ab Global Research Powered by 19 August 2025 YES UBS Evidence Lab China Auto Parts Sector APAC Focus: LiDARs - The eyes of smart driving Smart driving has been a key theme in the auto supply chain since 2020. Under the theme, companies related to smart cockpit, smart driving controller, and head-up display have seen substantial growth over the past 5 years. We believe the next product poised for substantial growth under the smart driving theme could be LiDAR - a sensor that enhances the reliability of smart ...

Elon Musk“LiDAR is a fool's errand.”https://t.co/sYGJDOZWb0 ...

Financial Data and Key Metrics Changes - The profit attributable to the owners of the company reached JPY 1,650,000,000, reflecting a growth of 52.6% year-on-year [5] - Total operating expenses increased by 6.8%, while net cash from operating activities rose by 14% [5] - Gross profit margin for handset products is expected to fall between 20% to 30% for the year, with high-end products improving margins significantly [8][9] Business Line Data and Key Metrics Changes - Revenue from handset lenses increased by over 9% year-on-year, while revenue from hybrid lenses grew by over 100% [7] - The automotive business saw an overall revenue growth of 8%, with expectations for a 20% growth for the year [54] - XR business achieved JPY 1,200,000,000 in revenue, with a 21% growth rate in the first half of the year [18][55] Market Data and Key Metrics Changes - The global camera market size is driven by the acceleration of ADAS penetration, with continuous improvement in camera specifications [11] - The smart glass market is expected to exceed 10,000,000 units by 2025, driven by AI empowerment [16] - The company is seeing increased orders from overseas markets, particularly in Europe and Japan, indicating a long-term growth trend [78] Company Strategy and Development Direction - The company aims to strengthen its advantage in optical perception technology while extending into decision-making and control domains [32] - There is a focus on developing technologies for autonomous driving and smart manufacturing, emphasizing the importance of AI integration [30][36] - The company plans to adopt flexible strategies for overseas deployment in response to customer demands and market developments [46] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the growth of the vehicle business, expecting to surpass industry growth rates [79] - The company is optimistic about the future of the XR business, despite potential declines in VR-related revenue [56] - Management highlighted the importance of technological accumulation and innovation to maintain leadership in the industry [15] Other Important Information - The company has upgraded its ESG ranking from BB to A level, reflecting progress in addressing climate change risks [48] - Significant investments are being made in R&D for new technologies, particularly in the areas of LiDAR and smart glasses [90] Q&A Session Summary Question: What is the profitability contribution of the non-handset business? - The profitability from the handset business is over 50%, with rapid growth driven by gross profit margin improvements [50] Question: What is the guidance for the second half of the year? - The gross profit margin for handsets is expected to be between 25% to 30% for the year, with revenue growth anticipated [51][53] Question: Can you provide a breakdown of vehicle revenue growth? - The vehicle business is expected to see a revenue growth of 20% for the year, with significant contributions from high-end products [54] Question: What are the expectations for the LiDAR business? - The development of LiDAR is becoming clearer, and the company is focusing on technological capabilities and mass production [60][62] Question: How does the company plan to balance size, margin, and profitability? - Management emphasized the importance of technology-enabled products and maintaining high utilization rates in production [66][70] Question: What is the outlook for the gross profit margin in the vehicle module business? - The gross profit margin for vehicle modules is expected to be higher for premium cars, but competitive pressures exist in overseas markets [81]

Summary of Hesai Group (HSAI) Earnings Call Company Overview - **Company**: Hesai Group (HSAI) - **Industry**: LiDAR solutions provider, focusing on applications in advanced driver assistance systems (ADAS), autonomous mobility, and robotics Key Financial Highlights - **2Q25 Performance**: - Product revenue increased by 5% compared to guidance, driven by a 17% increase in LiDAR shipments - Gross margin reached 42.5%, up 3.7 percentage points from guidance, attributed to cost reductions and higher scale - Sales and marketing expenses decreased by 21%, indicating improved cost control and brand recognition [1][4] - **Revenue Figures**: - Total revenue for 2Q25 was Rmb 706 million, a 54% year-over-year increase [8] - Non-GAAP net income for 2Q25 was Rmb 73 million, an increase of 268% year-over-year [8] Future Outlook - **Volume Projections**: - Expected total LiDAR shipments of 1 million units in 2H25, representing a 182% year-over-year increase [3] - Enhanced customer diversification, reducing dependency on a single large OEM [3] - **Margin Expectations**: - Projected gross margin of 40.5% in 2H25, higher than previous expectations due to better cost management [3] - Operating margin expected to improve to 9.7% in 2H25 from 3.2% in 2Q25 [3] Investment Thesis - **Market Position**: - Hesai holds a 37% revenue market share in the global LiDAR market as of 2023 [12] - Anticipated benefits from the acceleration of the navigation on autopilot (NOA) adoption in the China NEV market starting in 2025 [12] - **Valuation**: - Current trading at a 2026E P/E of 20x, compared to a global average of 30x for smart EV suppliers [14] - Target price raised to US$26.3, implying a 13% upside from the current price of US$23.32 [4][11] Key Risks - Potential risks include slower LiDAR adoption, intensified competition, customer pricing pressure, and policy risks [14][15] Additional Insights - **Robotics Business**: - 49k units of robotics LiDAR shipped in 2Q25, a 744% year-over-year increase [9][13] - Ranked No.1 in China for robotics LiDAR shipments in 1H25 [13] - **Design Wins**: - Secured numerous design wins for 20 models from 9 leading OEMs, including significant partnerships with Li Auto and Xiaomi [9][13] - **Balance Sheet**: - Ended 2Q25 with Rmb 2.1 billion in net cash, with a cash conversion cycle shortening to 145 days [5][7] This summary encapsulates the key points from the earnings call, highlighting Hesai Group's financial performance, future outlook, investment thesis, and associated risks.

Technology & Safety Concerns - LiDAR (激光雷达) 发射的激光束可能损坏监控摄像头甚至智能手机中的 CMOS 图像传感器 [1]

Financial Data and Key Metrics Changes - Revenue for Q2 2025 was $15.6 million, in line with guidance, but represented a 5% year-over-year decline and a sequential decline due to lower production volume estimates and the wind down of non-core data contracts [21][14][22] - Gross loss for the quarter was $12.4 million on a GAAP basis and $10.8 million on a non-GAAP basis, which was worse than the guidance of negative $5 million to $10 million [23] - Operating expenses (OpEx) were $27 million on a GAAP basis and $47 million on a non-GAAP basis, with expectations to reduce non-GAAP OpEx to the low $30 million range by Q4 2025 [24][29] Business Line Data and Key Metrics Changes - The company shipped approximately 5,000 Iris sensors in Q2, down from 6,000 in Q1, primarily due to lower demand from Volvo [22] - The decision to exit non-core initiatives, including data and insurance businesses, is expected to reduce operating expenses by nearly $23 million annually starting in 2026 [11][29] Market Data and Key Metrics Changes - The automotive market is seeing a shift towards incorporating autonomous driving and advanced safety features, with Luminar working with leading OEMs like Volvo, Nissan, and Mercedes [5] - The company is focusing on commercial markets such as trucking, security, and defense, where unit economics are more attractive and autonomy is advancing quickly [7][8] Company Strategy and Development Direction - Luminar is aligning its strategy to focus on execution and operational discipline, aiming to strengthen its balance sheet and reduce cash burn [4][13] - The HALO platform is seen as key to broader LiDAR adoption, with ongoing development programs with OEM partners [7] - The company is transitioning production from Mexico to Thailand to improve unit economics and streamline operations [12] Management's Comments on Operating Environment and Future Outlook - Management acknowledged that the widespread adoption of Level 3 and higher autonomy is progressing more slowly than expected, prompting a shift in focus to near-term revenue opportunities [7] - The company has revised its 2025 revenue guidance down to $67 million to $74 million, primarily due to lower sensor shipment expectations and the wind down of non-core contracts [27] Other Important Information - The company secured a $200 million convertible preferred facility to strengthen liquidity and extend its runway, with plans to reduce the outstanding balance of 2026 convertible notes to below $100 million by year-end [20][21] - The company expects to end fiscal year 2025 with $80 million to $100 million in cash and marketable securities, slightly below previous expectations [30] Q&A Session Summary Question: Size of opportunities in adjacent markets - Management indicated that the commercial markets are very large but did not provide specific sizes, stating that customer information will be shared in future calls [35] Question: Shipment of sensors at unfavorable economics - Management explained that lower than expected volumes have led to unfavorable sensor economics, with actions being taken to close the gap [38] Question: Revenue realization from commercial markets - Management confirmed that revenues are being realized today and expect growth in 2026, but did not provide specific forecasts [42] Question: Non-GAAP OpEx funding adjacent opportunities - Management stated that the investments in adjacent opportunities are consistent with the OpEx target mentioned [43] Question: Focus on ADAS vs. robotaxis in the automotive market - Management clarified that while Luminar is focused on higher levels of autonomy within passenger vehicles, the timing of progression is uncertain, leading to a focus on other market opportunities [45] Question: Downside revision to full year revenue guidance - Management explained that about two-thirds of the $15 million reduction in guidance is related to lower sensor shipments, with the remainder attributed to the wind down of the non-core data contract [49] Question: Update on partnership with Mercedes Benz - Management confirmed a development agreement with Mercedes and expressed hope to convert it into a production agreement based on milestone achievements [52]

Financial Performance - Q2'25 revenue was $156 million, a 17% decrease QoQ and a 5% decrease YoY[15] - GAAP gross loss was $(124) million, while non-GAAP gross loss was $(108) million[16] - Q2'25 GAAP operating expenses were $271 million, and non-GAAP operating expenses were $470 million, including ~$4M in one-time items[16, 11] - Cash and marketable securities stood at $1076 million, excluding undrawn credit facility, equity finance program, and convertible preferred facility[17] - Free Cash Flow (FCF) was $(538) million, compared to $(443) million in Q1'25[19] Debt Management - $50 million of 2026 convertible notes were repurchased via cash & equity[8] - $135 million face amount of 2026 convertible debt remains outstanding as of August 2025, reduced from $625 million in August 2024[8, 13, 14] - The company aims to reduce 2026 convertible debt to below $100 million by year-end 2025[14] Revised Guidance - FY'25 revenue guidance lowered to $67 million to $74 million, based on sensor shipment of 20k to 23K units, down from prior outlook of 30k-33k units[20] - Non-GAAP gross loss is expected to be in the range of $(5) million to $(10) million per quarter through FY'25[20] - Non-GAAP quarterly operating expenses are expected to improve to the low-$30 million range by year-end 2025[20] - The company expects to end FY'25 with $80 million to $100 million in cash and marketable securities[21]

Industry Perspective - The industry notes Elon Musk's opinion that LiDAR is a "fool's errand" [1]

Global Research First Read China Auto Parts Sector Our thoughts on Shanghai's plan to build high- level autonomous driving zone Shanghai unveils a plan to build leading high-level autonomous driving zone On 26 July, Shanghai unveiled a plan to establish a global-leading high-level autonomous driving zone by 2027 at the World Artificial Intelligence Conference 2025. The plan aims to launch level 4 autonomous driving vehicles to cover over 6 million passenger trips by 2027, open more than 5,000km of roads for ...

Summary of the Investor Presentation on the Transition from Autos to Humanoids Industry Overview - The presentation focuses on the automotive industry, specifically how auto companies are transitioning into the humanoid robotics market, leveraging their existing expertise and technologies [1][3]. Key Points and Arguments 1. **Market Opportunity**: The humanoid market is projected to be a $5 trillion opportunity by 2050, indicating significant growth potential for auto companies entering this space [10][35]. 2. **Transformation Strategy**: Auto companies, including OEMs, suppliers, and dealers, are utilizing their automotive knowledge to capture market share in the humanoid sector [1][3]. 3. **Product Development**: Various companies are developing humanoid products alongside their traditional auto products, with notable examples including: - **XPeng**: Developing a humanoid robot with a brain, targeting mass production in 2026 [10]. - **BYD**: In-house development of humanoid robots [10]. - **Great Wall**: Joint development of robots with Unitree [10]. 4. **Auto Parts Contribution**: Auto parts suppliers are expected to capture 47-60% of the bill-of-materials (BoM) for humanoids, focusing on high-value components such as actuators and sensors [15][20]. 5. **Common Technologies**: Many sensors and technologies are shared between automotive and humanoid applications, such as LiDAR, cameras, and inertial measurement units [22][20]. 6. **SWOT Analysis**: - **Strengths**: Established know-how in autonomous driving, large-scale manufacturing experience, and existing sales networks [35]. - **Weaknesses**: Slower decision-making processes compared to startups and potential internal competition for R&D resources [35]. - **Opportunities**: Global expansion for suppliers and the potential for high margins in humanoid hardware [35]. - **Threats**: Increased competition and geopolitical tensions that may limit collaboration [35]. Additional Important Insights - **Company Progress**: Several companies are at various stages of development for humanoid products, with some already delivering samples and others in the construction phase of production facilities [10]. - **Market Dynamics**: The transition from traditional automotive products to humanoid robotics is seen as a strategic move to diversify and capture new revenue streams in a rapidly evolving market [1][3]. - **Investment Considerations**: Investors should be aware of the potential conflicts of interest as Morgan Stanley conducts business with companies covered in their research [4][5]. This summary encapsulates the key insights from the investor presentation, highlighting the strategic shift within the automotive industry towards humanoid robotics and the associated market opportunities and challenges.