Mobileye Global Inc (MBLY) 2023 Q3 法說會逐字稿

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  • Operator

  • Greetings and welcome to the Mobileye Q3 2023 earnings call.

  • (Operator Instructions) As a reminder, this conference is being recorded.

  • It is now my pleasure to introduce your host, Dan Galves, Chief Communications Officer.

  • Thank you, sir.

  • You may begin.

  • Dan Galves - Chief Communications Officer

  • Thanks, Kyle, and hello, everyone, and welcome to Mobileye's third quarter 2023 earnings conference call for the period ending September 30, 2023.

  • Please note that today's discussion contains forward-looking statements based on the business environment as we currently see it.

  • Such statements involve risks and uncertainties.

  • Please refer to the accompanying press release, which includes additional information on the specific factors that could cause actual results to differ materially.

  • Additionally, on this call, we will refer to both GAAP and non-GAAP figures.

  • A reconciliation of GAAP to non-GAAP financial measures is provided in our posted earnings release.

  • Joining us on the call today are Professor Amnon Shashua, Mobileye's CEO and President, and Moran Shemesh, Mobileye's CFO.

  • Thanks and now I'll turn the call over to Amnon.

  • Amnon Shashua - President, Chief Executive Officer, Director

  • Thanks, Dan.

  • Hello, everyone, and thanks for joining our earnings call.

  • Before going through our business commentary, I'll make a few comments about the situation in Israel.

  • Israel is now what all the current effects on Mobileye are twofold.

  • First, roughly 9% of our employees are currently serving in the IDF reserves with their teammates gladly working longer hours to compensate.

  • Second, we are allowing more flexibility to work from home.

  • I see no material impact on our operations.

  • Mobileye does not have any production facilities in Israel, no customers in Israel.

  • Furthermore, there has been no material effect on our operations and ability to develop test, performed business activities or meet our objectives as result of the board.

  • Okay.

  • Turning to our results in Q3, Moran will provide more details, but at a high level, Q3 was another excellent quarter.

  • On a year-over-year basis, we grew the top line 18%.

  • Adjusted operating income grew 27% and adjusted net income grew 59%.

  • Operating cash flow on a year to date basis has been impacted by investments to rebuild our strategic inventory of IQ chips, which we had used to maintain steady supply during the chip crisis.

  • If you adjust for that investment in inventory, which is now largely complete, operating cash flow has also grown very strongly so far in 2022.

  • Another third quarter financial highlight is the 34% adjusted operating margin.

  • The beat versus consensus here was driven primarily by costs, some of which was related to macro factors like currency and some related to planned cost efficiency initiatives.

  • Turning to our product portfolio, our bookings so far in 2023 put us on track to outperform the $6.7 billion of future revenue from design wins we generated in 2022, which was by far a record year.

  • We'll have more details on that at CES in January.

  • We're having a tremendous amount of success with our EyeQ6 base product portfolio.

  • Diverse platform supports everything from basic data to SuperVision to Chauffeur to Mobileye's drive, and we're excited to launch the first IQ6 based ADAS program in early 2024, consistent with the timeline we laid out several years ago.

  • While SuperVision continues to be a major focus at and I would note that we continue to add a very high number of basic and cloud enhanced ADAS programs.

  • On the cloud enhanced side, these deals are at a significantly higher prices than current ADAS and typically include REM data sharing agreements.

  • This will reflect -- this will result in a very meaningful expansion of the OEMs that contribute REM mapping data in the coming years, improving macro refresh ties and diversifying the data sources.

  • In addition, we added our first SuperVision like customers this week, a system based on a single EyeQ6 high chip with a reduced configuration of cameras that supports hands free limited to highways.

  • The design win is from a large global OEM with plans to equip their systems on high volume vehicles.

  • We also had some important SuperVision and so for design wins in Q3, we added FAW as a customer with what is relatively near term start of production date of late 2024 for the first of many SuperVision vehicles at a year later with the first show for vehicle more on that in a minute.

  • We also added a Chauffeur program with Polestar for SOP in late 2025.

  • On the normalized drive mobility as a service side, the various key components towards scale are progressing on schedule, including our software stack, the EyeQ6 high base to compute engine and the imaging radar.

  • Our vehicle platform partners are also making progress recently, our strategic partner, Volkswagen and commercial vehicles as well as Holler demonstrated our technology in their vehicles in Hamburg for the German Minister of Transport.

  • The event indicated, strong support to deploy this technology to improve transportation efficiency with the goal to put up to 10,000 autonomous shuttles on the roads of Hamburg by 2030.

  • But what I believe was the most important development in Q3 was the delivery of highways SuperVision software to an over the air updates to more than 100,000 sequel vehicle owners in late August with Navigate on Autopilot feature providing hands of mitigation from point A to point B.

  • This was an extremely critical proof point in front of our OEM customers.

  • It's one thing to demonstrate technology on a fleet of test vehicles.

  • It is a completely different level of product validation to deliver an eyes on hands-free system to 100,000 consumers.

  • Feedback has been outstanding with media and China consistently noting that the Zeekr system outperformed strong competition despite significantly lower sensor content and a fraction of the compute power.

  • Out of the more than 1,000 beta users who use the system a couple of months before the blogs roll out, 95% of them said they plan to buy the system after the 12 month trial period that Zeekr has offered.

  • I can't emphasize enough that this over the air update amplified a flywheel dynamic that's been developing for the last year or so.

  • The industry we have noticed a higher pace of innovation and a significant growth in demand in China for systems that take over more and more of the driving.

  • This creates higher pressure among all OEMs to develop competitive hands-free systems to generate value from software, but also not to fall behind.

  • This pressure forces more emphasis on pragmatic factors like time to market cost and performance as opposed to the desire to in-source.

  • This creates higher demand among OEMs for the Mobileye products, which offer clear advantages in time to market cost and performance, deploying the software in more than 100,000 consumer vehicles and receiving many accolades in the world's most competitive market clarified our ability to deliver and serve as the final component in the flywheel.

  • We felt the impact of this proof point immediately.

  • The successful rollout led directly to the FAW designed way and an acceleration of progress towards potential design wins with other key prospects.

  • What I mean by acceleration is that there is an increased urgency to converge towards production programs.

  • This is reflected as more clarity from customers on next steps.

  • For example, the clear deliverables, timelines, and approval processes.

  • While the design win process rarely moves as fast as we want, we expect that we'll have more news on SuperVision and Chauffeur over the next five months.

  • I'll put some numbers against it.

  • Last quarter, we disclosed that we either have already booked design wins or were in advanced stages for SuperVision and also for design wins.

  • With nine OEMs representing 30% of global automotive production.

  • That number is now 10 OEMs representing 24% of auto production.

  • If we go back to the beginning of 2023, that number would have been three OEMs representing 9% of the industry.

  • This group does not include any low volume brands or early-stage start-ups, and it's broad geographically.

  • One US OEM, two European OEMs, four Chinese OEMs, and three agents OEMs.

  • We're also very encouraged that we have received meaningful interest from a next wave of OEMs that represent an incremental 15% of global auto production.

  • While not at the point that we would call these advanced stages, the initial work looks very promising.

  • Before turning it over to Moran, I'll close with a few words about China and FAW.

  • I traveled to China with our executive team in September to meet with several key customers.

  • It's not an exaggeration to say that this market is moving at light speed towards putting eyes on hands free systems on the road.

  • Premium ADAS is a huge selling point in marketing materials.

  • The media is extremely knowledgeable about the technology and consumers demanded.

  • There's so much traffic congestion in China and consumers are tired of battling it on their own.

  • They want cars to battle that traffic for them.

  • I can see the potential for 15%, 20%, 25% of cars sold in this market to have SuperVision like capability a few years from now.

  • So it's very important for us to win there.

  • And we are winning.

  • Of the group of 10 OEMs I mentioned before, four are China-based.

  • Geely Group, FAW, and two other significant automakers.

  • We also have opportunities to expand with existing customers.

  • The Zeekr Mobileye collaboration has been very successful and is leading to opportunities for additional Zeekr vehicles as well as from other brands in the Geely Group.

  • This could add significant volume in the near future.

  • And the FAW relationship is key for us.

  • A government owned automaker choosing a non-China partner in this highly strategic technology area is the next level of validation in front of other China OEMs.

  • It's also a very broad program.

  • FAW is going all in on SuperVision.

  • Their stand-alone car brands have a very robust product cadence starting in late 2024.

  • And every vehicle model launch from that time on will include SuperVision.

  • There's also ambition to sell the resulting platform into their JV brands as well, which would increase the volume opportunity by a factor of five.

  • Thank you for your time and interest in Mobileye.

  • I'll turn the call over to Moran.

  • Moran Rojansky - Chief Financial Officer

  • Thanks, Amnon.

  • Thank you, Amnon and thanks for joining the call, everyone.

  • Before I begin, please be aware that all my comments on profitability will refer to non-GAAP measurements.

  • The primary exclusion of Mobileye's non-GAAP numbers is amortization of intangible assets, which is mainly related to inter acquisition of Mobileye in 2017.

  • We also exclude stock-based compensation.

  • Starting with Q3 results, we had an excellent quarter with revenue up 18% and adjusted operating income up 27% year-over-year.

  • Although our EyeQ and SuperVision volume increased about 16% with the remainder of the growth related to higher EyeQ ASPs and some initial small mobility as a service revenue that was related to self-driving system shipped to customers for installation on test vehicles.

  • SuperVision shipments were 29,000 units in the quarter, which was in line with expectations.

  • These units were primarily first Zeekr 001 and to a lesser extent, because Zeekr 009, although in Q3, we also had some initial deliveries for the Smart1 and Polestar 4.

  • SuperVision gross margin improved somehow as compared to Q2 due to lower overhead per unit on the higher volume.

  • Looking ahead, we expect two catalysts to drive further improvement in SuperVision gross margin over the course of 2024.

  • Number one in collaboration with our supply chain, we are introducing the second generation of the SuperVision domain controller, which we expect will result in meaningful cost savings.

  • We plan to begin the transition to this new controller in late Q4 and into early Q1.

  • We will share the savings with our customer by modestly lowering average selling prices, but the net result is expected to be an improvement in gross margin beginning in Q2 and more meaningfully in Q2 of 2024.

  • Number two, as Amnon mentioned, the rollout of Navigate on Pilot software to Zeekr vehicle in August went very well.

  • Any existent Zeekr order for a new buyer through December 31 this year, will get a 12 month free trial of this offer.

  • After this period, the consumer will need to choose whether to pay an incremental cost to continue to utilize the SuperVision feature.

  • We will receive meaningful software revenue for any consumer that chooses to keep the software.

  • This should lead to an incremental boost of SuperVision gross margin in the back half of 2024.

  • Turning to operating expenses, they were again lower than expected in Q3 which combined with strong revenue growth, led to a robust adjusted operating margin of 34%, up about three points versus Q3 2022, approximately half of the lower than expected costs were again related to lower than expected payroll costs driven by depreciation of the shekel.

  • This is a meaningful driver of growth for us due to payroll and related expenses being the majority of our operating expense and the significant majority of our employees being in Israel.

  • Parallel expenses were actually slightly lower in Q3 and compared to Q2, despite higher headcount.

  • The remainder of the lower than expected costs, primarily related to timing of certain expenditures or general efficiencies we achieved.

  • In terms of cash flow, we had a strong quarter compared to Q2.

  • We continued to invest a significant amount in rebuilding our strategic inventory of EyeQ chip which was largely consumed in 2021 and 2022 during the supply chain crisis.

  • As of the end of Q3, we have almost reached our target of approximately six months of strategic inventory.

  • So cash used for restocking should be significantly lower in the next few quarters.

  • When adjusting for cash consumed by inventory year to date in 2023, our operating cash flow conversion as a percentage of adjusted net income remained very high.

  • Capital expenditures in the quarter were consistent with our unchanged view as CapEx for the 2023 calendar year should be roughly similar to 2022.

  • Turning to the guidance.

  • As we look ahead to Q4, EyeQ volumes are tracking in line with our prior guidance.

  • At the midpoint of our guidance, EyeQ volumes are expected to be a bit more than 20% above Q3 levels, with ASP down sequentially due to a mix.

  • And we'll just note this implies a record level of quarterly EyeQ volume and importantly, should not be used as a starting point for estimating 2024 volume.

  • We'd encourage you to look at the full year 2023 and apply a growth rate to that when thinking about 2024 and consider that the high volume in Q4 could lead to some hangover effect in Q1, similar to that dynamic in the first quarter of 2023.

  • Turning to the provision, implied Q4 volumes based on the midpoint of the guide for 2023 is approximately 37,000 units.

  • This should bring us to around 102,000 units for the full year of 2023, which is toward the low end of the 100,000 to 115,000 we incorporated in our guidance at the time of our April earnings call.

  • This fine tuning of the shipment forecast is what led us to modestly adjust our 2023 revenue guidance.

  • The consumer demand for Zeekr 001 and Zeekr 009 was well aligned with our shipment levels into Q3.

  • Continuation of this plus incremental volume for new products like Smart1 also for Zeekr 001 shipments to Europe supports the growth in volume from Q3 to Q4.

  • As these new products ramp up and we add a fifth vehicle in Q1, the Volvo EM90, we are set up well for continued sequential growth in 2024.

  • Based on our assumption for mix and volume, we accept Q4 gross margin to be consistent with Q3.

  • We expect operating expenses for full year 2023 to be about 13% on a year over year basis.

  • In 2024, we'd expect operating expenses to grow at a higher rate, assuming some normalization in the relative value of the Israeli currency as well as the ramp-up of project spending related to expected new SuperVision and Chauffeur programs.

  • Lastly, in terms of tax rate, we continue to expect an effective tax rate in the 12% range for the year.

  • Thank you.

  • And we will now take your questions.

  • Operator

  • Thank you.

  • We'll now be conducting a question-and-answer session.

  • (Operator Instructions) Joshua Buchalter, TD Cowen.

  • Hey, guys.

  • Thanks for taking my question.

  • And most importantly, hope everyone's doing safe and your families are okay in Israel.

  • To start, you mentioned the 10th OEM, I believe, is the first time you explicitly called out a US OEM, can you -- for SuperVision.

  • Can you please confirm whether or not those are the same thing and also provide any details on the scope or timing of how that would ramp into the model?

  • Thank you.

  • Amnon Shashua - President, Chief Executive Officer, Director

  • For the -- as I mentioned in the script, I believe in the next five months, things will play.

  • I would say the percentages of turning those remaining OEMs and steel design wins range from 99%, confidence to 50% confidence, depending on which OEM we're talking about.

  • And in the next five months, we will, I think, we'll have much more clarity.

  • And as I mentioned, it's kind of a global spread from the US, Asia, China.

  • It's really global starting from just the Geely Group a year ago to now, really a global span.

  • Dan Galves - Chief Communications Officer

  • Josh, this is Dan, just to clarify, the incremental OEM was not the US OEM.

  • The US OEM was in this group as of last quarter as well.

  • And we continue to progress and feel good about that customer.

  • Joshua Buchalter - Analyst

  • Got it.

  • Thank you.

  • And then finally, in the guidance for the full year, you kind of called out SuperVision is driving that very modest tick down at the midpoint for revenue.

  • Has anything changed with how you're thinking about 2024?

  • And can you walk us through what are the drivers of that?

  • Was is that a new vehicle model or was it volumes at the 001 that's changing things?

  • Thank you.

  • Amnon Shashua - President, Chief Executive Officer, Director

  • But the new vehicle volumes for 2024 is expansion of Zeekr 001, expansion of Zeekr 009.

  • We have Polestar 4 coming out.

  • We have Smart 1 coming out, we have the Volvo EM90 coming out.

  • Towards the end of 2024.

  • We have the FAW brands coming out and there is certain, I think, high probability that we'll have another OEM in China that will also launch in end of 2024.

  • Joshua Buchalter - Analyst

  • Got it.

  • Thank you.

  • (inaudible) Kiley, Citi.

  • Unidentified_1

  • Great.

  • Thanks.

  • Hi, everybody.

  • Good afternoon.

  • Just two questions from me.

  • First, on the new wave of automakers expressing interest on, can you maybe just share, one, how many automakers are in that second wave and two, to what extent these automakers had existing sort of in-house operations for your advanced Level two plus?

  • And a second question, just on the SuperVision Lite Award, hoping you could share just the ASPs and expected start of production for that program?

  • Amnon Shashua - President, Chief Executive Officer, Director

  • Okay.

  • I'll answer the second question.

  • The SuperVision Lite, when we are at Tier 1, it's about 60% of the revenue compared to where SuperVision.

  • When we are at Tier 2 with a few hundreds of dollars of revenue.

  • In this particular program that we won, we are a Tier 2.

  • So we supply only the EyeQ6 chip, just like in any Tier 2 relationship.

  • It's a really high volume -- a global brand.

  • And I think it offers a new level of kind of the intermediate premium in which the SuperVision capabilities would be limited only to highways, the facility very, very high hands off capabilities.

  • The SuperVision allows you to expand way beyond the highway arterial roads, urban roads and also the basis for Chauffeur at a later stage.

  • So this allows us to have an entry point to medium and low segment car brands, car models, and this is a very important win.

  • As for your first question, the next wave is 15% of the global auto production that I mentioned.

  • It's about four OEMs and they don't have anything comparable to a SuperVision and they are starting to notice that the SuperVision like system is really the next premium in the coming years.

  • I believe that eventually every car maker would offer a SuperVision like product in the coming two, three years.

  • Unidentified_1

  • That's all very helpful.

  • Thank you.

  • Operator

  • Joseph Pac, UBS.

  • Joshua Pac - Analyst

  • Thank you everyone.

  • So the first question is, I know your solution is technically powertrain agnostic, but we're hearing about some program delays on next-generation EVs, I guess not in China, where I know a lot of your wins are to date, but if there is sort of a push out, does that at all change your trajectory on SuperVision or do you think there's an opportunity to maybe add more features, you know, whether it's cloud enabled data or whatnot to existing programs?

  • Amnon Shashua - President, Chief Executive Officer, Director

  • The cloud enhanced ADAS in this project is progressing on a separate track.

  • We have the tools ready that we mentioned last quarter, which are responsible for $1 billion revenue till the end of the decade.

  • And we have four more in the pipeline ready to be signed in the next few months.

  • And that's a separate track.

  • SuperVision start off production if they are delayed that it's weeks or few months.

  • It doesn't change materially our forecast in terms of revenue for the year and as we get more design wins ourselves set up our kind of weakness towards one particular program that's delayed or not becomes much of what we think we don't rely and we're not susceptible to do such a delay.

  • Obviously, when we have only one car OEM with the program, then we are really dependent on delays.

  • But when we have 10 or more than a delay here, or there should not change the revenue base.

  • Joshua Pac - Analyst

  • Okay.

  • Perfect.

  • And then just maybe a clarification on the OEM commentary around SuperVision.

  • So the 9 to 10 does that include the SuperVision Lite customer?

  • And then also, I know you provided some comparisons versus what you said earlier in the quarter or even last year, I think at CES you mentioned on six brands.

  • So how does that sort of the 10 OEMs comparative sort of from that brand comment earlier this year?

  • Amnon Shashua - President, Chief Executive Officer, Director

  • Okay.

  • So the 10 OEMs does not include SuperVision Lite.

  • SuperVision Lite is a separate track.

  • We have won a design win for that and we are really kind of working towards getting more business for that truck SuperVision as a separate track.

  • So those 10 OEMs are for SuperVision.

  • In terms of brand, it's really 10 OEMs.

  • Last time when we talked about brands, we really meant Zeekr 001, 009 and as two brands of the same OEM.

  • All others are separate OEMs.

  • So the ones that we announced was the Polestar, Smart, now we are revealing the Volvo in China, Porsche, and all the rest are separate, FAW, and all the rest are separate OEMs, not brands within that group of OEMs that I just mentioned.

  • Joshua Pac - Analyst

  • Thank you very much.

  • Dan Galves - Chief Communications Officer

  • Just to clarify, just one clarifier, Joe, on that, just to be super clear, within the 10 OEMs, we're considering Geely Group as one OEM, right?

  • So we have four brands, five models.

  • But within this metrics, we're considering that one OEM.

  • We plan to continue to update this metric on a regular basis along the same methodology as we move into the future.

  • And we tried to be very consistent with kind of what we're considering an OEM, so to OEMs at the parent level effectively.

  • At the parent level effectively.

  • There could be some -- some parent levels have two different product developments, but we're trying to be consistent at the parent level within this metric.

  • Joshua Pac - Analyst

  • Thank you very much.

  • Operator

  • Chris McNally with Evercore.

  • Chris McNally - Analyst

  • Thanks so much.

  • And then also just wanted to echo the best for the Mobileye family.

  • I'm not -- one of the high-level questions I have about the push into SuperVision Lite is, I think you had something like $3.5 million plus of enhanced just our estimate for this year, what would be the reason an OEM would continue with enhanced rather than SuperVision light other than the time to changeover?

  • It seems like that entire base of units should quickly change over to SuperVision Lite.

  • We just would love to hear about sort of the Pro converse, all the increased features that really no additional cost at the program level.

  • Amnon Shashua - President, Chief Executive Officer, Director

  • There's a significant cost of the OEM between a front-facing camera with or without cloud enhanced and the SuperVision Lite.

  • SuperVision Lite has about between six to seven cameras feeding on to a domain controller, powered by EyeQ6 chip.

  • On the other hand, the front-facing camera, just a front-facing camera.

  • There is no domain controller.

  • A cloud enhanced is our ability to add value to a front-facing camera.

  • So you have a front-facing camera, which is very low cost of the OEM and just by adding software capabilities, we can considerably enhance the feature set, the value proposition of a front-facing camera, for example, allowed to do lane keeping when you don't see any visible lanes or providing a traffic light information and providing alerts against running on a red light or breaking against running on a red light, and so forth, and so forth.

  • So the price difference is significant between a front-facing camera with or without cloud enhanced SuperVision Lite.

  • SuperVision, Chauffeur and then Lite, because I think, the big steps in terms of the cost.

  • Chris McNally - Analyst

  • Maybe I'm wrong, I thought on a lot of these Gen 1 programs, there was also on the enhanced that you're -- there was also a significant amount of radar, for example.

  • So if you have multiple radar, you'd be adding 500 or 600 to the total cost of the system to the OEM, which you may be able to remove with SuperVision Lite?

  • Amnon Shashua - President, Chief Executive Officer, Director

  • Well, so many of the front-facing camera does not have the radar.

  • It's not that every ADAS program has a front-facing radar.

  • So a lot of the front-facing camera penetration is vision only.

  • There's no radar.

  • With the SuperVision Lite, it's the seven cameras, including four of them are parking cameras, of course, sometimes they come with the radars and sometimes they did not.

  • In this particular program there is a front facing radar.

  • Chris McNally - Analyst

  • Okay.

  • Makes sense.

  • And that's why you did the limited operational design domain of one Gen 1 programs will only the camera.

  • Just the second question for getting OEMs on the low end to sign up for SuperVision Lite, could you talk a little bit about how the system with scale, meaning do they get to see how REM and RSS works, and then it leads for them to potentially use your higher levels of SuperVision for more premium vehicles and just the ability for them to upgrade on those existing platforms over time to higher forms of SuperVision.

  • If you could just kind of go through that, that sort of that escalation, that upsell that you could have over here?

  • Amnon Shashua - President, Chief Executive Officer, Director

  • Well, if an OEM buys into SuperVision Lite, they cannot basket because SuperVision has more sensors.

  • More cameras, other than cameras.

  • Normally it goes the other way around.

  • We have an OEM that is signed into SuperVision and some of it is modeled, has a low end model and wants to upgrade the low end model from a front-facing camera to a SuperVision Lite.

  • Chris McNally - Analyst

  • And just if I could follow that logic, the SuperVision win the SuperVision Lite win?

  • That was the new OEM?

  • Right.

  • So you didn't down-sell this specific OEM and some of its SuperVision Lite is the first SuperVision they're taking.

  • Amnon Shashua - President, Chief Executive Officer, Director

  • The SuperVision Lite win is with a new OEM.

  • It's a design win, it's with a new OEM.

  • It's not part of the OEMs that we mentioned before.

  • Chris McNally - Analyst

  • Perfect.

  • Appreciate the detail.

  • I'll follow up.

  • Operator

  • Adam Jonas, Morgan Stanley.

  • Adam Jonas - Analyst

  • I'm

  • (inaudible).

  • My thoughts and prayers are with you and your loved ones in the Mobileye community, falling atrocities in Israel.

  • My first question is on the legacy OEMs.

  • Many of them are dialing back.

  • There are investment plans, and we continue, we expect that will continue.

  • If it does, does slower EV adoption, categorically have any impact on SuperVision adoption over the next few years in your mind?

  • I think the opposite is happening when dialing back the investments are basically dialing back in source -- those are very, very big investments and pushing them towards a better time to market performance and all the descaling that Mobileye can provide.

  • So, you know, our engagements with the OEMs on their SuperVision is really all over.

  • Dan Galves - Chief Communications Officer

  • SuperVision is not an easy targeted system.

  • It's agnostic to powertrain, but we don't see any impact from relative basis.

  • Adam Jonas - Analyst

  • Okay.

  • Yes, that's going to kind of make my second question.

  • And Dan, is the 10 identified and those also include, how many those are EV?

  • Do any of those include architectures for ice or hybrid?

  • Dan Galves - Chief Communications Officer

  • There's none of these 10 OEMs are EV only companies.

  • And yes, I think I mean we're involved with design win, discussion, and negotiation.

  • I think what I would say is that we have announced design wins with Geely, with Porsche, with FAW, and the other seven are in negotiation on around a variety of models within each group.

  • Adam Jonas - Analyst

  • Anything to add, Amnon?

  • Amnon Shashua - President, Chief Executive Officer, Director

  • No, no.

  • It's really agnostic to the powertrain.

  • Adam Jonas - Analyst

  • I was thinking the operating system.

  • I'm sorry, I'm almost done here, but powered powertrain, I could see enough to serve them.

  • But my understanding was that the starting clean sheet with an operating system and our electrical architecture did have some advantages, shrink to greatness, very invasive, and important new system like the technologies you offer relative to say retrofitting an existing or kind of fading out or runoff of and have a nice architecture.

  • But I don't know if that logic is correct.

  • Amnon Shashua - President, Chief Executive Officer, Director

  • I think that the SuperVision systems it's really a closed system where with the new wins, there is a cooperation with the OEM on joining the driving policy.

  • As I mentioned in last quarter, we have a new language.

  • We call it tuning language of behavioral shaping your language, which allows the OEMs to really take control of all the driving policy decisions on top of our kind of operating system of driving the policy, but it's all within our system.

  • So whether you have an easy or a new architecture, or not in your architecture, there is no difference.

  • It's really agnostic.

  • Adam Jonas - Analyst

  • Thanks, Amnon.

  • Operator

  • Shreyas Patil, Wolfe Research.

  • Shreyas Patil - Analyst

  • Hey, thanks so much for taking my question.

  • I guess as we look out over the next few years, from a few years on, you've talked about SuperVision ramping up to maybe the low 200,000 unit range for next year.

  • I think you're still targeting 1.2 million by 2026.

  • So that would imply a pretty big ramp in 2025 and 2026.

  • So maybe can you talk a little bit about the visibility, how much visibility you feel like you have there and in supporting that kind of ramp?

  • Amnon Shashua - President, Chief Executive Officer, Director

  • Well our visibility is getting better and better as time goes by naturally, the more design wins or close to design wins gives us a much better visibility.

  • I would say that among all the opportunities that we have, 50% of them are going to launch in 2025 or 2025 and earlier, and 50% in 2026.

  • And what we're talking about trying to say is, let's say, an inflection point in revenue because SuperVision revenue per car is an order of magnitude higher than our ASP of EyeQ.

  • Now pinpointing exactly the date of that inflection point is difficult but the 2025, 2026 timeframe, we were confident with the numbers that we gave.

  • Shreyas Patil - Analyst

  • Okay, great.

  • And then just to maybe clarify.

  • So you mentioned on SuperVision Lite and in this award that you've secured your playing a Tier 2 role versus a Tier 1, can you maybe talk a little bit about what a Tier 2 role entails for you or is it more just software versus providing the domain controller as well, if I had to think about it?

  • Amnon Shashua - President, Chief Executive Officer, Director

  • The Tier 2 role will mean that this is our classic care role in almost all other non SuperVision programs where we provide the chip.

  • This case, it's the EyeQ6 time and all the software around it that the power of EyeQ6 in terms of the driving functions.

  • And our revenue is for the chip and the software.

  • It's a few hundreds of dollars.

  • Shreyas Patil - Analyst

  • Okay.

  • Maybe just a last quick one for me, just shifting to profitability.

  • It looks like Q4 is tracking towards that 36% for operating income at the midpoint, which is quite strong.

  • And I think you've previously talked about 20% OpEx growth for next year.

  • But it sounds like this year maybe coming in a little bit lower.

  • So should we still be assuming that kind of growth or should we assume something higher?

  • Well, you know, those are some things that were not in our control, like the depreciation of the Israeli shekel, which is responsible for most of our operating expenses.

  • We were still late in moving on to our new campuses.

  • So there's also sales and operating expenses.

  • But in our plans of investments, we're not changing that.

  • Now we have big investments, to me going forward and those have not changed.

  • Moran Rojansky - Chief Financial Officer

  • I would just add to that is, 2023, there's also an issue worth mentioning of the non-recurring engineering reimbursements that reduced R&D.

  • So for more advanced development programs like SuperVision or Chauffeur, the NOV reimbursement are much more significant than what we've seen in ADAS.

  • Of course, to tie with Mobileye's business and therefore more challenging to predict.

  • So the reimbursement for 2023 are expected to be higher than our conservative assumptions at the beginning of the year.

  • That's also part of some of our savings for 2023 and for 2024, based on our current forecast for 2023, we would expect to see 20% or 25% growth in 2024.

  • So an important factor is, of course, the design wins on what we are willing to SuperVision and Chauffeur, but assuming we win everything, we expect it to be even closer to 25% in 2024.

  • Amnon Shashua - President, Chief Executive Officer, Director

  • The point that I forgot to mention was that the SuperVision Lite, our revenue includes also where we have to win.

  • So you have to check it proper and win, as well.

  • Shreyas Patil - Analyst

  • Okay, understood.

  • Thank you so much.

  • Operator

  • Mark Delaney, Goldman Sachs.

  • Mark Delaney - Analyst

  • Yes, good afternoon, and let me add my support and sympathies for everything that the Mobileye family is dealing with.

  • My question on the tech road map for you, Amnon.

  • Do you think the latest GPUs and AI training technology will help Mobileye to accelerate its product development timelines?

  • And on the topic of the tech road map, I'm curious what feedback you've had on your paper about how end-to-end neural nets may not be the best approach for autonomy?

  • Amnon Shashua - President, Chief Executive Officer, Director

  • Well, I would view about end to end.

  • We put it on in that paper.

  • I don't think this is the forum to kind of repeat what I hope.

  • So it's out there in a blog and we spent some thought on writing it.

  • So I'll not add more to that.

  • In terms of our compute infrastructure, out of IT infrastructures, not GPUs.

  • It is the EyeQ.

  • It provides us much more flexibility than a GPU.

  • It's much more cost efficient.

  • It's much more power efficient.

  • And this is what is driving kind of a big value proposition to our customers that we can be very efficient in cost performance and all the descaling because we have a tailored system on chip to our winning.

  • Mark Delaney - Analyst

  • Got it.

  • And just in terms of the potential for SuperVision, gross margins to expand, you spoke about a new domain controller and that being a meaningful driver over the course of 2024 anymore details you can share about how impactful that may be to gross margins?

  • Thanks.

  • Amnon Shashua - President, Chief Executive Officer, Director

  • Our assets of gross margin for SuperVision is aiming at 50%.

  • We're not there yet, but this is where we're going.

  • Moran Rojansky - Chief Financial Officer

  • And again, for SuperVision, as we've mentioned, the gross margin will tend to end in the two figures that I mentioned.

  • One is that cost reduction for the ECU, the next-generation of the ECU that's supposed to have a significant impact in the beginning of 2024 as of Q2.

  • And also, again, software bundles.

  • And that would have a more effect in the back half of 2024.

  • But we will have a meaningful growth in gross margin for SuperVision in 2024 versus 2023.

  • Mark Delaney - Analyst

  • Thank you.

  • Operator

  • Aaron Rakers, Wells Fargo.

  • Aaron Rakers - Analyst

  • Yes, thanks, for taking my question.

  • My thoughts to the Mobileye family as well, given your current situation.

  • So I guess wanted to ask you about, you know, the longer term, how we should think about just the model attributes of monetizing cloud enhanced data, obviously with the Zeekr entity functionality across 100,000 plus vehicles.

  • Just maybe walk me through how we think about that monetization, which sounds to be kind of kicking in the latter part of 2024.

  • Any metrics you can help share on how we should think about that?

  • Amnon Shashua - President, Chief Executive Officer, Director

  • Dan, do you want to say a few words and then I'll ask.

  • Dan Galves - Chief Communications Officer

  • Sorry, Aaron, could you repeat the question?

  • Aaron Rakers - Analyst

  • Yes.

  • Again, I appreciate it.

  • I'm just asking about the monetization.

  • The effect of the Zeekr vehicles, for example, taking the full license of the ramp functionality, the cloud enhanced data on just how we think about that flowing into the model as we look through 2024?

  • Dan Galves - Chief Communications Officer

  • Yeah.

  • I think maybe I'll start and then maybe Moran can talk a little bit more.

  • So cloud enhanced data has the potential to generate recurring annual revenue from the maintenance of the map.

  • Those volumes are still relatively small because it was really just won a couple of platforms from Volkswagen Group.

  • Ford will be adding ramp to their Blue crew.

  • So the volumes should start to ramp pretty significantly next year.

  • But the function of annual recurring revenue is if you want to see kind of repeated years building up a cumulative number of cars, and that's when it starts to make a big difference.

  • So we'll see some effect next year of the recurring revenue, but it could get much more meaningful in the future years.

  • I think that, on a software bundle revenue, we're really encouraged by the feedback that we're getting from consumers in China at the end of the day to take the SuperVision functionality and pay an incremental cost from the consumer perspective.

  • Obviously, that's going to come from whether they value the system or not.

  • And that's why we think that the free trial was a really good idea because there is a lot of value in the system and it's better for people to experience that rather than make them make the decision before they've ever experienced it.

  • And just one thing to reiterate, as you know, of the beta users of that system, 95% said that they would pay for the system.

  • We don't think that the penetration rate is going to end up that high, but it's a really encouraging sign.

  • I don't know Moran has anything else to add and that should start to happen in the second half of next year.

  • Moran?

  • Moran Rojansky - Chief Financial Officer

  • So yes, the volumes are already given recurring revenues made a material impact this year in 2023.

  • But we see the growth trajectory from now on ASP, decline is in ADAS and ramp revenue.

  • We'll start to provide some modest tailwind to ASP in 2024.

  • And as Dan mentioned for SuperVision on the, maybe, the back half of 2024 after the trolley.

  • Amnon Shashua - President, Chief Executive Officer, Director

  • Yeah, to be complete about SuperVision with the V curve, every customer that is converted to paying for NCP is few hundreds of dollars to Mobileye than the average.

  • Aaron Rakers - Analyst

  • Very helpful.

  • And then I think there was a comment in the prepared remarks that I think it was in the context of also zee and other brands within the Geely Group that you said could add significant volume in the near future.

  • Can you help us appreciate that a little bit more?

  • What are you kind of referring to there?

  • It sounds like within Geely.

  • Amnon Shashua - President, Chief Executive Officer, Director

  • Yeah, within Geely, it's more design wins that we're working on more platforms beyond the 2025 timeframe.

  • Aaron Rakers - Analyst

  • Okay.

  • Okay.

  • Thank you very much.

  • Operator

  • Emmanuel Rosner, Deutsche Bank.

  • Emmanuel Rosner - Analyst

  • Thank you very much.

  • First of all, I would also like to express my idea thoughts, prayers, and support to the Mobileye family in the current horrible circumstances.

  • I wanted to ask you first on your at the FAW, we'd obviously extremely encouraging in a new customer and then start pretty soon in late 2024.

  • Can you just frame for us again, the scope of what your current win is in terms of the brand and perhaps the new vehicle models or timeline?

  • And then what would be the time line around potential expansion of it and in which direction would that relationship expand?

  • Amnon Shashua - President, Chief Executive Officer, Director

  • So the relationship of the design wins of SuperVision starting from end of 2024.

  • So it's the same domain controller that is running on the Zeekr vehicles, not the EyeQ6 or EyeQ5, and it's a rollout for all brands of FAW starting from end of 2024, I think more than six brands.

  • And then a year later, based on EyeQ6 is the Chauffeur.

  • So they're going to be one of the first customers post our four local customers, but also I think FAW on the Chauffeur highway, eyes off with the Chauffeur system of three EyeQ6.

  • And it will include also one of our imaging radars.

  • So it's not just the domain controller, but also will start providing also sensors.

  • So that's the scope of the of the relationship.

  • Emmanuel Rosner - Analyst

  • And then in your prepared remarks, you also alluded to potential expansion to some of the joint venture brands.

  • How would that play out?

  • Who needs to take this sort of decision and what is the timeline for that?

  • Amnon Shashua - President, Chief Executive Officer, Director

  • Yes, I don't know if it's a speculation.

  • I wouldn't say it's difficult to put a probability on it, but I believe that a successful rollout of SuperVision on FAW is own brands would be a good catalysis, to ways of moving to where the joint venture brands as well.

  • But at the moment, there's something completed.

  • Emmanuel Rosner - Analyst

  • Understood.

  • And I guess just follow-up quickly, then, since this is launching already in late 2024, obviously, helping with some of your SuperVision volumes next year.

  • I understand your point on higher confidence in 2025, 2026, since this is the bulk of the launches, but still curious about your latest mark-to-market on what 2024 volumes could look like for SuperVision, is up a little bit more than doubling this year.

  • Is still on track, especially with the addition of FAW?

  • Amnon Shashua - President, Chief Executive Officer, Director

  • Yes, I think yes.

  • I think that this is a good estimate about doubling what we have in 2023, slightly more about this is a good estimate.

  • Dan Galves - Chief Communications Officer

  • We feel the same as we did last quarter when we made the comments.

  • Emmanuel Rosner - Analyst

  • Great to hear.

  • Thank you.

  • Operator

  • Pierre Ferragu, New Street Research.

  • Pierre Ferragu - Analyst

  • Hey, guys.

  • Thanks for taking the question, um, so I think you made interesting comments about China in your prepared remarks.

  • It must be like a very interesting market at the moment with you guys ramping up SuperVision.

  • And at the same time, you have like a handful of competitors who started to pull on the market in the hands of some of drivers of consumers kind of like coming in a self-driving features that provide like a, I would say, not assuming our service but with more compute and more sensors more than just the camera apps.

  • And I'd love to hear, how much you've been able to assess, you know, the difference in user experience between SuperVision and the identity features and how you feel about it?

  • At the end of the day, all the systems competing within that, like very similar grounds, are they offering very similar expenses?

  • Or do you see like significant differences emerging between SuperVision?

  • And what's the rest of the market has been able to put on the road so far?

  • Amnon Shashua - President, Chief Executive Officer, Director

  • They have been detailed benchmarks comparing by our agility, by third parties on comparing Zeekr 001 with NCP comparing to expand to Neil to the auto.

  • The difference is striking in terms of measuring the mean time to the intervention, also so they know how much time it takes to go through point A to point B. The Zeekr 001 was known by 10% faster, much, let's say, intervention rate by order of magnitude, less intervention rate.

  • So the difference is really striking.

  • Some of those, I think all of them are relying only on a high definition map to the conventional high definition map, which they already have mentioned that they cannot scale it.

  • It's too expensive to scale, whether Mobileye doesn't use a conventional high-definition map and those systems are much more expensive.

  • As you mentioned the compute too, sometimes it's about 10 times more compute than what we have many more sensors, more radars, a front-facing radars, and some of them they have two front-facing radars.

  • So I think we're very confident.

  • We have a good value proposition in terms of performance, in terms of the cost, in terms of ODD scalability, our web capabilities allow scalability, geographic scalability that the conventional high definition map maker would find it very, very difficult to compete.

  • The kinds of benchmarks that have been conducted is how the vehicles behave when you approach a construction zone when there is a block plane.

  • So it was a very detailed benchmarking, not just intervention rates and really the difference is striking.

  • Pierre Ferragu - Analyst

  • That's great.

  • And just a quick follow-up on I'm sorry to come back to that, but I just want to make sure I get the whole thing up.

  • I convinced you have your 10 OEMs of which like three you've announced.

  • They represent 34% of the market.

  • And what do you see that of the seven that are not confirmed yet, your confidence, our written ratio, I would say in terms of converting them sits between 50% to 99% depending on which one we are talking about.

  • And then you had an additional 15% of the market on which coincidentally is below 50%, I assume.

  • Is that the right way to wrap all that into just one sentence?

  • Amnon Shashua - President, Chief Executive Officer, Director

  • Yes, I'll take the range within 50% to 99%, but now the 50% is only one of them.

  • The rest is higher than 80% and one of them is 99%.

  • Pierre Ferragu - Analyst

  • Excellent.

  • Thank you for the final clarification on that.

  • Dan Galves - Chief Communications Officer

  • Thank you, Pierre.

  • Kyle, unfortunately, we've run out of time.

  • So if you could move to close the call, please.

  • Thanks, everyone, for joining us, and we'll talk to you next quarter.

  • Really appreciate the interest.

  • Operator

  • Okay.

  • Perfect.

  • This concludes today's teleconference.

  • You may disconnect your lines at this time.

  • Thank you for your participation and have a great day.