Hesai Group - Q2 2024
August 19, 2024
Transcript
Operator (participant)
Hello, ladies and gentlemen. Thank you for standing by for Hesai Group's second quarter 2024 earnings conference call. At this time, all participants are in listen-only mode. Please note that today's conference call is being recorded. I'll now turn the call over to our first speaker today, Yuanting Shi, the company's Investor Relations Director. Please go ahead.
Yuanting Shi (Director of Investor Relations)
Thank you, Operator. Hello, everyone. Thank you for joining Hesai Group's second quarter 2024 earnings conference call. Our earnings release is now available on our IR website at investor.hesai.com, as well as via Newswire services. Today, you will hear from our CEO, Dr. David Li, who will provide an overview of our recent updates and address our financial results before we open the call for questions. Before we continue, I refer you to the safe harbor statement in our earnings press release, which applies to this call, as we'll make forward-looking statements. Please also note that the company will discuss non-GAAP measures today, which are more thoroughly explained and reconciled to the most comparable measures reported on the GAAP in our earnings release and SEC filings. With that, I'm pleased to turn over the call to our CEO, Dr. David Li. David, please go ahead.
David Li (CEO)
Thank you, Yuanting, and thank you everyone for joining our call today. Let's begin with an overview of the LiDAR market trends and some recent business highlights before moving on to our second quarter financials and operational results. We are thrilled to announce that Hesai has been recognized as the number one automotive LiDAR company by market share for the third consecutive year, according to the latest LiDAR for Automotive Report from Yole Intelligence, a world-renowned European independent research firm. 2023 was a stellar year for Hesai, marked by record-breaking revenues and shipments, strategic design wins, an expanded product lineup, and new partnerships. Our expertise in both passenger cars and robotaxis enabled us to capture 37% of the global LiDAR market and an impressive 74% share of the global robotaxi LiDAR market in 2023, demonstrating our clear leadership of the global automotive LiDAR market.
Yole Intelligence's recognition inspires us to aim even higher as we continue to deliver the most advanced and powerful LiDAR products, driving further growth and innovation in the dynamic automotive industry. Next, a brief update on autonomous mobility business. At present, one of the most exciting developments in China is the thriving robotaxi market, which is scaling and commercializing at an impressive pace. We're delighted to witness this momentum, and proud of Hesai's key role in promoting this trend. Baidu's Apollo Go, an autonomous driving travel service platform, has recently launched operations in Wuhan, one of China's largest cities. This launch has garnered significant market interest and numerous orders, highlighting the clear development path and the tremendous potential of the robotaxi business. According to media reports, Apollo Go has provided over 6 million robotaxi rides in 11 Chinese cities since 2019.
We've been serving as Baidu Apollo Go's exclusive supplier for their vehicles' main perception LiDAR. With their sixth generation rolling out this year, each vehicle is equipped with four of our AT128 ADAS LiDARs, marking the first large-scale application of ADAS LiDAR solutions on robotaxis in China. Our collaboration with Baidu's Apollo Go is a prime example of how our advanced LiDAR solutions and attractive price point can provide a comprehensive object perception, accelerating the adoption and the commercialization of driverless vehicles globally. Let's now turn our attention to the ADAS market. In the last quarterly update, we underscored the significance of 2024 as a decisive year for the LiDAR industry leap to mass market popularity.
According to GGII, a renowned automotive research and consulting firm, the LiDAR adoption rate among EV priced above CNY 150,000 is projected to surpass 16% this year, varying towards 50% in alignment with the famous Crossing the Chasm innovation adoption model. We are pleased to note that this critical 16% inflection point was reached earlier than the market anticipated. According to the latest data, our overall LiDAR penetration rate in China reached an impressive 22% in June of this year, driven by consistent monthly increases of approximately 2% over the past three months. Additional June statistics also reflect this trend, revealing that average LiDAR adoption rate among the top ten best-selling new EV makers in China exceeds 60% of their total sales and volume.
In the first half of the year, LiDAR installations increased remarkably by approximately 260% year-over-year, outpacing the growth rate of other sensor installations by almost 10 times. These figures highlight LiDAR's accelerated acceptance and its critical role in enhancing vehicle safety and comprehensively improving autonomous driving capabilities. We anticipated that LiDAR will continue to drive innovation across automotive industry and shape the future of smart transportation. In light of these LiDAR market trends, our strategic approach of offering both ultimate performance and ultimate value to cost products has positioned us to adeptly address the diverse needs of our extensive client base. Our next generation flagship products, such as the ATX and AT512, are gaining significant tractions among OEMs competing on intelligent driving functions.
Maintaining a flexible and a competitive product roadmap has also enabled us to secure crucial design wins for new car models scheduled for SOP in 2025 and beyond. In the second quarter, we recorded a series of new design wins within the domestic market. Our deliveries for those models are scheduled to begin next year. These include a flagship model from a top-selling EV maker new to our client roster, which currently has 15,000 vehicle shipments per month. Our existing customers, who are among the largest EV shippers in China, have also extended their partnerships with us to include multiple new models and facelifts set to launch starting in 2025. The rapid adoption of our products by these key players reflects our competitive edge and the substantial value we provide.
Notably, as L3 autonomous driving technology promises an unprecedented consumer experience, there is a growing trend in the domestic market to prioritize high-performance LiDAR products for next-generation vehicles targeting L3 standards, alongside domestic OEMs' historical focus on cost efficiency. Among the previously mentioned new design wins, a leading EV maker has already signed an agreement with us to exclusively adopt Hesai's next-generation L3 ultra-high performance LiDAR for all their new models scheduled for release in 2025. This further solidifies our position as a leader in advanced LiDAR technology and opens the gate for more domestic OEMs to follow. On the international front, we have secured design wins with four prominent global OEMs, including three joint ventures in China, with two American and one European automotive companies. Some of their models will be shipped both domestically and globally.
Most notably, we have been selected by a global automotive OEM for its worldwide shipping programs. Unlike some of the competitors who are still in the B sample development phase, we are progressing towards the actual delivery of B samples for this milestone design win. Additionally, we've been awarded new POC programs with two leading global OEMs from Europe, including a prestigious sports car brand, to test Hesai's next-generation high-performance, long-range, and short-range LiDARs. While these two POCs are not yet fully design wins, we believe they have potential to convert into real deals in the future. To date, we have secured eight design wins with a total of 19 OEMs globally across over 70 vehicle models.
This includes eight serious production partnerships with six out of the top 10 global OEMs, directly or through entities within their group, and eight out of the top ten domestic OEMs, measured by their revenue in 2023. Among these 19 OEMs, 13 of them have chosen Hesai as their exclusive long-range LiDAR supplier, further demonstrating the trust and confidence the industry places in our products and capabilities. Now, let's briefly go through our operating and financial results for the second quarter of 2024. To be mindful of the length of the earnings call today, I encourage listeners to refer to our second quarter earnings press release for further details. In the second quarter, we achieved quarterly revenue of CNY 458.9 million, $63.1 million, reaching the high end of our guidance.
In addition, our LiDAR shipments rose to over 86,000 units, marking an increase of 66% year-over-year and a 46% quarter-over-quarter. Our blended gross margin was robust at approximately 45%, improving quarter-over-quarter, thanks to effective cost management and our flywheel approach to cost and scale optimization, as well as additional service revenue contribution during the quarter. As a result, our quarterly net loss narrowed significantly by 33% quarter-over-quarter to RMB 72.1 million, $9.9 million. These accomplishments highlight our best-in-class execution within the global LiDAR industry in streamlining our operations. We continue to anticipate stronger performance in the second half of the year, both in terms of revenues and shipments.
For the third quarter of 2024, we expect net revenue to be between RMB 450 million, $61.9 million, and RMB 500 million, $68.8 million, representing a year-over-year increase of approximately 1%-12.2%. In light of our downstream adjustments to accommodate the postponed SOP timeline for certain client vehicle models, we've revised our full-year revenue forecast to be within a range of RMB 2.0-2.3 billion, roughly $280-$320 million. Additionally, we anticipate that less than 20% of our total revenue will come from the U.S. market. The vast majority of our revenue will be generated outside the U.S., driven by the increasing demand for LiDAR technology elsewhere.
Despite the recent downstream adjustment in ADAS and unexpected production delays on the robotaxi side since late 2023, our financial strength remains robust, reflecting the resilience of our business. Our cost management initiatives have yielded better-than-expected results in terms of our blended gross margin. Compared to our earlier guidance, which projected a blended gross margin at the higher end of the 30%-35% range for the full year of 2024, we now foresee the blended gross margin for the third and fourth quarter is expected to be close to 40%. This expectation holds true even with the notable year-over-year growth in the ADAS business, which, although expanding rapidly, has traditionally had a lower margin. We are not aware of any other player in the global LiDAR industry that matches our financial strength while operating on such a massive delivery scale.
We anticipate that effective expense controls and optimized operational efficiencies will bring us closer to achieving profitability in the fourth quarter of this fiscal year. We'd like to remind you that this outlook is based on the current market conditions and reflects the company's preliminary estimate of the market and operating conditions and customers' demand, which are all subject to change. Looking ahead, we see strong growth opportunities. Our strategic initiatives and market positioning lay a solid foundation for future success. We're confident in our growth potential for 2025 and 2026, and expect to continue outperforming our LiDAR peers, driven by the following key factors. First, we're strategically positioned to benefit from the rapid growth of the robotaxi market, particularly in China. The recent launch of Baidu's Apollo Go across eleven major Chinese cities marks the beginning of a new era.
Industry analysts estimate that this LiDAR deal is worth $200 million-$300 million based on Baidu's plan to deploy approximately 100,000 robotaxi vehicles in China. This move is expected to be the first extensive deployment of robotaxi technologies in the Chinese market, and Baidu's advancements are just the tip of the iceberg. Other leading robotaxi players are also making significant strides. Notably, all of the top five robotaxi companies in China have selected Hesai as their exclusive main perception LiDAR supplier. As our robotaxi customers continue to enhance cost efficiencies and scale their operations, we anticipate a strong rebound in our robotaxi-related revenues in the coming years. Second, the ADAS sector. We've secured key design wins with 19 leading OEMs globally, 13 of which have selected us as their exclusive long-range LiDAR supplier.
Our strategic approach of offering both ultimate performance and ultimate value to cost products is generating a robust ADAS order pipeline for 2025 and 2026, stronger than that of our peers. Our ATX ADAS LiDAR, designed for mass market and the large-scale adoption, has secured design wins from seven OEMs as of the end of second quarter. This positions us for millions of units in use throughout the coming years based on customer demand forecast. Furthermore, we are the sole recognized provider of ultra-high-performance LiDAR, particularly our AT512, for OEMs aiming to achieve Level Three standards in their next generation of intelligent vehicles. Notably, we're executing Level Three series production programs using this advanced technology, including collaborations with a leading EV maker in China and a leading global OEM.
These achievements position our ADAS business for exceptional growth, both domestically and internationally, supported by our cutting-edge technology and proven track record of over 450,000 lidar deliveries since inception as of end of the second quarter. Third, we anticipate that the introduction of regulations mandating higher safety standards will be transformative for the lidar industry. Initiatives such as China's newly launched Level Three policy and the NHTSA test AEB speed requirements in the U.S. are propelling advancements in intelligent driving with an unprecedented emphasis on safety. Meanwhile, more OEMs and consumers are recognizing lidar configurations as essential safety features, just like safety belts or airbags. As a global leader in automotive lidar, Hesai is exceptionally well positioned to capitalize on these dynamic safety trends. Last but not least, before I conclude, I'm delighted to announce that the publication of Hesai's 2023 ESG report.
This report outlines our efforts and accomplishments in ESG across our business operations, and underscores our ongoing commitment to sustainable development. As a leader in the automotive LiDAR industry, Hesai is delighted not only to elevating people's lives with cutting-edge LiDAR technology and products, but also fostering greener and more sustainable operations.… Moving forward, we'll continue to align our business goals with ESG best practices to ensure long-term value for our stakeholders and society. For more details on the ESG report, please visit our IR website.
In summary, we're poised to capitalize on emerging opportunities in the automotive industry, backed by our efficient operations, a robust financial foundation, and outstanding technological capabilities. As we look to the remainder of 2024 and beyond, we remain committed to driving innovations and providing top-tier LiDAR solutions that enhance vehicle safety and autonomous driving worldwide, while adhering to our ESG objectives. This concludes our prepared remarks today. Operator, we're now ready to take questions.
Operator (participant)
Thank you. If you wish to ask a question, please press star then one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you are on a speakerphone, please pick up your handset before asking your question. For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. For the sake of clarity and order, please ask one question at a time. Management will respond, and then feel free to follow up with your next question. The first question today comes from Tim Hsiao from Morgan Stanley. Please go ahead.
Tim Hsiao (VP and Equity Research Analyst)
Morning, David. Thanks for taking my questions. I have two questions. The first one, we noticed that Financial Times reported that the U.S. Department of Defense has decided to remove Hesai from the blacklist. Could you please elaborate a bit more on the current developments, the progress, and, of course, the implication to your project wins and operation in overseas? Because we think this is a very important milestone, so it is great if you can share more details. That's my first question. Thank you.
David Li (CEO)
Thank you, Tim, and thank you for the question. We have consistently maintained that our inclusion on the 1260H list was a mistake. Our products are strictly for commercial and civilian use, and we have no connection to any military bodies. We're not a vendor to any military bodies either. As we discussed in the previous earnings calls, being on the DoD means strictly that the U.S. Department of Defense, AKA the Pentagon, cannot buy our product starting mid 2026. But to be honest, as far as we know, we've never sold anything to DoD or any military, and we definitely don't plan in the future. Or in simple terms, we've never generated any revenue from DoD or any other military, and again, we don't expect to.
However, being on the list did seriously impact our reputation, and as you can see, the stock price, and it also impeded some of the business opportunities over the past few months since we've been included. And again, to be honest, it actually made things very tricky for some of the customers because they're worried that we might have ties to the Chinese military, as that's what the list meant. Unfortunately, it's hard to disprove until DoD officially takes us off the list. We will not be able to speak to the actual result until it's official, but by any chance, if we are removed, with our leading technology and the best-in-class financial strength, we're very optimistic that we'll lock in more global deals.
And this is the information we would like to share regarding the current status of the DoD. Unfortunately, I will not be able to speak to the status of the Financial Times article because that's speculation of the case, and we definitely need to wait for the official ones. But I think it's more important that people understand our position, understand the facts, and also understand that we have been impeded by this inclusion. And if by any chance we are removed, we are extremely optimistic that a lot of the progress that was being impeded and paused will be removed and hopefully on an accelerated path. Does this answer your question, Tim?
Tim Hsiao (VP and Equity Research Analyst)
Yes. Yes, thanks for sharing all the details. My second question is, currently on investor focus a lot on the robotaxi, and David also shared quite a, a lot of updates during the presentation. As you mentioned, I think was chosen by Baidu Apollo Go for as next generation robotaxi as a sole suppliers across eleven cities. If there's any further details, how should we think about the market opportunities? Because you also mentioned in addition to Baidu Apollo Go, the top-notch robotaxi operators or makers also want to, you know, do the business with us. You mentioned like a four LiDAR
David Li (CEO)
In the meantime, when do you think we are going to see the inflection point where more meaningful revenue uptick? Is it gonna be next year or the year after, or we are going to see some progress later this year? So, that's my second question. Thank you.
Thank you, Tim. I will answer the first part. I think, for a split of a second, I missed your question on the software side, and which I might have to ask you to ask again. But let me first take on the question of the business development of the robotaxi. I think it's fair to say that we are the biggest robotaxi LiDAR supplier in the world by many measures. In China, we are the exclusive, the main perception LiDAR supplier for all of the top five robotaxi supplier. Most people believe that we have a product that's way superior than the peers, and including Baidu Apollo Go, right?
Based on the Yole report for 2023, we have a 74% market share of the global LiDAR market for robotaxi, as we, I think, have been communicated. Historically, those people use a mechanical spinning LiDAR. But now, as you see, as we are scaling up, a lot of people are adopting our ADAS AT128, again, including the Baidu Apollo, which is a very interesting transition as we see, because AT128 is a new sensor that we've shipped hundreds of thousands of, and it's a very powerful, much more affordable sensor. I think this actually helps the customer to achieve a better balance between price and performance.
At this point, to me, the biggest inflection is more commercial than technological, because technological advancement has always been continued continuously advancing. Well, this year is the first year most people are talking about commercialization in the sense that you need to look at the total cost of the equipment, you need to look at amortization, and in the end, you need to come to a business case in which if your sensors are still worth tens of thousands of dollars each, as they used to, it makes it tricky for people to do that. And that's why we are working very closely with robotaxi people to do that, and Baidu is one of the example, and they're not the only one, by the way.
Many other robotaxi people have also adopted the similar trend. So, as a result, what we see is that we start to receive significantly larger LiDAR orders for robotaxis for the years to come, and some of them have already been locked in. And as we expect this market to grow, and we expect the customers to move from a smaller scale, high price mechanical LiDAR to the larger scale ADAS LiDAR. And also international robotaxi players are still focusing on the performance, so they're still focused on the mechanical LiDAR, which is the more high price and a much higher margin business for us. So this is on the business part. And again, I remember you had a question on the software. Can you repeat that so that I can clear the answer?
Tim Hsiao (VP and Equity Research Analyst)
Sure, sure. So basically, just want to tell that if there would be any differences between our business with the robotaxi maker and the traditional car maker. So in robotaxi's case, because we are going to provide, like, a mount for LiDARs, so just wondering if there will be any potential upside to the value content. So in addition to the LiDARs, will Hesai also provide, like, assembly services or together with some additional software to facilitate you know the rollout of the robotaxi? And so, well, in short, will there be any value content upside in addition to the LiDAR itself?
David Li (CEO)
Okay, so your question is, to make it simple, can we make more money from them by not only selling the hardware, but also selling the software, right? So, the quick answer is, I believe, it's a different business model in a sense that we do provide a lot of tools. We're trying to stay away from the data per se, but we do provide tools for installation and calibration, stitching the different point cloud into one panorama image, and those are the tools we have.
But instead of charging them separately, we think the business model is that we provide them with the software as part of the hardware package, and that way allows us to have a better margin and a better, more competitive product. So in other words, that's already been embedded in. That is one of our advantages of being able to cater to this market with a better offering.
Yuanting Shi (Director of Investor Relations)
Yeah, let me clarify on that. I think Hesai's key focus is, you know, exclusively on supplying LiDAR hardware, but not the software. I think we are very, very strict about we never have any, you know, data security or privacy risk that can be posed because we never transmit data wirelessly. We do not, you know, store even a second of the point cloud, and we only supply the LiDAR hardware, but not the software. I think that's key.
David Li (CEO)
Yeah, I'll give you another example that I consider as analogous. If you think about, for example, Apple, right? They sell you cell phones, right? Technically, they could charge you for the iOS system, or if you look at your MacBook, they could charge you for the Mac OS systems. They never do that. They just sell you a more expensive hardware, because most people now don't have the habit of buying a separate set of software for the hardware, even though they go together. I think the software is served as a higher barrier and a better user experience for the hardware product. I mean, that's kind of the philosophy we're following.
Tim Hsiao (VP and Equity Research Analyst)
Got it. Super clear. Thanks for sharing all your details. Thank you.
David Li (CEO)
All right, thank you.
Operator (participant)
Thank you. Your next question comes from Tina Hou, from Goldman Sachs. Please go ahead.
Tina Hou (VP)
Good morning, David, Yuanting. Thanks for taking my question. So I have two questions. The first one is regarding the robotaxi LiDAR. So you report autonomous mobility LiDAR shipment separately, but now I understand that would include the AT128 LiDAR as well, right? So just wondering, like, how much of that 5,700 is AT, and then the rest is Pandar? Could you give us, like, a breakdown? And then also For the AT128 that you sell to the robotaxi customers, is it the same pricing and margin as you sell to the EV OEMs?
Yuanting Shi (Director of Investor Relations)
So that is a good question. So as we said, you know, currently, within the Chinese market, we are seeing a trend where our Chinese robotaxi players, when they would like to commercialize their business, they're switching from the transitional mechanical spin LiDARs to adopt the ADAS LiDAR. And as a result, we have received significantly larger LiDAR orders for use in robotaxis for the years to come. That means that the big order will be split into several years, and we will record the ADAS LiDAR sale to these type of Chinese robotaxi players in the coming years.
David Li (CEO)
So holistically, I think on the robotaxi side in China, we can expect that they are moving from the smaller scale, higher price mechanical LiDARs to larger scale ADAS LiDARs, and that will boost our revenue and gross profit in the long run, as the robotaxi business grow in China. With regard to your second question, are we having a higher price? Are we having the higher margin for the ADAS LiDAR we sell to the robotaxi players in China? The answer is yes.
Because the amount they are buying from us is not as significant as the passenger car OEMs they are buying from us. So basically, they will enjoy, of course, a relatively better price. And of course, we are selling the ADAS LiDAR to them with the same cost, so the margin will be relatively better as well. So that's why I'm saying that will boost our revenue and the gross profit for the long run.
Yeah. The other angle to look at it is that, to us, because they're buying the identical product, and in the end, the pricing is strictly tied to volume, right? If you kind of look at it, the ADAS volume usually were in the range of hundreds of thousands of units a year, while clearly robotaxi isn't there. That's why they have to pay for a higher price as the volume in there. But having said that, the long-term frame agreement we have with different robotaxi makers is such that by the time they reach similar level range level as the ADAS product, the price to them will be also close to the ADAS product. And it's just the nature of such a business.
Yuanting Shi (Director of Investor Relations)
Yeah. And financially, I think it's an equation, right? It's about the price you have, multiplied by the volume you have, then multiplied by the gross margin you have. And so based on this equation, I think in the long run, you know, having the ADAS LiDAR shift to our, you know, larger amount of robotaxi players, that will help their, you know, to help them commercialize their business. And in the end, you know, the equation for us, I think, will be beneficial for us financially as well.
Tina Hou (VP)
Thank you. That's very clear and makes a lot of sense. So the second question is regarding your gross margin, because the second quarter gross margin has improved quite a lot from first quarter. So could you give us a breakdown in terms of the factor for the improvement? How much is from product mix, how much is from, like, scale benefit? And also, as David mentioned, the ADAS LiDAR gross margin has also significantly improved. So just wondering, like, how much difference is there between the ADAS gross margin and autonomous gross margin now? And maybe too many questions on gross margin as well. So as you guide it for three Q and four Q gross margin at 40%, so wondering why is it lower than our second quarter margin? Lastly, how should we think about gross margin in 2025? Thank you.
David Li (CEO)
Thank you. Yeah, there are many, many questions in this, so I will try to give you the top level thinking, and maybe we can have a more interactive discussion based on, based on this. The first is, despite the downstream adjustment to accommodate the postponed SOP timeline for certain clients, our ADAS ASP will remain relatively stable within a year. The pricing was negotiated at the time of the contract and signed, typically fixed for the year. The mechanical LiDAR for each specific product will also remain stable, because most people recognize us being the, the, by far, the best mechanical LiDAR on the market.
And then you're right, that we had a 45% gross margin, blended in 2Q, highlighting our financial strength and definitely the resilience of the business, despite some of the shorter term headwinds. I think one thing I want to point out is that our quarterly gross profit total is more than RMB 200 million, and that's roughly three times that of the next highest publicly listed competitor on the global side. I think a few reasons, one is our cost management effort has paid off, because we upgraded AT128, featuring a more integrated design, along with improvement of our in-house ASICs. I think that's one of the biggest effects there.
The other one is definitely we're benefiting from the economies of scale as we ramp up the shipment, and also, we were able to take advantage of that to drive down materials and the manufacturing cost. And, there's also, I have to say there's also a one-off high margin service fee, aka NRE, from one of the global leading OEM in the second quarter, which is very helpful on the gross margin side, because it's the service revenue. So these are the status of it. Looking ahead, I think we initially guided a blended gross margin of the higher end of 30%-35% range for the full year. We now expect that the margin for Q3 and Q4 to be closer to 40%.
To be honest, we are not aware of any other player in the global LiDAR industry that can match our financial strength at the level of the revenue and the number of units we deliver, which is already at scale. With effective expense controls and optimized operational efficiencies, our OpEx is expected to grow 10%-15% compared to the full year of 2023. These initiatives bring us closer to achieving profitability in the fourth quarter of the year. We are also optimistic about approaching non-GAAP break-even for the second half of 2024. These are what we expect for the future and also the current status of the year.
Yuanting Shi (Director of Investor Relations)
In short, our gross margin will be very robust. We delivered 45% in 2Q, and we are expecting Q3 and Q4 to be closer to the 40%. You mentioned why there will be a Q/Q slight decline from 45% to 40%. It is because, you know, we recorded a one-off high margin services revenue during the second quarter, as David mentioned. However, on the other side, if you look at the cost management capability we have, if you look at the economies of scale benefits we are enjoying, the 40% level of the gross margin is probably very leading position in the industry. And if you look at the gross profit, the absolute value, we have recorded more than CNY 200 million in 2Q alone.
David Li (CEO)
I think we can, as of now, we are not aware of anyone else in the industry actually have this kind of financial strength, and that is helping us to garner, you know, a lot of deals from other, you know, passenger car OEMs as well, because the best-in-class financial strength, they have more confidence in us to partner with us in the following years to come.
Does that help you understand the gross margin fluctuation?
Tina Hou (VP)
Yes, very helpful. Thank you.
David Li (CEO)
Okay, thank you.
Operator (participant)
Thank you. Your next question comes from Jessie Lo at Bank of America Securities. Please go ahead.
Jessie Lo (Director of Equity Research)
Hi, David and team, thank you for taking my question. My first question, you sort of just answered just now, because I was wondering that we have already reiterated our break even for the fourth quarter of the year. And then you just mentioned that we are targeting the non-GAAP break even in the second half of 2025. I'm just making sure that I have heard it correct.
Yuanting Shi (Director of Investor Relations)
Excuse me, Jessie, would you mind repeating your question? I, we missed the first part.
David Li (CEO)
I think we answered that already. Is there a new question?
Yuanting Shi (Director of Investor Relations)
Is that about the break even timeline? I think we just answered that question when Tina raised the question.
Jessie Lo (Director of Equity Research)
Yeah, we did.
David Li (CEO)
Okay. Okay.
Jessie Lo (Director of Equity Research)
Yeah, yeah, sure, sure. And then,
David Li (CEO)
Go ahead, go ahead.
Jessie Lo (Director of Equity Research)
I would like to ask about, you know, as XPeng mentioned, that they will not use LiDAR going forward. Of course, they are not a new client to us as of now. But then, we were just wondering that, would it be the chance that other, you know, even if they will try to follow what they are doing on the technology side? Because, you know, what we see is very diverse. For us, we are seeing a lot of orders coming in and a lot of like, inquiries, a lot of sampling with our clients. But on the other hand side, we are still also seeing, like someone, you know, deciding not to use, and then I guess they have their own reason as well. So how do we see this, it develop in the future?
Yuanting Shi (Director of Investor Relations)
... so, may I clarify your question if you are asking about the master project pipeline?
Jessie Lo (Director of Equity Research)
I am asking about XPeng. They are not using, they decide not to use the LiDAR on their future models, and then What other OEMs tend to be, like, in the future, trying to follow or copy what they are doing right now?
David Li (CEO)
Let me make sure I honor your question.
Yuanting Shi (Director of Investor Relations)
So you're asking about the question about Tesla's vision-only solution and XPeng switching from LiDAR solution to non-LiDAR, am I correct?
Jessie Lo (Director of Equity Research)
Yes, yes, and then, of course, it does not impact us, but then what if, you know, other OEM trying to copy and/or, like, do what they're trying to do right now?
Yuanting Shi (Director of Investor Relations)
Oh, yeah. Sure, sure, sure.
David Li (CEO)
The Tesla question is the same question as it is before, right? The one thing I think people should pay closer attention is that there has been a publication by The Wall Street Journal, and they've been listing out a lot of the publicly available sources on the different technological challenges on the safety side Tesla have. And definitely they believe some of them could have been avoided with a lidar. I think that all even though it's public data, it was very interesting for people to collect them in such a way and to see, oh, it's a much more intuitive image for us to understand lidars as the seat belt or the airbag.
The other facts I want to point out is that, in my mind, Tesla slash a lot of the car makers today, they're shipping level two or level two plus plus sensor systems, in which ultimately it's on human, right? It's not on the machine. While clearly there have been a lot of efforts globally for sure, and also in China, that in the industry is moving towards level three, the nature of level three is you need redundant measures to achieve that level of functional safety. Functional safety meaning that you need the redundancy to have different ways to measure the same results or same object, and that requires a lidar. And at least that's what we see on almost every other global OEMs and the vast majority of the OEMs in China when they develop level three system.
The message is that, A, look at Tesla's recent accidents. B, for Level 3, globally, everybody else agreed you need a LiDAR. Look at China, Level 3, everybody agrees you need a LiDAR. For Level 2, some people think you could save that money, but even with that, we're making that affordable enough that most people are widely adopting them, and a lot of the players decided to make it standard configuration moving forward, and so this is really the status of the industry.
Jessie Lo (Director of Equity Research)
Yeah, sure. Thank you so much. Then, second, I still have one more question, which is, we previously guided the quarter shipments should be 150,000, fourth quarter, 200,000, and then full year at 500,000. Do you have any update? And if you could sort of shed some light on the key clients breakdown as well, for example, versus the rest?
Yuanting Shi (Director of Investor Relations)
Oh, yeah, sure. I can take that question. For the second half of 2024, we are now expecting 300-350K shipments in the second half of the year. This is due to downstream adjustments by certain ADAS clients, where some of their models have been pushed out to early next year. However, on the other side, we are seeing two trends. The first trend is that our ATX has garnered significant interest among the domestic OEMs, and as we stated in the earnings, is that we have already secured several OEMs for our ATX product already. The second trend is that we have noticed that in China, especially recently, there has been a growing trend where the domestic OEMs are also moving toward Level 3 standards.
David Li (CEO)
So they are requesting for even better performance of the ADAS LiDAR. So like we said in the earnings, that one of the leading EV maker has already signed the agreement with us to adopt our next generation ultra-high performance ADAS LiDAR for all of their new models scheduled to SOP in 2025. And we believe that this will open the gate for others to follow as well for even ultra higher performance lidars.
So as we offer both ultimate performance and also ultimate value to cost products, we are seeing some clients have decided to switch from our competitor to us. So that's why we will be anticipating very strong and solid order pipelines in 2025 and 2026. And in 2024, as we stated, because of the pushouts for certain models from the clients, we are guiding 300-350K for the second half of the year.
Jessie Lo (Director of Equity Research)
Got it. Thank you so much.
Yuanting Shi (Director of Investor Relations)
Thank you, Jessie.
Operator (participant)
Thank you. Your next question comes from Zhang Yu at Huatai Securities. Please go ahead.
Yu Zhang (Senior Equity Analyst)
Morning, Yuanqing and David. Can you hear me?
Yuanting Shi (Director of Investor Relations)
Yes, please go ahead.
Yu Zhang (Senior Equity Analyst)
Okay. We see the ATX is about to go on the market. My first question is, do you know what's the difference between the ATX and the AT128 for the L3? And, what's the impact for the gross margin?
Yuanting Shi (Director of Investor Relations)
That's a good question. Thank you, Zhang Yu. So our ATX is a high value to cost, long-range ADAS LiDARs, and comparing with AT128, I think the key point is that it's having, you know, very reasonable price, of course. And unlike similar products from our competitors that sacrifice performance for their, you know, you know, lower priced ADAS LiDARs, our ATX offers both performance upgrades and cost efficiencies. And that's why we are securing a bigger number of, you know, partnerships from the OEMs.
David Li (CEO)
Since its launch, we have seen that the ATX has secured seven design wins with seven major OEMs by the second quarter, as we said. The SOP timing for ATX, we expect that it will begin in the first quarter of next year with significantly larger volumes expected in 2026 as well. We anticipate that it will penetrate into a broader range of vehicle pricing segments with more models featuring as a standard configuration and further driving our flywheel of scale and cost optimization. Because of this, I think the gross margin for the ATX product will be very reasonable even though we didn't specifically disclose what the gross margins will have.
Yu Zhang (Senior Equity Analyst)
Oh, okay. Thank you. And, my second question is: With the other competitors that they have received the orders for the robotics LiDAR, could you tell us more about the product plan for the robot pool? Do you have some robotics orders? Thank you.
Yuanting Shi (Director of Investor Relations)
You're talking about the robotics, right?
Yu Zhang (Senior Equity Analyst)
Uh, yeah.
Yuanting Shi (Director of Investor Relations)
Please go on.
David Li (CEO)
Right. So the question is, do we have a specific product for,
Yuanting Shi (Director of Investor Relations)
Robotics
David Li (CEO)
... robotics industry? And, depending on the definition of robotics, we always have, non-ADAS, sensors. For example, the QT series, the XC series, they were not for ADAS product. So we always had that. And, having said that, we do recognize that there have been a lot more, embodied AI and robotics applications who would benefit from a even more miniaturized product with a lower price point. And so we are looking at into that, and, we do have, a lot of interest and some of the, orders already at a reasonably large scale, from the non-ADAS industry. But, we don't have plans to disclose their names yet, but they, we have been aggregating them into the, the generic robotics sector, or, non-ADAS sector.
Yuanting Shi (Director of Investor Relations)
Yeah. I think industrial robotics has always been part of our AM business, and remember that we are the global leader in AM, capturing most of the market worldwide, and all thanks to the best performance of our mechanical spinning LiDARs. For example, if you look at the recent news, in July, we just signed a deal with Westwell to speed up the global expansion in AD for logistics, and our LiDARs can, of course, be used in many kinds of robotics applications, mainly logistics, mining trucks, last mile delivery, robotics, electronics, even human robotics in the future, potentially. You name it. So we see huge growth opportunities ahead, I would say, and also stay tuned for our IAA event in Germany in September this year. Okay?
Yu Zhang (Senior Equity Analyst)
Okay, thank you. Thank you for taking my question.
David Li (CEO)
Thank you, Zhang Yu.
Operator (participant)
Thank you. Your next question comes from Jiaqi Zhang from CICC. Please go ahead.
Jiaqi Zhang (Investment Consultant)
Hi, management team. Thank you for taking my questions. I'm Jiaqi Zhang from CICC. So, congratulations on these quarter results. I have two questions to ask. The first one is regarding to the Level 3. Just now mentioned that Level 3 requires certain level of redundancy. So I want to go to more specific regarding the conditions. So are there any scenarios or conditions that can only be met with LiDAR so that to make a LiDAR a necessity for Level 3? Thank you.
David Li (CEO)
Yeah. And that is a very good question in the sense that if you think about Level 3, the functional safety requires that first, you need to have multiple measures of the same object in case one fails, right? That's the nature of such a system. And then directly to your question. Well, we see the best use of LiDARs being the one that steps up when cameras fail. There are two main scenarios, and as those are not hypothetical cases, those are the data we see from the hundreds of thousands of sensors which have shipped, and when they're operating on the road, we get those feedbacks.
One is, they call that, general objects, and, AE, for AEB functions, if you have an object like a truck laid down, sideways on the highway or an unidentified object, lost cargo, that type of object, your neural network training would require your system to have seen such an object in the past to be able to recognize that. That's one. The other is generally at night, and again, I encourage you to look into the Wall Street Journal dataset, which I think they included more than 200 cases, and if you look at those cases, a lot of them are generally in the change of lighting conditions, especially in darkness or in and out of the tunnels, in which your computer vision is struggling to see anything, until it's too late.
And then that is where a LiDAR could reliably and stably and precisely identify the best timing to brake or not. So those are the two scenarios we consistently see across different, even Level 2 plus, plus applications. But again, as I said, for Level 2 plus, plus, you can always blame the human, and that's not a big deal if machines fail, because humans are supposed to be the backup plan. But Level 3, you're giving humans freedom to not to pay attention, and then that is a big safety risk.
Yuanting Shi (Director of Investor Relations)
Yeah, and we also talked about the introduction of regulations mandating higher safety standards. For example, the Level 3 policy rolling out from China, and also the AEB speed requirements rolling out from NHTSA. I think with these kinds of, you know, safety standards rolling out, the content per vehicle financially will be higher as well. That means that, LiDAR, the number of LiDARs per car can potentially increase. That will be beneficial to us financially. Hope that answers your question, Jiaqi.
Jiaqi Zhang (Investment Consultant)
Yeah, that's very clear. So for my second part, I have a few mini questions regarding to the ATX product. The first one is, how is the progress of ATX to be integrated with headlights? I guess there should be some technical issues with that. And the second mini question is regarding how do you guys achieve a lower cost for ATX other than the economic scales? Do we employ more, maybe the Chinese supply chain, etc.? Thank you.
David Li (CEO)
I'll do the second question first. The way we achieve a lower cost for ATX are a few things. The first is that it is the next level of economies of scale as we expect millions of units to be shipped over the lifetime of such a product. We already see that. Second is the further into a level of integration and ASICs, because it's using our Gen four semiconductor, while if you remember, the AT was Gen two. That is a major improvement on the level of integration. Integration in semiconductor industry means cost savings, because you just use less area of part of the wafer to build such a chip.
Number three is the product definition fit in the sense that AT series was more generic, because that's the first time we designed an ADAS forward-looking sensor. By the time of ATX, we've had hundreds of thousands of sensors of experience, knowing where to focus and where we can relax the specs a little bit to achieve a relatively similar, you know, higher performance. So we are able to fine-tune such a sensor to fully utilize where it's needed best and then cut costs at the part that is not necessary. So with the combination of those three factors, we are able to achieve a superior cost to performance ratio.
Yuanting Shi (Director of Investor Relations)
With regards to your first question about integration, we signed a partnership together with Marelli several months ago, to integrate our ATX LiDARs into the headlights. Remember that Marelli is of course, one of the most famous Tier One supplier for global OEM, so that's about integration. I think, ATX can be applied to many placements on the cars, and we will be seeing large adoption for the ATX product starting in 2025 and even bigger volume in 2026.
Operator (participant)
Thank you. That concludes our question and answer session. I'd like to turn the call back over to the company for closing remarks.
Yuanting Shi (Director of Investor Relations)
Thank you once again for joining us today. If you have further questions-