with the capacity to support our customer programs and bringing online the dedicated, highly automated facility for high volume starting in the second half of 2023 to achieve exponential scale. Of course, Iris is the first-of-its-kind automotive technology, and we have to not only perfect the product, but also the means of producing it at scale. It's a massive undertaking, but we've successfully assemble the right team and the right partners to make it happen.

Third, we are also attracting key industry and top industry talent. And in Q2 alone, we actually ended up adding to our strong depth of talent, including industry leaders from much larger automotive and technology companies. A couple of examples, as we welcomed Taner Ozcelik as an EVP and GM, who previously guided NVIDIA's automotive business; and our new VP of Software, CJ Moore, who previously was a Director of Autopilot at Tesla and Director of Autonomous Systems at Apple, among recruiting other industry leaders.

So they've already jumped right into advance the strategy alongside the broader team and continue to drive the critical execution, and just wanted to thank them for their continued dedication and focus, along with the broader team.

So in conclusion, sum it up before handing it off to Tom here and taking it through some of the business milestones and financials. It's important to note, we're really all in to deliver our long-term vision of saving lives and powering the future of safety and autonomy as the 100-year vision that I had mentioned on the last call, all consistent with that, all rolls up to that.

And second is that our company is also largely unaffected by the broader macroeconomic market headwinds and a slowdown in cutting-edge tech. Our execution is strong, our balance sheet is strong and our market is accelerating. And as I've said before, we believe the market to be set up for a winner-take-most or winner-take-all type scenario. And I think this is more true now than ever. And on the backside of this tough market, it will only accelerate what I believe with the leadership and broader market adoption. And we have the customer programs, the talent, the technology and critically, the cash runway needed to be able to continue to execute and win.

Now with that, I'll hand it off to Tom to discuss our quarterly progress on the 4 key company-level 2022 milestones we outlined at the beginning of the year as well as our financials for the quarter.

Thank you, Austin. I'm going to start by reviewing our progress towards our 4 key 2022 milestones. Our first goal is to achieve series production readiness this year, and we are on track to achieve this goal. We are currently preparing for series production launch at Celestica's existing facility in Monterrey, Mexico using the existing production line they have. Concurrently, we are preparing a new dedicated facility which Celestica will operate for us in Mexico to meet increased demand. This new dedicated facility and automated line Austin discussed earlier are expected to come online in the second half of next year.

Second, on the software front, we remain on track to achieve our goal of releasing the beta version of Sentinel by the end of the year. In Q2, we conducted live drives at TechCrunch Mobility, demonstrating the higher confidence detection and collision avoidance capability of our proactive safety system compared to today's camera and radar-based ADAS system.

Our third milestone is to grow our major commercial win total by at least 40% this year. We feel very confident about exceeding this goal and are raising this milestone to 60% growth this year or at least 5 major commercial wins.

And finally, we are also raising our forward-looking order book growth this year from 40% to 60% based on the strengthening demand we are seeing from new and existing customers.

Let me turn to review our financial results for Q2. Revenue for the quarter was $9.9 million, up 57% year-over-year and coming in ahead of expectations due to continued commercial momentum, driving program revenue as well as increased sensor and component sales. For the quarter, we reported a gross loss of $10.9 million and COGS of $20.8 million on a non-GAAP basis. A majority of our COGS expense this quarter was from R&D expenses associated with program development revenue and fixed manufacturing overhead. As stated previously, these factors inflate our reported COGS and gross loss at this stage and are not representative of production unit economics.

Our Q2 cash spend was approximately $56.5 million. Cash spend was up sequentially from Q1 due to working capital investments we made during this quarter, increased industrialization expenses and the lumpiness of cash received from OEM contracts in the first quarter of this year. Year-to-date, we also spent $81 million in cash on share repurchases and an additional $6 million on M&A.

We ended the quarter with $605 million in cash and marketable securities. This liquidity position leaves Luminar with multiple years of runway at our current net cash spend range, which we expect to decline as revenue ramps with series production.

We are not pulling back on the investments we need to make to reach series production and achieve our strategic growth plan in this tough environment, but we will continue to be very disciplined in how we deploy our strong balance sheet.

I will now update our full year financial guidance given the better-than-expected commercial momentum we are seeing for both this year and in the future. We are raising our full year revenue guidance to a range of $40 million to $45 million, up from $40 million previously. Given the lumpy nature of program revenue, we expect Q3 revenue to be in the $8 million to $10 million range. We maintain our full year guidance that net cash spend will be moderately higher than last year's total of $155 million as well as our year-end share count guidance to be in the mid-360 million range.

We maintain our guidance for our operating loss for the year to be higher than our cash spend. Consistent with our comments from last quarter, we expect our non-GAAP EPS loss to continue to increase sequentially this year and be in the low $0.20 range for both Q3 and Q4 as we continue to invest in our business to prepare for series production.

To conclude, I would like to thank the broader Luminar team for another great quarter. With that, back to Trey for Q&A.

Thanks, Tom. We're going to start the Q&A with a few of the questions that we received on the Say platform, and then we'll move to analyst questions.

Austin, Tom, the first question is really kind of a combination. We got several questions about commercial momentum in the Say platform. I'll hit kind of these 3, but maybe you could talk to them in total. Any partnership with Lucid, Tesla on the road map? Is Luminar going to do business with Apple? Is the partnership with Mercedes-Benz still in place? And if so, what is the status?

Yes. So I think we can jump right in on that. So I think I probably have to be careful about commenting on specific customer or prospective customer programs here. But what I can say is that in the case of those ones that were mentioned, that we have publicly announced Mercedes as a major commercial win for us. And not only is it still in place, it's continuing to progress. And our work with them, along with other OEMs, as we've broadly indicated, has largely been accelerating, hence increased guidance, other things across multiple factors.

So I would say for the OEM programs from automakers that we've announced, we are continuing full speed ahead. And that's what a lot of the execution work is all going into successfully execute on these key customer programs.

So making good progress. The feedback on industrialization has been good. But I think it's also important to remember that when we do these kinds of announcements, anything here, it's usually more the OEM that's driving it as much as anything we have to do these jointly. It's -- we don't randomly announce something on our own. It's usually a sanctioned, or in pretty much effectively every instance, a sanctioned announcement as part of this, and that's a really important one for being able to establish credibility at -- usually at a reasonable program stage of where we see sufficient confidence that it will have the opportunity to be able to reach series production. So I think we take a more conservative approach in that domain, but I think it's an important one.

So -- and again, we already have a couple of major wins this year with Mercedes, including as well as Nissan as well too, for that matter. So we're continuing full speed ahead along with nearly a dozen other types of programs. But this is where we see the guidance increasing here, and that's -- hence the increase from 40% to 60% growth.

Great. Thanks, Austin. Tom, I think the next question is probably for you, and it's really, when can shareholders expect to see Luminar profitable?

Yes. Good question, Trey. Just zooming back, the environment that we've really seen in the equity markets, particularly for new technologies over the last 2 years, reminds me a lot of the dot-com bubble and the dot-com bursting that we saw 20 or so years ago. During that period, a lot of companies went public, many of them that probably weren't viable as public companies. And then when you had that bubble burst, it really separated the winners from the losers. And the -- many companies that went public toward that period ultimately ended up going away. And those companies that survived had 3 things in common. One is, they had credible near-term revenue opportunities; two, they have the right team in place to execute and deliver on those revenue opportunities; and three, they had the balance sheet and the cash on hand to reach that revenue that would deliver them profitability.

When I look at Luminar today, we have that credible near-term revenue opportunities from the series production awards that we have on hand in reaching series production readiness at the end of the year. We have the team in place and we have the resources in place, and a lot of that we talked about earlier on this call. And then three, most importantly, we have the cash on hand plus a healthy cushion to allow us to reach profitability, which we expect to reach in the next few years. Unfortunately, a lot of these companies, and this is my personal opinion, that have gone public over the last couple of years, I don't know if all of them are going to survive, but I know that at Luminar, we will, and not only we're going to survive, but we're going to thrive as well.

Great. Thanks, Tom. I think -- Austin, I think the next question is targeted for you. Where is Luminar currently with their partnership with Volvo?

Yes. So I think it's important to note that we're successfully executing to the Volvo program partnership and milestones and on track to achieve the remaining program milestones, leading up to successful launch and ramp capacity associated with the program.

So just as a recap, we started working with them quite a while ago, initially, discovering Luminar before we came out of stealth mode back in 2016. They were really ahead of the game in terms of being able to plan this out. And that was where by the time, after a significant collaboration for -- over a period of years, we had jointly announced in 2020 the partnership and the major commercial window (inaudible) the next-generation XC90 vehicle with next-gen safety and highway pilot capabilities.

Then subsequently, in 2021, this past year, Volvo announced that they are really taking a much more aggressive position in the industry and kind of bucking the trend of having -- of introducing technologies as options. And actually making it for the -- which I think came to the surprise of many, the standard on the next-generation XC90 vehicle, which would be the flagship vehicle, and I believe, best-selling one.

So that's -- and then, of course, as that progresses, the intent to scale further. So pretty cool to see the progression there, and that's that we remain confident that relationship will continue to grow, and they've been doing a great job of industry leadership.

Great. And maybe the last question from the Say platform, and then we'll go to the analyst questions. Will Luminar benefit from the current chip bill that's been passed and moving to presidential signature tomorrow. And if so, how would Luminar use that?

Yes. So Trey, when we read the bill, which, as you said, is expected to be signed tomorrow, we do see some interesting potential opportunities for us, particularly with regards to some of the recent acquisitions we've made to vertically integrate. And so as that bill is ultimately passed, hopefully, with the President's signature tomorrow and then as the commerce department sets the application rules, that's something that we're going to be following closely to identify what the opportunities are for Luminar and exploring them to see if they make sense for us. This is not something that we need to execute upon our plan, but it is something that could allow us to accelerate some of the development plans that we're currently exploring.

Great. And I just want to say thanks to the over 500 people who participated in the Say platform this quarter. It's great to see all the interest. We'll continue to use this as a platform to increase shareholder engagement with all of you.

And with that, let me...

I was actually even talking with Trey, at some point, it could even make sense so we can even do like a dedicated session, because I saw there were like 100 questions that were asked there, too. Maybe it's some of the point we wouldn't have time to go through that with an earnings call, but I think it would be cool to help answer more. But good questions all around.

Thanks, everybody. So with that, let's transition to our first analyst question, and the first question is going to be from Itay Michaeli at Citi.

Just 2 questions. First, I was hoping you could expand further on the higher guidance for the forward-looking order book. To what extent is it coming from new customers, new wins as opposed to existing customers going to be increasing the forward take rate assumption? And can you even share if there are any unannounced wins within that outlook?

And then just second, on the new manufacturing plant, hoping we could dig a bit more into a couple of things. First, just CapEx requirements for that? Implications to gross margin as well as just total capacity once that plant comes online for 2024, 2025? And that's all I had.

Great. I'll take the order book and then do you want to take the new plant?

Yes. Okay.

Great. So Itay, when we look at the order book growth rate, so we're increasing it from 40% to 60%. And as a reminder, that's where we expect it to be at the end of this year. So we started the year at $2.1 billion, and so we're expecting at least 60% of that growth there. That's coming from, I would say, both new customers, both kind of ones that we've kind of talked about earlier this year as well as whatever other ones which could happen by the end of the year. But it's also coming from existing customers that we're working with and giving us new volume that they want us to be prepared for as well as new vehicle programs. And so by the end of this year, I'm sure we can talk about that in more detail, but that growth is coming from both of those sources.

The CapEx for this new plant, a lot of that is baked into the guidance we have already. I think most of the cost to build out that plan, putting clean room stuff like that as well as the automation equipment that, that line is going to go into, a lot of that is baked into our spend for this year. And so that's baked into the guidance we've given. And so maybe some of that spills into 2023, but I think a lot of it's going to be this year.

Yes. And I think it's fair to say that this is not a huge surprise totally out of nowhere that the customers are going to want increased volume from this. The -- been talking in theory about it for quite some time, but we're seeing more and more of it materialize at the table. That's why we're pulling the trigger to really accelerate this and get that dedicated facility with this. So as I said, unfortunately, this is not something that -- it's like an automotive factory that require -- or like a car factory that requires billions of dollars of investment. But it really is years' worth of work from our advanced manufacturing team that we started investing in back in -- really, 2017 was really when we started scaling that up of all the work that they've done around automation process and all this stuff and now actually seeing it materialize, not just with the primarily manual work that happens with our manufacturing partners now, but in a fully automated or mostly automated line. That's where we can really get the huge capacity.

And from there on out, with the capacity -- the build capacity of up to 250,000 per year, it's linearly scalable as well. So we can continue to install additional lines to support additional capacity in Mexico or beyond. So that's an important one as part of that whole side of the game. And -- as I said, it is very, very challenging to get to an industrialized product, but it's also in parallel, challenging to scale it and be able to prepare for scale, and [length of this] stuff takes years. Here's where the work that -- so it didn't totally come out of nowhere, so to say, but the increased demand was the trigger to do that, those additional investments.

The next question is going to come from Josh Buchalter at Cowen.

Congrats on the results. The first one, I wanted to ask about the manufacturing facility as well. I think in the video, you mentioned the 250,000 units when -- at the end -- of total capacity. Is that sort of what we should be thinking for when it comes online and during 2024? Or is that a more ambitious target?

And then for my follow-up, I think you've given the $100 BOM cost per 1 million units. Right now, obviously, we have pretty tough data points on getting what your margins will be when you enter series production at the end of the year. Should we think of it sort of as a linear ramp? Or is it more catalyst driven to get to the BOM cost from things like integrating feeder photonics onto your next-generation lidar in their laser diode?

I mean I think the #1 part of all of this is that kind of as Tom was talking about, and this is right now, there's a significant amount of R&D-related expenses that get amortized into COGS as well as factory overhead that's effectively there when it's not in series production that still has to be attributed to units (inaudible). It's not -- it's really impossible to kind of lean into it today. So I think Tom can probably speak more about the BOM road map, but I think it's fair to say that we're -- well, we've publicly said a $500 target for Iris. And then ultimately, for what's ahead and beyond when you get to the 1 million plus unit, like basically 7-figure volumes per year, and that's where the long-term BOM (inaudible) remains at $100. So we're still tracking ultimately to the $500 and then over the longer term with the really high volumes towards that $100 as well.

So there's a lot of work that still has to continue to get done, but the key catalysts are -- obviously starts with the design of the basically single laser, single receiver based architecture, of the fact that we don't have a huge array of components that require that are extremely expensive, and that's part of the driver in getting the core component cost down, which we're really focused on. And then the commodities and the other parts of it really ultimately lower in cost as a function of volume. And that's the key to enable it.

So it's a combination of multiple factors there to -- that leads up to it, but like I said, not an easy one, but we've been tracking to it. And I don't know if you want to give any more color on what I'm talking about?

Yes. So Josh, I'll just add a little bit more color to what Austin said and then to answer your question. So we're not going to get any specific volume guidance for 2024 at this time. But I think it's fair to say that we're building this plan in installing capacity so that when we kind of reach that 2024 time frame, that plant has a pretty healthy utilization rate. The $500 BOM target, as we talked about on the call, that dedicated facility, we were bringing that online in the second half of the year. And so in the first full year production there, that's going to be critical to getting us to that $500 BOM target. The team continues to make very good process even in the challenged environment that we're facing to get to that target. There's still some work to do, but I'm confident that the team is ultimately going to get in that area for that period that we discussed.

The $100 target, as you said, that's kind of in the future. It's going to require that superscale 1 million-plus units that you referenced as well as introducing some other things on the technology front that we'll talk about at some point in the future. But for those core components that we have, particularly with the recent acquisitions, they have -- those help a lot to get us to that longer-term target of $100.

Exactly. And the key is the bets that we make today, these are the things that end up paying off a few years from now, ultimately. Like so these are bolder things like the vertical integration on components that gets cost down on time, all the different aspects from a technology standpoint. So -- but yes. I think that was well said on all fronts.

No, I very much appreciate all the detail, and congrats on executing in a tough backdrop, guys.

All right. The next question comes from Mark Delaney of Goldman Sachs.

First was on supply chain, hoping to better understand to what extent it's having any impact on Luminar. I mean you reiterated the view you're ready to be in series production at the end of the year. But when you think about the rate at which you can ramp and the magnitude at which you can ramp are there any impacts given some of the supply chain constraints that you're seeing?

Yes. Great question, Mark, and this is something that we monitor on a daily basis, not only for our supply this year, but as well as supply for next year as we reach series production. As we've talked about before, we have the supply base in place. We're ramping them up. Right now, we don't foresee any significant challenges for either this year or next year. But it's not easy out there. And Cheryl Zula, who runs our supply chain, does a very good job of finding the parts that we need and making sure that we don't run out of them. We'll -- this year, there are some expedition fees we need to pay or some premium freight to make sure that we get the parts there on time. But I wanted to say that any of those charges now are material to our financials, and we're hoping that they won't be next year as we reach series production.

Yes. And I think it's fair to say that for some of the hardest to achieve, most specialized components there, too, I mean we have those vertically integrated now at this stage. So that was some of the -- one of the key drivers as well behind, well we have Black Forest and OptoGration and Freedom and other parts that are critical. But yes, it's ultimately -- that ramp was -- would be more manufacturing capacity limited than supply chain limited, hence the build out now of the dedicated facility so that we can scale that up even further with the increased demand.

One more for me, please, if I could. Tom, you pointed out the strong balance sheet the company has and you're not going to hold back on investment, but you did allude to trying being a little bit more prudent with your spending given the capital markets environment we're in. I don't know if you'd elaborate more on what sort of things you may be trying to be a little bit more constrained on in terms of spending. I don't know, perhaps buybacks is something you've already done some. Is that an area we should be expecting you to cut back or anything else we should be thinking of as you try and be thoughtful with your expenses given the current environment?

Yes. So Mark, I think the words I used were continuing to be disciplined. We've been disciplined and tried to maintain that start-up mentality, as I said. Whenever we approve any major spend here at the company, our largest 30% shareholders in the room. So we kind of have that mentality as we have approached our spend. So look, we're not making any significant cutbacks. I know other companies are here, and we're going to continue to make the investments we make, but also do it and maintain that disciplined spending that we have. The $81 million that we've spent so far, that's completed our share repurchase authorization. And it's up to our Board if that's something that they want to replenish here in the future. But the existing authorization, we did complete that during the quarter.

Yes. It's tempting to just have a scenario where you could just use all the cash, just given the craziness of the market dislocation, just buy back. But that said, there's a balance on this. I'd say, yes, the reality is that our plans and strategy and everything is effectively unchanged when it's -- but are we being -- are we continuing to be disciplined or maybe even be more disciplined now? Yes, absolutely. And I think that's just a prudent thing to do more generally, but even particularly in this market. So we -- like we have more than enough cash to be able to get to where we need to go and more than enough runway and even ultimately getting towards profitability, but this -- it's still important to take that discipline.

Thanks a lot, Mark. Next question is from David Kelley at Jefferies.

Maybe starting with the commercial pipeline. You upped your outlook to essentially 5 major commercial wins for the year. I believe you have the 2, Nissan and Mercedes, year-to-date. So maybe if you can update us on where we are in that process and maybe what's driving the increased conviction into the step-up into the back half of the year here?

Yes, David. So we have 2 that we've already publicly announced for this year, which were Mercedes on Nissan. And when we kind of look at the existing pipeline that we have, we're very confident that we're going to get at least another 3 that we can announce by the end of the year. And so the conversations we're having with our customers, both the new and existing, are going very well, from our perspective.

And one important point as well on this, too, and I think this is a key distinction. And so what effectively every OEM will do is that when they -- when you talk about -- I mean people can talk about whatever they want ultimately when something is announced. But the reality is, is that OEMs will start with a single program usually with you as an option on this. And then as you prove yourself out, as you execute, as you do anything there, that was where we saw really for the first time us being standardized on, for example, the Volvo flagship vehicle.

What I think is particularly interesting, though, is that there's still so much opportunity now even just for the new customers. There's actually -- even with the existing customers, like even with no new customers at all, we can achieve already our multibillion dollar revenue and EBITDA targets by the end of the decade with just the existing customers by just equipping more programs on the vehicle side. So that's part of the interesting part. And that's where there's just a matter of focus of how can you get additional, like, go from one program that's kind of a key launch program to multiple programs. And those wins can actually be just as valuable, if not even more valuable than a new OEM because effectively, a lot of times it starts out on a lower volume, some of -- and then it goes in the higher volume. It depends on the OEM with something. But it's sort of the -- you start with the gateway. Obviously, working with the OEM in the first place is very, very challenging. But as you prove yourself, that's an important one. And that's one that we're going to continue to be focused on as well.

Okay. Got it. And then maybe just touching on the -- a few of the hires you've had in the last few weeks. How should we think about potential go-forward build out areas of opportunity for you? And then maybe we should think about the cost impact and modeling impact of some potential additional hires?

Yes. So David, when you look over the last 12 to 18 months, we've significantly increased the size of our workforce. And that's not only been in quantity, but the quality of talent we've been able to attract at Luminar has increased as well. And I think you see that represented by some of the new hires that we've made. We're going to continue to hire and grow and increase not only the quantity, but probably focusing a little bit more on the quality, particularly in this environment where a lot of other companies are going to be slowing back their hiring plans. We view this as an opportunity to go out and really hire high-quality issues. We're probably not going to double the size of the company over the next 12 to 18 months again because I think we have a lot of the resources in place, but there are still areas of our business that we're going to be investing in and growing. But once again, I think the focus is going to shift to making sure we bring in the quality as opposed to quantity at this point. So both will increase.

And I think it's fair to say that like once you reach a certain level, it starts to scale nonlinearly with program wins and other stuff there, too. When we talk about these major program wins it's very -- you need a certain sufficient level to get there in the first place. We talked before, it takes on the order of -- we've had to invest at $0.5 billion to get to like an industrialized product that could actually go into series production, even with the -- even following the technology of everything that it takes. But beyond that, it's very incremental in terms of what's required beyond that. So that's where you see a huge scaling effect of this and where we can have the massive R&D leverage from what we've already put into the business and the company today.

All right. The next question comes from Emmanuel Rosner of Deutsche Bank.

First, I was hoping to ask you if you could share a few more details about a couple of the agreements and partnerships you've already announced. First of all, the partnership with Mercedes, anything you could share in terms of timing, volume, platforms since we're more than halfway through the year. And then also anything in terms of the arrangement on your collaboration with ECARX in China. What can you share? What can you share with us?

Sure. So I'll take the ECARX one first, Emmanuel. So for those that don't know what ECARX is -- who ECARX is, ECARX is part of the broader Geely family. And we at Luminar view them as really the technology supplier and the technology gateway to the broader Geely family of brands, particularly those that have more of a China-centric focus. As you know, we're already working with certain brands that are a member of the broader Geely family, i.e., Volvo as well as Polestar, which are more of the more international-focused brands. When we look at our China business, not only did we have SAIC and Pony, but we view the opportunity to work, given our preexisting relationships with some of the brands within Geely, with the broader Geely family in China. And in order to, I would say, do that in the most optimal way, partnering with ECARX to take our technology, integrate it with ECARX's technology and deploy it to the broader family of the -- broader Geely family of vehicles.

So that's the purpose of our strategic partnership with ECARX in order to kind of take that strategic partnership and add an economic element to it. We invested $15 million -- or we will invest $15 million and that was part of the going public process. We're planning to do that with our stock. So think of it more as kind of like a cross shareholder -- or a cross-shareholder ownership between the 2 companies to do so. But we're doing it because we think there's going to be a very productive strategic partnership from the 2 of us working together. Do you want to take the Mercedes-Benz?

Yes. Yes, I think I can certainly say that I mentioned a little bit about Mercedes before there, too, but we announced the partnership actually just earlier this year. I don't think that there's anything fundamental that you can share other than it's continuing to progress, and we have a great relationship with those guys. I mean I think the key is that this is for their next-generation vehicle platform launch. You guys made may be familiar with Mercedes to date. They have their current platform that they're looking to achieve Level 3 autonomy and just a little bit incrementally better safety with the Valeo platform there with the lidar on the vehicle. And this is where we really come in to provide the next generation beyond that so that you can be able to enable proactive safety and highway autonomy type capabilities that's there, going beyond just kind of more basic traffic jam pilot type capabilities on the vehicle.

So that's ultimately what we're enabling. And we're moving full speed ahead. Working with folks like Mercedes, they have the highest standards in a very intense and very strict capacity as part of the site of probably anyone in the industry and they're the pinnacle of that. So the collaboration is great, and it's really helping on all sides to really drive -- take them to the next level and also take Luminar to the next level, for that matter, as well.

That's great color. And actually, a great segue also for my next question, which is a little bit about capability and the competitive environment. So I think in the quarter, we've also seen a fairly major other European OEM allocate some truly large sort of lidar business to another lidar player. And I wanted to know if you could provide a little bit of color around, I guess, why not Luminar? Not that I would assume that you would be a monopoly, but is it -- were they looking for different capabilities? Was it the price? Like any color you can give us in terms of where sort of like where are they going and why or why not you could have been a good fit?

Yes. So I think that this is actually -- funnily enough, this is actually not too dissimilar from what (inaudible) was just describing there, too, like in the Mercedes case. You have the initial vehicle program that's focused on traffic jam pilot-type scenarios for vehicle model, and then (inaudible) came from there on out. So I'll say this is that you actually don't need Luminar level capabilities to be on a vehicle or on a model or on anything that you -- to be able to achieve a lower speed traffic jam pilot-type capability that's on the vehicle. Really, where we come into play is when you talk about next-generation proactive safety, highway autonomy and improving those capabilities on the vehicle, kind of like what Mercedes, Volvo, SAIC, Polestar, Daimler Truck, like those guys are doing. But I think what's interesting here is that even in cases like that, we're all forwarded.

Actually, I think it's a data point that people are willing to have lidar on the vehicle like in that case, the 905 example, they're on a model, even for just the traffic jam pilot-type use case on that, in terms of that kind of capability. So that makes it -- yes, that makes it interesting. Obviously, we continue to be able to look forward to focusing on what we do best. And I think what you'll see is that effectively all or nearly all of the kinds of scenario setups that we have are roof line integrated for enabling those capabilities. Effectively, you see kind of bumper type of integrations for these different vehicle programs there, too. That's more suited towards the traffic jam pilot-type use cases as well that will work for lower speed applications for this. So that maybe adds a little bit of color from that side of it from what we see from a market perspective there, too. But it's kind of that next level deeper. So more traffic jam for pilots have out there, that's great for value assigned to lidar more generally.

The next question comes from Srini Pajjuri at SMBC Nikko.

Congratulations on a solid quarter and outlook. First, a clarification for Tom. Tom, on the Celestica facility that you talked about, does this accelerate your cost downs in the next couple of years, I guess? And also, once you get to that volume of 250,000 units, what sort of gross margin should we be thinking about?

Yes. So Srini, a good question. What I would say is as we kind of get into that second half of 2023 when that facility comes online and more importantly, 2024, having that increased scale and having that automation line is going to help us on the cost side. Between now and then, not only do we need the launch production for the initial series production orders at Celestica's existing facility, we also have to concurrently spend to build out that plant. And so it's going to bring some elevated costs until we really get that up and running there. With the gross margin, once that new dedicated facility is kind of up and running, we get into that first full year of series production. That's where we kind of get to some of the targets that we've talked about in the past, that $500 BOM and then getting that contribution cost to that $100 range. You combine that with that $1,000 ASP that we're going to be at initially for series production, plus or minus, that can kind of give you some elements of where we'd be from the gross margin or at least contribution margin side.

Okay. Great. And then Austin, just a follow-up to your previous answer on Mercedes. But my broader question is about some of these new design wins that you have, to what extent these are hardware-specific versus in the hardware and software, especially for the Sentinel solution? It's interesting to hear that you mentioned Mercedes and you talked about potentially highway autonomy, and there is a major chip supplier out there who also claims to have a design win with a revenue sharing agreement. So supposedly, they're supplying the entire system to Mercedes. So I'm just confused here as to what your role is versus what their role is. If you can clarify that, that would be very helpful.

Yes, absolutely. So just for sake of clarity there, too, that is correct in that case with the -- for the NVIDIA example, we actually have a partnership with NVIDIA as a part of working on that stack that they're then on the software side providing it. So when we talk about enabling certain kinds of capabilities, there's different levels of enablement. It takes a certain level of hardware capability to enable what you want to do. And then there's the software on top of that.

But in terms of what we've built the lidar for and the performance of the lidar and everything for the very long-ranging capabilities, it's so that highway autonomy can be enabled. And that's kind of part of the fundamental distinction with the system in the first place there, too, is that very long range, performance resolution at range, like all these different things while also being economical to go into a series production vehicle. So that's the distinction there. And we -- so we've actually have no problem saying this at all, it's all public now of we've been collaborating with closely with NVIDIA, selected as part of their Hyperion platform in terms of gotten that design win there and factored in Mercedes. Mercedes gave the design win for building that part of that software protective highway autonomy to NVIDIA, to use their chips. It's all actually pretty tightly integrated as part of it.

It's not easy to be able to do these things. But I think the cool part is that, in this case, one of the things that you have to look out for is -- that's a very important one, is that when you see these kinds of -- when people talk about OEMs or supply chain partners, other things, who's doing the hardware and who's doing the software, because both of those ultimately have to succeed. And I think the reality is that the substantial majority of OEMs do not -- like they don't have software or at least a credible software path or strategy there. So that's where, when it comes down to it, having the software capability is going to be key to ultimately enabling the majority of the OEM landscape so that it's not -- you can design a lidar box into your car, but it doesn't do anything on its own. So you actually have to have enabling capabilities. And that's kind of what we see as part of the core capability.

Now part of -- a factor though in terms of the kind of software that we develop, we see -- well, similar to NVIDIA, they did all the software so they can be able to get more chips out in the world. You develop software to get more lidars out in the world. I would say our software set has more of the safety focus and more focused on proactive safety implementations, since we see that's the opportunity to start standardizing across the board. So we're going to continue to do that heavily. And -- but yes, we've been making investments on software from the -- for some number of years now. And as I mentioned, with CJ as part of the leadership coming on board, coming from Tesla and Apple, that we're only doubling down on that.

Okay. Great. And if I may squeeze in one more. On the topic of China, you talked about at least one incremental design win there. So can you talk about the longer-term strategy here? On one hand, I think the opportunity here is pretty significant given the volumes in the domestic market. At the same time, it's a very competitive market with, I think, multiple domestic lidar players out there. So I guess how are you differentiating there? How do you plan to compete there? And then do you need to have a domestic production facility to be able to compete in the market?

Yes. So when we think about China and when you actually look at the Chinese market, a little over half of the market is actually from foreign brands, right? So it's going to be the European, the Japanese, American brands that sell in China. And typically, for those types of programs, they tend to be global programs, especially with cutting-edge technology like ours. So call it half of the market -- a little over half of the market in China, there will be a natural pool in China from the Western OEM relationships that we currently have. Then a little less than half but growing is actually the local Chinese brands. One of the largest ones there is Shanghai Auto, or SAIC, which is one of our existing customers. We want to be successful in both ends of the segment. We have early success in both ends of the segments.

I think in terms of seeing competition from the local Chinese lidar companies, that's less likely going to be on the Western side because those are going to be global platform decisions. We're going to see it more when we go to compete on the local brands. And our strategy for competing on the local brands is to focus more on the higher-end companies that are going to want to put the best tech out there, and that was very helpful in us securing the SAIC win that we have. The initial program that we're going on with SAIC is going to be the vehicle that they're going out there to compete directly against Tesla in the China market. And so they wanted to have the best technology on their vehicle to differentiate not only against Tesla, but some of the other upstart Chinese OEMs.

In terms of the China facility, that is on our lidar for -- at some point in the future. But we're going to want to make sure that there is going to be sufficient local demand there, both from the western OEMs that are producing vehicles in China for China as well as the local China OEMs. I think if and when we do open a facility in China, it's probably going to be made in China for China.

Yes. And I think if you take a look at -- exactly, like even the OEMs that we have today, there's a huge portion of their volume is in China. I mean excluding the folks like SAIC. But the answer on the lidar side also ties back in again. There's probably -- there are dozens of approaches of how you can build a 905-nanometer lidar system. There's almost a company for every single approach of what you can do. And I think that, in theory, could be built to enable a traffic jam pilot [like taxi ability], all part of the discussion that we had for what flows there before. But the reality is that the real question is how you can make it, one, is the performance for the higher-level capabilities. But two is an industrialized auto-grade product that someone like at a top brand is ultimately going to be able to stand behind, standardize across the vehicles, be able to have the capital to support that.

Also similarly like, as we talked about, it's on the order of $0.5 billion of cash that you have to invest to be able to do that. And many years' worth of lead time to be able to get the technology to a truly industrialized state of where you can -- following those investments to make that all work. And coming up with that cash, I think is actually, however difficult it was before, it's 10x more difficult, I think, in these market conditions, which interestingly enough, actually should help us on the back end there, too, because we effectively have that lead. We've done a lot of those investments. And maybe you had to take the revenue from series production programs and apply that towards -- in addition to the investments we made to apply that towards future technology products as well. So all that ties together and I think creates a pretty good scenario for us to be able to end up in a great place all around, not just outside of China, but even in China.

Thanks so much. Thanks for everybody contributing in the call today, both on the Say platform and on the call and joining us to listen. We look forward to talking to you next quarter.

Kevin, let's go ahead and close out the call.

All right. Thanks, everyone, for joining us today. That will conclude this business update. Have a great day.

Thank you.

Thank you.