Luminar Technologies Inc (LAZR) 2023 Q1 法說會逐字稿

Welcome, everyone, to Luminar's First Quarter of 2023 Business Update Call. My name is Aileen Smith, and I'm Luminar's Head of Investor Relations. With me today are Austin Russell, Founder and Chief Executive Officer; and Tom Fennimore, Chief Financial Officer.

As a quick reminder, this call is being recorded, and you can find the earnings release and the slides that accompany this call at investors.luminartech.com. In a moment, you'll hear brief remarks from Austin and Tom followed by Q&A.

Similar to prior quarters, and in the spirit of continuously improving our shareholder outreach, we will be addressing some of the top questions submitted online via the Say platform at the end of our prepared remarks today, followed by analyst questions. I would also note that we have extended the submission window for questions via the Say platform through the end of our call should there be any that are uploaded during that time.

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 financial 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's Founder and CEO, Austin Russell.

All right. Well, thanks everyone there too, and thank you, Aileen. So, awesome to have you on the team, and I'm sure maybe a familiar face to many albeit coming from NVIDIA. So, thank you for that, and looking forward to jumping right in before we hand it off to Tom for some of the financials and then some Q&A afterwards.

So, going off, I mean, we're a great start to the year. We're certainly firing on all cylinders to be able to scale and both from a manufacturing standpoint, commercial success standpoint and working with the global automakers to advance our overall product road map. So, I'll talk on each of these areas before handing it off to Tom.

So, first from an industrialization standpoint, that really is the fundamental challenge to be able to scale successfully with these high-volume series production wins. So, our strong year-to-date progress definitely continues to show how we can continue to execute, and our building the capacity necessary to be able to meet these growing automaker demands on volume. So, what it can do is can screen share maybe some of the slides and whatnot that we have, if I can take a look for a second. You guys see that, okay?

Looks great.

Awesome, awesome. Okay. So I'm going to go into this. So first, in Q1, we achieved a successful build out and bring up of our new highly automated high-volume manufacturing facility in Monterrey, Mexico. And this is with our partner Celestica there. So, we achieved this major milestone ahead of the Q2 guidance we gave at Luminar Day. And the first Luminar Iris sensors out of this new dedicated facility are now already shipping to Volvo as we prepare for the start of series production first global scale vehicle launch with us.

So, exciting stuff, and you take a look actually some of the different photos, search it online, massive cleanroom build out that we did successfully, and all the actual production lines or even in a clean room environment. So, you can see that with all this leadership team from one of our automakers that's there alongside folks on production. And from a construction standpoint, you can see how that's come together very quickly is like examples in the calibration that you have to do along the way. So, a lot of different moving parts, but all happening successfully.

So that's really what leads us up into our recent partnership with TPK. So, this is a multi-billion dollar supplier to a major comp tech and automotive companies around the world, including folks like Apple and Tesla, they built that first sort of multi-touch display for them when it comes to the modern smartphone and the original iPhone when it came out. So, very familiar with working with advanced new technologies and great to have them, partner with us to be able to operate an additional even higher volume factory that's driven by rapidly growing demand for Luminar in Asia.

So, at this time, the factories will have an initial capacity of up to 600,000 Luminar sensors per year to be able to support the already awarded programs from automakers, like, for example, Mercedes. So -- and that's to be able to support a volume primarily in Asia. So that -- which has been continuing to take off. So, factory has the ability to further expand the capacity as the demand ramps beyond those levels. But for context, we're expecting Luminar to be equipped on a 7-figure number of vehicles throughout Asia at the end of the decade, just the current contracts alone.

So, you take -- it kind of brings it the next topic there too, when it comes to the commercial momentum, which will go into. And this is sort of a signing ceremony and whatnot that we did with those guys when we're out there, press conference that we had is, it's the whole thing, but TPK guys are all in. It's very, very exciting. And Tom can talk a little bit more about what they're doing from an investment standpoint.

But when we were both at the Shanghai Auto Show recently, I think it was clear than ever than China has incredibly strong demand for this kind of product to be able to enable the next-generation safety and autonomy. And it's about -- on the order of half of the 20 million vehicles sold per year in China are from global automakers, so many of which that we're working with is Luminar partners. So, for context of the now more than 20 production vehicle models, Luminar is designed into, the majority are also slated for the China market.

And here you can see like the example of the Polestar 3 with Luminar that's out on stage on the Polestar booth, they're featuring it very prominently and very exciting to see that shown off for the first time live. So that's a great example of what they're able to do. So, you take a look also at what's already happening today with -- out there was the SAIC R7, going to actually take a live drive for the first time out in China with, obviously, Luminar integrated onto the production vehicles. So, exciting experience to already see some benefits that are happening from a safety and autonomous capability perspective there too, when you get a really long range detection capabilities, and enhancing ADAS systems that's on there.

See the Thomas case there. And then, when it comes to what's next, and what was also announced is, Volvo had introduced the new Volvo EX90 Excellence. So, this is a new model, it's a derivative of the EX90, of course. So it's a 4-seater that's really, like I said, just all-round very impressive and initially slated for the China market. So, it goes to show how automakers are continuing to double down on us. Of course, we announced some of the other expanded wins with other automakers, but this is sort of a new one for just the past couple of weeks.

You take a look at what they had on stage and it's pretty impressive. So, all around with the EX90 Excellence. And the recent interesting bit of news is that the Volvo CEO, Jim Rowan, had just said on the recent earnings call that the preorders for the Luminar-equipped EX90 had surpassed even the company's boldest and most ambitious internal projections in terms of what the sales were. So, they sold out for that initial run that they'll do and then obviously going to be scaling that up exponentially, so as part of the future of their brand. You can see, just on the press conference, they actually features Luminar is like of the key fundamental points for like why you'd buy a Volvo like this and how it differentiates in that kind of market where it's highly competitive.

So, of course, as I said, continuing to expand with Polestar that we covered. This was earlier in Q1, we announced that we'll be now moving across their different models in their lineup. So this expanded partnership provides that foundation to be able to further collaborate on a wider integration, including on the Polestar 5 that will be out after this.

Then of course, after 2 years of close collaboration between our companies, Mercedes-Benz announced plans in Q1, this prior quarter too, introduced our new Iris Plus sensor and the associated software across a broad range of their next-generation production vehicle lines by mid-decade. So, it's great to be up there with their leadership and really be able to help work with them to set the future road map for what's possible when it comes to auto on speed level capabilities as well as of course improving the safety of vehicles for all. So, they're across the broad South by Southwest as well as their own investor event, which is great to be there with Jensen Huang, the NVIDIA CEO on stage alongside [Marcus], those guys awesome all around. So then, their example of featuring Luminar Point-Cloud perception in 1 of their cars.

Yes, but of course, we're continuing to focus on product execution development with not just industrialize the current products, but next generation products. And 1 of them is this Iris Plus product. So, we announced this over at Luminar Day and proud to be able to say that these samples have already been successfully delivered to the lead series production OEM for it. You can see an example of this is just to show at least to our knowledge like the largest range, LiDAR or 3D sensing ranging facility, it's over 300 meters long and have host of different crazy tests that it has to be able to go through to make it successful to reach Mercedes' standards by being able to truly cover all the different edge cases and use cases. So, great, huge milestone. Obviously we started working on it a little while ago, but I'm proud to say that it was actually less than a year for the project to kick off all the way to the B-sample customer delivery.

So, again, another important milestone along the way and showing that we're firing on all cylinders with a strong ability to execute through the entire engineering, manufacturing process and, of course, software, firmware all the things that have to make this make this successful. Yes, and obviously we're -- as part of this, we're well on track to be able to achieve our goal of entering the Iris Plus C-phase this year.

So, question, what else are we doing? So, part of what we announced at Luminar Day as we talked about Seagate and their LiDAR team joining on Luminar accelerate tech roadmap. I'm happy to announce today that we're also welcoming the Argo LiDAR team as well as what was formerly Velodyne and Ouster team out in India. So, as part of accelerating our existing road map. Again, in those cases, less about the technology more about how do we continue to successfully resource with great minds on how to continue to accelerate our products. In the case of Argo, which was formerly known as Princeton Lightwave team, they're partnering with and joining onto Luminar semiconductor to be able to advance our high performance laser and photo detector roadmaps rapidly.

And then for the India case, that's really starting, we're establishing an engineering office out there, just sort of a kick start of this. So this will be -- that'll be great to be able to do. So, continuing to expand at a global scale.

So last but not least, I wanted highlight just some new ecosystem partners that we had in Q1, as well as, of course, what we formed in Q1 for the Luminar semiconductor, between Optogration, Black Forest and Freedom Photonics, again with the receiver, the ASICs for the processing electronics and the laser chips respectively. So we combine those together to be able to have an internal semiconductor powerhouse in the U.S. here to be able to make this very successful. And like I said, it's really building specialized ships for LiDAR.

And of course, can leverage those technologies to be able to scale across other industries, which we've already had successful contracts for expanding even beyond. But when it comes down to it, this is a key engine for technology development that's very, very unique to Luminar and I think critical to being able to create such a high performance product and being able to do so at and being able to do so at cost effectively in the real world there too with the scale of product. So -- but we're not stopping there.

In terms of -- and this is what we're talking about is like what are our exclusive ecosystem partners where we have even contractual exclusivity around it. We've added actually 4 of those, even this alone in Q1. So, TPK was 1 of them from what we talked about. So they're signed up. They're 100% all in on Luminar, same thing with Swiss Re. We've got exclusivity all in on Luminar, which this is the insurance partnership that we had that, and Swiss Re CEO came up with -- over video on Luminar Day for the Swiss Re solutions to be able to speak to, how they're -- we're going to be able to use the data from Luminar to lower insurance costs from -- by providing them to the insurance providers for Luminar-equipped vehicles as well as ultimately we have already had the ability to provide reduced cost of insurance ourselves in partnership with automakers that will help for the total cost of ownership significantly and take advantage of those things that I think a lot of you were even thinking about today.

Scale is again a great close partner that we're using for our Luminar AI engine and they're exclusive to Luminar, no other LiDAR, and then Seagate, of course, is part of that strategic deal that we did. So, yes, just goes to show what's possible and just great progress all around as we scale the business build them out and continue to execute on all of our promises.

So with that, I'd love to be able to hand it off to Tom for some remarks when it comes to the financials and milestones.

Great. All right. Well, thanks very much, Austin. I'm going to start off by reviewing our progress towards our 3 key 2023 milestones. The first is to successfully scale. Our target is to bring online our high volume automated manufacturing facility and meet Volvo's SOP requirements by the end of this year. As we announced a few weeks ago, the highly automated dedicated facility in Mexico is up and running ahead of schedule. The team is now focused on completing the remaining validation tests to ramp up this facility to the necessary production levels by the end of this year.

Our second milestone is to keep advancing our technology and product road map. Specifically, our targets for this year include entering the Iris Plus C-phase, building a next-gen LiDAR prototype, and completing software support to Volvo and Mercedes SOPs. We remain on track to achieve this milestone. Specifically, we delivered Iris Plus B1 samples to our lead customer this quarter and achieved several software milestones necessary to support series production.

Our third milestone is to grow our forward-looking order book. We have already been awarded new vehicle programs from existing customer this year, such as the Volvo EX90 Excellence that Austin mentioned. In addition, commercial momentum with potential new series production customers is accelerating. We remain on track to grow our forward-looking order book by at least $1 billion this year.

Let's now turn to financial highlights for Q1. Revenue for the quarter was $14.5 million, up 112% year-over-year and ahead of our guidance, primarily due to higher program revenue and sensor sales. For the quarter, we reported a gross loss of $14.6 million on a GAAP basis and $11.8 million on a non-GAAP basis. This was a significant sequential improvement, cutting our gross loss almost in half from Q4 levels.

A few more details on our Q1 COGS and gross margin. During the quarter, we incurred approximately $11 million of launch-related COGS expenses, which we expect to significantly decline as the year progresses and we achieve a successful launch. These expenses consist of items like inventory write-offs, primarily from obsolescence due to product advancements, expenses of launching our new dedicated Mexico facility and adjustments to NRE contract cost estimates. As these launch-related expenses wind down and our new facility winds up, our non-GAAP gross margin should turn positive on a quarterly basis by the end of this year. We ended the quarter with $422 million in cash and equivalents. As I mentioned at Luminar Day, this liquidity position leaves us with sufficient capital, plus a cushion, to reach profitability.

Our Q1 free cash flow was negative $76 million, which improved slightly from the last quarter. In addition to the launch-related COGS expenses I just discussed, there were significant other cash expenses during Q1 that we expect to improve during the second half of the year. Of the negative $76 million of free cash flow, approximately $22 million was launch-related expenses such as contractor payments, tooling expenses, CapEx and other items, and another $8 million was on other items like mark-to-market losses on our investments in security deposits on new leases.

As our business in new facility ramps up and the launch costs ramps down, we expect to demonstrate solid progress towards our profitability goals we discussed at Luminar Day. Specifically, we expect to improve our end of the year free cash flow run rate by approximately 50% compared to Q1 levels. During the first quarter, we executed several small strategic transactions, including the Seagate acquisition and the 2 Aqua hires highlighted by Austin earlier, and financed this activity by drawing down on $23 million from our existing strategic M&A equity program we put in place earlier this year.

In the coming days, consistent with the plan we put in place last year, we will file a supplement to our existing and registration shelf to provide Luminar stock to certain strategic vendors, who prefer it instead of cash, and expect this to total about 1% of our current shares outstanding. Finally, to reinforce our recent partnership, we have entered into a definitive agreement with TPK, whereby they will invest up to $20 million into Luminar. All these actions are consistent with our year-end guidance of 395 million to 400 million shares outstanding.

Lastly, I want to affirm all of our full year 2023 financial guidance we discussed at Luminar Day. Specifically, we expect to grow revenue at least 100% this year, achieve positive quarterly non-GAAP gross margin by year-end and end the year with at least $300 million in cash and liquidity and the share count in the 395 million to 400 million range. For the second quarter of this year, we expect revenue to be in the range of $15 million to $17 million and our EPS loss to be relatively similar to the Q1 loss of $0.24 on a non-GAAP basis.

To conclude, I would like to thank the broader Luminar team, once again, for another great quarter and the incredible operational progress that the team has made.

With that, I will hand it over to Aileen for Q&A.

Great. Thank you, Tom. We're going to start our Q&A with a few of the questions that we received on the Say platform, and then we'll move over to the analyst questions. So, our first question we received is, when will Luminar be profitable and what are the plans to get profitable?

Sure. So, to reiterate what we discussed at Luminar Day, and we're on track for this, by the end of this year, we expect to be profitable on a gross margin basis, on a quarterly basis. We expect by the end of next year for our core business to be profitable on a quarterly basis, and then in 2025, the whole company. Now, let's talk about gross profit and kind of how we get there this year. As I just mentioned, our gross loss this quarter was $11.8 million. Of that $11.8 million, about $11 million of that was launch-related costs. And so, as we launch, those costs should be significantly reduced.

If I was able to bring them to 0 this year, clearly it wasn't because we're still in the process of launching. We would be more or less at that benchmark already. And then, as that new facility launches, it will have a better cost structure than where we're producing units today and we'll get the better revenue. And so that's a trajectory to reach our milestone this year.

Great. Our second question combines 2 similar ones that were uploaded on the platform. First, have you considered LiDAR applications outside of vehicle implementation? And 2, relatedly, what is Luminar doing to expand this technology platform into markets outside of vehicles?

Yes. The answer is, while our primary focus today is to launch in the passenger vehicle and the commercial trucking landscape because those are areas where you can get significant scale benefits, we are focused on some of the adjacent markets. We've talked in the past about what we're doing with Airbus on the aerospace and defense side, we have strategic partnerships with players like robotic research to help us in other areas of the adjacent markets. And so, that is an area that we are focused on. But the primary focus for Luminar for the time being is to focus on these initial launches in the passenger vehicle and the commercial trucking landscape.

And I will say across even when it comes to the semiconductor level, the LiDAR level to all the different levels, we already have like double-digit number of programs there to work with an adjacent market applications, leveraging the core technologies that we develop. But we don't develop new products, of course, for those other things. Automotive market is how you get to $1 trillion business, so to say.

Okay. And our final question before we move on to the analyst community. How is production going and when will we be seeing Luminar LiDAR technology on local car lots?

Well, if you're in China, you can see them today with R7 there. But I think we gave a production -- an update on the production with the new plant coming online. We're already shipping initial batches to Volvo. And as we said, we're planning for the launch at the end of this year.

Well, thank you, everyone, to all the investors who submitted to Say questions. We'll continue to use that as a platform to increase shareholder engagement with us.

Let's transition to our analyst questions. And in the interest of time and getting through as many analysts as possible, we would ask the analyst to limit their questions to just 1 initially and then hop back in the queue or raise their hand again via the Zoom function for follow-ups.

So with that, we're going to start our analyst questions with Josh Buchalter at TD Cowen.

Congrats on all the manufacturing progress. I wanted to ask about the $1 billion order book growth target. You've made a number of announcements already this year with the expansion of Mercedes, Polestar, Volvo and others. And I know the public timing of the announcements doesn't always line up when they're actually inked on the back end. So I was hoping you could maybe help us understand how much is -- of the $1 billion that you're hoping to add to the order book has already been won versus you still need there still wood to chop there.

Yes, Josh, we're in May. So there's still some wood to chop there. That number has grown as we do the tally at the end of the year. So I'm not going to go into any details in terms of how much that $1 billion. What I would say is, the big announcements we made earlier this year for Polestar and Mercedes, those contracts are actually inked towards the end of last year. So they were included in the [LA] that we did as of December 31. There are some items like the EX90 Excellence, which are kind of new this year, and so we still have some wood to chop on $1 billion, very confident we'll get at least to that number. But we kind of do the tally at the end of the year. So I'm not going to share any info in terms of what happened, what percentage of the way we're already there.

Our next question is going to come from Kevin Garrigan at WestPark Capital.

Let me ask the question and congrats on the results. I know Luminar LiDAR is an option for SAIC and Polestar. So I was wondering if you guys can kind of give us a high-level view of how the take rates are kind of shaping out for those models?

Yes. So Kevin, we haven't really seen yet any real data on the Polestar 3 take rate. So really nothing to share there on the site. We've been -- I would say, what we've seen is kind of consistent with what we're modeling there. It's something that is kind of in that mid- to high single-digit percentage take rate. The Volvo we're standard on that. And so that is something that I would say is -- and you've seen some of the commentary coming around Volvo in terms of what the preorders look like for that. So there, we don't have to worry about take rates because we'll be on 100% of the EX90s that they produce.

Okay. Got it.

Probably you also see a very significant -- like a factor of a multiple difference in take rate if you're on a $35,000 car versus a $70,000 card, et cetera, there too, of course. So I think that's where we have -- we try to model it very conservatively though, too, when it comes to these take rates. And -- but of course, the Volvo volume is very, very exciting since that kicks off right off the bat with the standardization.

Yes, absolutely. That makes a ton of sense.

Our next question is going to come from Itay Michaeli at Citi.

Tom, you mentioned before, you're seeing some momentum with new customers accelerating. I was hoping, you can maybe give us a little bit more on what you're seeing there at a high level, what regions perhaps you're seeing incremental demand for whether you do expect to Austin's point just now additional programs to perhaps source on a standard fitment basis? Just curious if you can give us a bit more about the funnel.

Sure. We're seeing it across all the 3 major regions, if you looked at it as EMEA, call it Europe, North America as well as Asia and within Asia that could be the 3 major countries there, which would be China, Japan and Korea. Itay, I don't want to go into much more detail on that. We tend to announce wins when our customers are ready to announce those wins. We don't try to gun job or foreshadow or do anything like that.

The good news is, is like as we get out there with the R7, as we kind of get closer to the Volvo launch, as we kind of other OEMs see us expand our business with Volvo, Mercedes, Polestar and others that clearly garners more interest. The closer we also get to industrialization, that also helps as well. As much as we go into a lot of detail on that path, we are to industrializing and making these things in scale, you will take all the risk off the table to you actually do that. And so once we actually get to that point, I think that that's going to be another inflection point in terms of increasing the dialogue and interest and converting that into real new orders.

Look, we're also in discussion with our existing customers about expanding business with them. We -- Volvo publicly announced the X90 Excellence, which will be primarily for their China market. The discussions with existing customers has done really well there. And when they're ready to announce that, we'll share it with you guys.

I think the key is continuing to see the same customers double down on us there too, as we successfully execute, improve ourselves along the way. And that's really where if you look at basically all the major global OEMs that we're working with, and they're just continuing to tamper down on that same message and why they're speaking out even during Luminar Day and other things like that. So it's a great trend. And there's even a lot more to go even within these automakers there, too. Only a small part of that is in the overall order book in terms of the total volume for what everybody can do. So it's very -- it will be very good to get all that out there as we prove ourselves continuously.

Our next question will come from Natalia Winkler on for Mark Lipacis at Jefferies.

So I wanted to ask about the TPK partnerships. Tom, if you could probably elaborate, are there any kind of CapEx requirement that you guys would have to bring there? Or would it be sort of a typical foundry kind of arrangement?

Yes. There is going to be some capital we're going to have to put in to get that new line up and running. What I would say is it's going to be significantly lower than what we spent to get Mexico up and running. I think there's a few reasons for that. One, we learned a lot from doing it the first time when we're going to apply those lessons to the second time, and there's just going to be a significant amount of efficiency gains.

2 is, in Mexico, we have to basically build a brand-new dedicated plan. We kind of ran out of room at Celestica's existing facility. And so getting that up and running, building the clean room, all that in cheap, as you kind of see from what we've been spending. TPK has an existing facility. It has capacity in there. So we're going to be utilizing that, including some of the existing benefits like a clean room.

And as I said, actually built out the equipment for the new line, there's going to be some significant improvements doing it the second time relative to the first. The amount of capital we'll need to spend this year is not going to be a big amount. Most of it's going to be next year. And as we kind of finalize the plans with them, we'll probably share some of the details of what that's going to look like as part of our 2024 guidance that we'll share towards the end of this year.

It's basically where their investment as they -- which they approved, I think, just yesterday, like that basically covers it. The majority of it also alone from over what they're doing. So it's -- they're a great partner with that.

Our next question is going to come from Mark Delaney at Goldman Sachs.

Tom, you focused on the reduction in COGS. So I was hoping to better understand some of the moving pieces for the fourth quarter to the first quarter. Maybe give us a little bit more color on all the different puts and takes and COGS, but also if you could perhaps comment on R&D? And was there anything moving between R&D and COGS? And then just how to think about those over the balance of the year as well?

Yes. The -- I would say that, as you may recall from some of our past early calls, for the program development revenue that we perform for our customers as we get ready for series production. We do, I would say, move some engineering expenses, which would typically be in the R&D line up to the COGS line because it's actually a cost of providing that service to our customers. I wouldn't say that number typically mirrors what our program development revenue is. There are, I would say, periodically some onetime adjustments we need to make to that number, for example, because there are engineers providing that work. We have to actually calculate the, call it, compensation rate for each of our engineers, and that number can go up and down depending upon the mix of people, are they doing the work more out of Orlando or other jurisdictions? And are they -- as our kind of stock-based comp number goes up and down, that runs through that number.

That number was a little bit higher this quarter as we kind of true it up relative to Q4, and that was kind of embedded in that $11 million. But I think what you're starting to see, Mark, in terms of some of that improvement is as we're getting closer to closer to launch, those launch costs are starting to ramp down. And then at the same time, as we're kind of ramping up the production, you kind of get the benefit of the increased revenue and how that kind of translates into the better line into the bottom line.

Our next question is going to come from Samik Chatterjee at JPMorgan.

So just a question more on sort of what you're seeing on the technology platforms. One of the autonomous camera-based dealers, suppliers today announced partnership with Porsche, which is -- and that runs counter to the Volkswagen internal platform carrier that Volkswagen had been working on and is driving some questions from investors about how many competing or side-by-side technology platforms are large OEMs probably trying to run. So when you look at your pipeline or your funnel sort of in terms of discussions, what are you seeing from OEMs? Are you seeing them really develop sort of technology platforms by like targeting certain geographies? Or is it more by brand? Or are you really bidding more for like platform center and global?

Yes. No, absolutely, it's a great question. I'm sure Thomas thoughts there, too. But I think the reality is that it's effectively almost impossible to have complementary parallel paths that are at the table, it's already so challenging to be able to do one that in order to try and introduce like a multipath strategy there to you basically pretty much giving up on -- or at least taking a completely independent approach at the end of the day, like something else is not be working. So that's really why -- I mean, for the vast majority of OEMs out there, you really see you have to go sort of all in on a given strategy. You basically end up with almost de facto exclusivity when it comes to a given platform like passing a certain development stage.

But in the case of this, I think we will still continue to see different levels of things like the mobilizes of this world are obviously any other partner of ours, of course, too, which is great. They're like a base level of technical capabilities that you have for assisted driving and then there's when you start to enable next-gen safety and driver out of loop capabilities would like, and that's obviously the part that we think the world is -- then the automakers are saying everything is continuously shifting forward. So I think that's where it's ultimately moving from. But the reality is, is that I think more and more so people realize the developing software is very hard. You have to have the best and brightest talent on this. And across the globe, and especially also in Silicon Valley, where the team is and where the center of AI is and everything that we have. So it's important.

But nevertheless, I think the over protected clarity for all the OEMs that we work with, it's a single all-in path of putting billions of dollars into to make it successful. So that's generally a very good thing. But I wouldn't be surprised if for some of the -- I wouldn't be surprised if that were to happen again in some other instances there too, where if people were trying to make something work.

Yes. Samik, the only thing I would add is our strategy is to be flexible. In the Volvo case, we're working with their in-house software team, Zenseact, and we're going to work with them hand-in-hand to reach a successful launch. We also partner with NVIDIA, Mobileye, Qualcomm, kind of like a leading technology systems integrator. So in the Mercedes-Benz case, they want us to work with hand-in-hand with NVIDIA, no problem, we're going to do it.

We're also developing some of our own software that in case an OEM wanted to work directly with us. We want to be flexible. This is -- as Austin said, this is tough. And at the end of the day, we need the software to work. If the software doesn't work, our LiDAR is just an expensive piece of equipment sitting on the car. And so we need to work hand in hand with the software players to make that work. We think that this is going to continue to evolve, and it's going to evolve OEM by OEM, region by region. And we're going to be flexible and make sure that we can work with anybody that the OEM wanted to work with because at the end of the day, we need the software work to work and fully deploy our LiDAR and its capabilities.

And for that exact reason, that's why we've already developed that base capability when it comes to software around the LiDAR and providing it to OEMs. And then the real question is now is that how much can you scale that content value on the vehicle kind of what we're talking about sort of seeding the idea of at Luminar Day as you sort of you have this core sort of engine around the Luminar LiDAR, then you have to base software and some advanced software features that we enable with that. And then the AI capabilities that you have the full stack systems for practice safety, highway assist, mapping or even insurance that we have that are all additional vectors for growth of how we can exponentially scale that revenue per vehicle. And that's where I think, hopefully, even what we presented at Luminar Day, should prove to be very conservative over the long term.

Our next question will come from Emmanuel Rosner at Deutsche Bank.

It's Conor Walters on for Emmanuel. Congrats on the results. I just wanted to ask what the expected time line is to ramp the Mexico facility to hit the 250,000 run rate is? And how we should be thinking about the time line in Asia with TPK?

Yes. So look, I would say the initial launch we're planning for is later this year, that's going to be, call it, at a run rate that's going to be in the low 6 figures, and then we'll kind of ramp up to the 250,000 rate that we talked about before, probably throughout '24 and '25. And look, we have the ability to expand that plant as necessary. TPK, I would say we're starting now and working with TPK. We're currently doing the Iris+ B samples in-house, the C sample as we kind of enter that phase towards the end of this year, that's when you kind of start to transition that over to TPK and that plan is -- we're targeting to have it ready for series production probably sometime in 2025 to support the initial launch with Iris+.

Our next question will come from Josh Buchalter with a follow-up from Cowen.

So we've seen examples of customers expanding their engagements, adding your LiDAR on certain models and then not on other models. As these engagements with OEMs deepen, I was wondering if you can help us sort of understand what are some of the factors that go into their decision-making of whether they're installing LiDAR -- has it been primarily a mix and pricing decision? I mean I'm just trying to understand that side of it as we sort of calculate your expansion opportunities after engaged customers?

So I think when it comes down to it, the reality is that it has to align overall with the product technology road map, I think different automakers work at different speeds. And I think it's put that everybody ultimately wants or needs this kind of technology. It's really -- the business case is already there for almost any kind of vehicle. It's just a question of there's a lot of different things that have to come together from a technical development standpoint and people have to be willing to invest a big time to be able to make this successful. As you said, it's to go in and be able to create the next-gen ADAS, autonomous system, it's billions of dollars by the time you're done with these different automakers. So it's big bets.

But we all know it's ultimately the way that it's going. And I think, hopefully, we ultimately never lower cost as we get more and more content value on the vehicles for those automakers in terms of their development path. So that's where I think the right ecosystem partners continue to be able to come into play to accelerate the development adoption. We're taking other vectors like the software development or even insurance angles and other things to be able to accelerate adoption, working with regulators to be able to accelerate adoption there.

So all of those different tailwinds are very, very helpful and positive. I would say, obviously, when it comes to these kinds of capabilities, that's where the economics have some factor when it comes into play. But generally, we've been able to maintain some really strong ASPs when it comes to the customer base and products that I think is always -- I mean, don't be wrong, every OEM would love to squeeze every cent out of you that they can. But I think people appreciate the meaningfulness of how important it is to have that life-saving technology, and the additional capabilities to the life-saving technology onto the car. So all those things are factors.

The other one is just, frankly, how tech-forward people want to be. Are you an initial adopter or are you a fast follower on us? And I think our strategy was to work with the most tech forward ones that we could see successful deployments with. A lot of the automakers out there, they have some idea like even, for example, they want to put a LiDAR in a car, like what does that actually mean? Like what does it do? Like the LIDAR itself is just a box. If you don't actually utilize the whole data, then nobody that did actually produces. So it's about that end-to-end system. And we -- our take was that the Volvo implementation, Mercedes implementation, other sorts, et cetera, among others were most potentially successful and it's not comprising because it's like the same for most other kinds of new safety or ADAS technologies for those guys. So I think they start off with introducing before it went throughout the rest of the lineup.

So I think it's really no longer a matter of if, but a matter of when, throughout this decade, where I would be surprised if by the end of the decade, we weren't ultimately on the substantial majority of all the different kinds of OEMs or not just -- and we're already starting to see some of the mainstream vehicle model traction when it comes to some of the new ones that we're working with. So it's -- it will be exciting to get that to happen.

And then when the insurance story ultimately comes into play there, too, I think that's sort of the nail in the coffin, I mean, maybe you could say the regulatory requirement of having this level of capability would also be a nail in the coffin, but the other one is that where it's basically just absolutely no excuse of why you cannot have. If the total cost of ownership is like negative or let's say, it's pretty be clear what the opportunity is.

So yes, but anyway, that's sort of the take as we work to these automakers and educated and this is moving really fast with them already. These are not like hyper-speed moving groups as they should be, it's a very, very serious process and requires a very rigorous development. But this will be got excited to continue to execute on what's ahead.

Our next follow-up will come from Natalia Winkler at Jefferies.

I wanted to confirm something about the software. Thank you guys for providing the color on kind of the sophistication of the system. But if we're talking about 2023 goals, could you please elaborate when you talk about the milestones for Volvo and Mercedes software, where in that stack would it actually be? Are you talking about the sentinel? Are you talking about kind of the more of the device level of software? And could you also possibly elaborate on what are those milestones? Does it mean that it's going to be technologically feasible? Or is there some sort of kind of step up towards that, that you guys are trying to achieve?

So the initial focus is really all centered around the LiDAR software, software for data processing, how you can be able to successfully control systems, calibrate systems, integrate systems and everything around it there too, that's successful. So we have a team, our software team where we can 100 at this stage, primarily in Silicon Valley. So we've been like great [titles] led by CJ, who is formally a Director of Autopilot at Tesla and worked for a company as well, so to say. So that's been great, and working in this space to make that happen is really, really critical to see through the smooth and successful integration.

And obviously, as we have sort of shown at Luminar Day in terms of what's possible when it comes to an AI standpoint, perception standpoint, and the full vehicle functions, I think that's something that we're continuing to be able to move towards as we sort of get that foothold in with the LiDAR, and then just continue to build that content value on top of it. And it's very straightforward when we're building software that's based on our own system, we sort of inherently have that advantage, so to say, when it comes to the capabilities.

But I think what we also do from a software standpoint is that we collaborate with the automakers themselves to be able to help ensure that they have successful efforts because ultimately the programs have to be successful to be able to make it well, you want to sell a lot of cars with LiDAR, the programs have to be successful, software has to be successful. So we work with them on, what, like a dozen different front and feature, software features and product capabilities and other things that extend even beyond some of the core stuff. But yes, more to come, and we look forward to building more.

And ultimately, I think what we're going to see is people transitioning more towards kind of the one-off model where we sort of combine some like base-level portion of the software with the LiDAR and have that together. I think ultimately, it will move towards that subscription model where we can continue to provide updates to the software over time as we release it work. It's not just like only the new models get updates like, this is part of the road map that even the existing automakers working with are thinking about and ultimately planning for. So I think that will be where we have to continue additional opportunities to capitalize on.

Our next follow-up will come from Mark Delaney at Goldman Sachs.

A couple of follow-ups. Tom, you spoke about the start-up costs and how those will decline as you get to line production. Could you just talk on 2Q? I mean you gave some EPS guidance for the second quarter, I missed it. What you're assuming for what those start-up costs may look like in the second quarter? And the other question was just around some of the additions you've made to your engineering team. You did Seagate, you just did Argo. Maybe you can just talk a little bit more around what capabilities that add or accelerates relative to what Luminar already had? And specific to Argo, was there a financial cost to that in terms of like an acquisition price that may be you're paying? Or is this just adding more engineers?

I'll start with the second set of questions around that, right? So when you look at the Argo team in Princeton, as Austin mentioned, they're really going to be supplementing the LSI team in our semiconductor. We talked about that at Luminar Day and particularly helping out the Freedom Photonics team there in terms of some of the laser development we want to do in helping to grow the Freedom Photonics business.

When you look at the team over in India that we kind of took on from Velodyne, it was in our plans this year to kind of build out an engineering team over in India. Right now, we're using a fair amount of consulting and contractor services over in India. So they'll help us wean us off of those type of costs. Those are more acqui-hire opportunities. And I would say the -- at least the M&A considering costs aren't minimis, but there's going to be some costs there in terms of adding those facilities, housing those people, security deposits, et cetera.

Going back to your first question, if you kind of look at the guidance that I've given Mark and kind of between the lines a little bit, we guided that EPS is kind of -- I think Q2 is going to be roughly similar to what we have in Q1. And so a lot of those launch cost improvements we're expecting to see in the second half of the year, right? We're still in the process of launching this, completing our production testing, getting the -- finishing off the investments there. And so I would see you'd start to see the improvement in those launch costs to happen more in the second half of this year as opposed to in Q2.

All right. That marks the end of our analyst queue and the questions. I would like to thank everybody for participating in the call, for the analysts that asked questions and for the investors and all the folks who have joined us. We look forward to talking with you next quarter.

Thanks a lot, everyone.

I'll say, I'm excited and awesome to have everyone on for the journey for this. We got as much conviction as ever in making all of this happen here, too. And I'm 100% all in. I think it's never -- we're not planning it, but as we like selling a single share. And as soon as our legal lets me, actually get some more than I hope to be able to do it, but crazy market times. But I appreciate it, guys. And yes, let's be in touch.