Hello, ladies and gentlemen. Thank you for standing by for the Fourth Quarter and Full Year 2022 Earnings conference call for Hesai Group. At this time, all participants are in listen-only mode. Please note that today's conference call is being recorded. I will now turn the call over to the first speaker today, Rachel Yang, Vice President of Operations for the Company. Please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining Hesai Group's Fourth Quarter and Full Year 2022 Earnings conference call. Our earnings press release was distributed earlier today with newswire services and is posted in the Investor Relations section of our website at investors.hesaitech.com along with the webcast access to today's call. On today's call, we have our CEO David Li; and our Global CFO, Louis Hsieh. David and Louis will each provide their prepared remarks and we'll conclude the call with a Q&A section. I would like to remind everyone that our earnings calls and investor materials contain forward-looking statements, which are subject to future events and uncertainties. Our actual results may differ materially from those forward-looking statements. All forward-looking statements should be considered in conjunction with the cautionary statement in our earnings release and the risk factors included in our filings with the SEC. Finally, this could also include certain non-GAAP financial measures. You should carefully consider the comparable GAAP measures. Reconciliation of non-GAAP and GAAP measures is included in your earnings release. I would now like to turn the call over to our CEO, David Li. Please go ahead.

Thank you, Rachel, and welcome, everyone, to Hesai's first earnings conference call as a public company. I'd like to first express my gratitude to our investors, partners, dedicated employees, and everyone who contributed to our successful IPO on February 9th. During our IPO, Hesai sold 10 million ADRs at USD19 per share, and the underwriters partially exercised their over-allotment option, raising approximately USD192.4 million. Listing on the Nasdaq marks a milestone in Hesai's growth. We're excited to begin life as a public company and to deliver long-term value to shareholders, employees, and other stakeholders. Now, moving onto our operating results for the fourth quarter and 2022. We continued our strong growth momentum in the fourth quarter. In September, we became the first company in the world to deliver more than 10,000 LiDAR units in a month. Total shipments during the fourth quarter reached 47,515 units, among which ADAS LiDAR shipments accounted for 91%. Note that in December, we shipped more than 20,000 LiDAR units. These achievements are groundbreaking in the industry. In the fourth quarter, our new ADAS LiDAR product continued to win new customers, including the largest EV maker in China, the largest OEM, and the electric technology company, Rox, followed in January by Seres, a leading China-based EV OEM. These were followed by a design win with Didi's autonomous driving business. Additionally, in February 2023, the Company secured a LiDAR design win for AT128 with Li Auto on its new battery electric vehicle platform. Our successful Q4 capped a successful 2022. During the year, we proved that our mass production capabilities empower us to capitalize on the realm of ADAS and autonomous mobility. Our total shipment in 2022 reached more than 80,000 LiDAR units and surpassed 100,000 shipped units, representing an explosive 337% CAGR since 2020, significantly outpacing the global LiDAR market. In fact, our LiDAR deliveries and their revenues for 2022 were higher than the cumulative LiDAR unit deliveries and revenues of all eight of our U.S. publicly-listed peers combined in 2022. Notably, we shipped more than two times the number of automotive LiDAR units that our eight U.S. listed peers combined. The backdrop of our success is our people. In 2022, we grew our talent force to more than 1,000, most of whom are on the R&D and engineering team, a scale significantly higher than our peers. Our success is further defined by our innovative customers and partners' in-house manufacturing capabilities and breakthrough LiDAR technologies. In the ADAS market, we're working with many market-leading OEM partners, including Li Auto, Changan Automobile, Lotus, JiDU, HiPhi, and Rox in the autonomous mobility market where we are dominant. Our customer base includes some of the most prominent global players, including the world's leading robotaxi technology company in the U.S. Our customers also include Aurora, Pony.ai, WeRide, and Algolux. Our commitment to building superior products is key to our wins in both ADAS and autonomous mobility markets. We believe an advanced in-house manufacturing capability is critical for developing LiDAR products like ours that utilize fast and advancing technologies. We combine R&D advances in application-specific integrated circuits, also known as ASIC, to drive semiconductor performance with in-house manufacturing capabilities to design, iterate, and bring the best-in-class products to our customers. Our integrated in-house model enables fast development and proprietary know-how to reinforce each other, establishing a virtuous cycle and significant competitive advantage. This also helps us to optimize cost, deliver higher performance solutions, and make our supply chain safer. In 2022, we developed our FT120 solid-state blind spot LiDAR sensor with no moving parts inside, designed for ADAS series production vehicles. We plan to launch the FT120 later this year. In addition to FT120, during the course of the year, we expect to announce several exciting industry-leading LiDAR products, so you will have to stay tuned for those future release announcements. We're proud that Hesai has become the most commercially successful LiDAR company in the world. To date, we signed 11 OEMs, six of which will be in mass production, and all 11 by 2024. We're presently in discussion with several other leading Chinese and global OEMs, which we expect to add in 2023, and we look forward to sharing more information with you in due course. Moving forward, we'll continue to build partnerships and relationships with OEMs and autonomous technology companies, perfect our core LiDAR technologies and manufacturing capabilities. Our growth has just begun, and our path is clear. We're optimistic about the future trajectory. With that, I'd now like to turn the call over to Louis, who will share our financial performance for Q4 2022 and our outlook for the rest of 2023. Louis, please go ahead.

All right. Thank you, David. First, I want to thank everyone for attending Hesai's inaugural earnings call as a public company in its operating figures. Our commercial success is evident in our financial performance. To be mindful of the length of our earnings call today, I encourage listeners to refer to the earnings press release for the 2022 and full year results for further details. Clearly, Hesai had a stellar 2022 as we extended our market leadership in LiDAR solutions, both for autonomous mobility and now for ADAS. Today, I will just go over the highlights of our Q4 and full year 2022 as I'd like to spend the bulk of our time together talking about our future. We achieved record net revenues of RMB409.2 million, equivalent to USD59.3 million in the fourth quarter of 2022, representing an increase of 56.6% from the same period of 2021, and an increase of 22.6% from the third quarter of 2022. Gross margin was 30% for the fourth quarter of 2022 compared to 52.4% for the same period of 2021 and 0.1% for the third quarter of 2022. Net revenues were RMB1.203 billion, equal to USD174.4 million for the full year of 2022, representing an increase of 66.9% from the previous year. Gross margin was 39.2% for the full year of 2022, compared with 53% for the prior year. Many of you have asked about our gross margin profile as we enter the nascent but rapidly growing ADAS market. 2023 is a transition year for Hesai as we migrate from traditionally higher margin autonomous mobility of Pandar, XT and QT to the exploding but relatively lower margin ADAS sales of AT and FT. To give you an understanding of the difference, our average ASP for autonomous mobility has been over USD5,000, with approximately 50% gross margin compared to that for ADAS, where the ASP is expected to be around USD500 with low double-digit gross margins by year-end. In 2022, our ADAS AT sales accounted for about 25%, that’s USD46 million, but we expect it to account for 40% to 45% of revenue in 2023 with an expected more than 3x increase from the 62,000 units in 2022. The bulk of the ADAS shipments will be in the second half of 2023, as we expect to be SOP with all at least OEM partners by Q3 2023. It will take some time for us to gain economies of scale in manufacturing efficiency, utilization, material procurement and labor intensity to reach our long-term target of 25% to 30% gross margins in ADAS for AT and its related products. Against this very strong demand and order backlog backdrop, entering the first half of 2023, we are going to expand our manufacturing footprint with investment in two plants and aim to get both operational by Q2 of this year. Let me give you more color about this capacity expansion. First, we are excited to confirm that our new in-house manufacturing facility, Maxwell, a state-of-the-art comprehensive art innovation design center, manufacturing and testing complex in Shanghai, covering over 600,000 square feet, will come online in Q2 of this year. Maxwell will expand our manufacturing capacity to 1 million units in terms of annual shipments and will equip us with full-range testing capability. Second, in late Q2 or Q3, we plan to open and start another AT production line in our 300,000 square foot new manufacturing facility in Hong Kong, which will also eventually have capacity for over 1 million units annually and be highly automated. Along with our two smaller production facilities, which currently manufacture Pandar, QT, XT, and one line for AT128, our total capacity will exceed 2 million units on an annual basis by year-end. The combined effects of product mix with ADAS increasing in revenue from approximately 25% to 45% of revenue and the opening of two large production facilities which will take time to reach optimal scale efficiency and utilization will put downward pressure on blended gross margin percentage in 2023, but rebound somewhat in 2024. Long-term target for blended gross margin remains at 33% to 35% for Hesai. Now, I'd like to turn to our business outlook. For the first quarter of 2023, the Company expects net revenue to be between RMB390 million, USD56.5 million, and RMB410 million, USD59.4 million, representing a year-over-year increase of approximately 57% to 65%. The above outlook is based on the current market conditions and reflects the Company's preliminary estimates of market and operating conditions and customer demand, which are all subject to change. This concludes our prepared remarks for today. Operator, we are now ready to take questions.

Your first question comes from Olivia Xu from Goldman Sachs. Please go ahead.

Hi, David and Louis. Congrats on the Company's solid performance. This is Olivia Xu from Goldman. May I have two questions? The first one is about the partnership. We noticed that Hesai has made a breakthrough in partnership expansion and product nomination, including BYD, Seres, and the Auto Pure Easy platform. On the Li Auto side, the Company has recently launched the L version of L7 and L8. Just wondering where it cannibalizes the high-end volume that impacts the LiDAR installation on the two models. And in addition, is there any more information that can be shared on the supply relationship of BYD and Seres, for example, the timeline, which car models, and the estimated volume? Thank you. That's my first question.

Hi, this is David Li. Thank you for the question. Let me address the Li Auto question first because it's one of our largest clients. So, you're right that the LiDARs are standard configurations for the L9, and optional for the L8 and L7. And for both editions, they have the AD Max, which is the one with LiDAR, and the AD Pro, which is the one without LiDAR. But having said that, the L7 and L8 are larger volume products, and the take rate is actually pretty decent even today. And that's why we're able to come up with our projections for the rest of the year based on the take rate of the L7, L8, and the L9 and all the LiDARs, not from all our clients. One interesting note is that if you watch very carefully the Li Auto L7 release, they actually mentioned that now, by the end of the year, they're going to have more urban NOA, Navigation on AutoPilot functions when it’s with LiDAR, which means that the version with LiDAR will be much more valuable in terms of its ability to provide advanced driving functions. That was actually a very big boost on the take rate for the Max version of the L7, which is extremely encouraging to know that even L7 is technically considered a more affordable version. You would assume that people wouldn't have a higher take rate for the one configuration with the LiDAR, and it turns out that it's not entirely true. People still like it, and they still buy that with the more expensive configuration because they really look forward to the driving function that will be available down the road. I also want to point out that when you buy a smart EV today, you're paying the price today, but you're not getting the full function yet. A lot of the functions, especially on the autonomous driving side, are being released via OTA, over-the-air updates to you over time, which means that technically, you pay the money already, but the value will go up over time, which is a good signal for us because that's why we believe over time, more and more people will be buying into those functions as the value goes up. That's why, long term, we're very optimistic about that. Now, do you want me to comment on Seres and BYD? It's confirmed that we started working with some of the models. Unfortunately, I don't have more information about the more models that we're in discussion with them, and some of them have not come to a decision yet. But what I can say is that because both Seres and BYD are not on their entire fleet yet, there are quite a few exciting design wins that could come out later this year, or even some of them are very soon. So we look forward to it and we'll keep you updated on that.

Olivia, this is Louis. For Seres, we do expect to ship this year. BYD is more likely - the volume will be next year when their models come out.

Yes.

Thank you. That's my first.

Does that answer your question?

Yes, right, that's very helpful. My next question is about the implication of the recent EV pricing cuts. We noticed that year-to-date, Tesla has been lowering prices in China, and a lot of other EV makers have to revise their pricing as well. Given the diminishing government subsidies, it is likely that the carmakers' margins will get squeezed. Just wondering, has the pricing pressure passed to the LiDAR suppliers now, and was that a responsive strategy towards the EV pricing cut? Thanks.

Yes, we are observing that now as well. What I would like to point out is that if you look at the pricing cut phenomenon, it's really on the more affordable part of the market. If you think about it, the nature of LiDAR, at least now, is that the penetration is mostly on the more premium part of the market, especially if you look at Li Auto. I don't think they have sold anything that's below RMB300,000. From what we have received and observed, it is much less impacted, if at all, by the pricing cut. We do expect a lot of competition on the below RMB200,000 level for the cars, but those are also not our typical choice for cars when they want to buy LiDAR. If you're buying a car that's RMB150,000, you probably don't really care about LiDARs today; you want to focus on the batteries and the infotainment system. It only becomes a much more serious interest when you're paying for a car at least RMB200,000, ideally RMB250,000. That's the range where people start to look for features beyond just the battery and infotainment system, and that's where LiDAR becomes a symbol of intelligent driving.

I think, Olivia, for us, as David said, we're basically more in the higher end of these lines, so we probably wouldn't see as much impact from price reductions at the lower end of their pipelines. For us, all six OEM shipping this year, the majority will come in Q3 and Q4. They will be in cars above RMB250,000. Thus, they're less impacted by pricing pressure. The bulk of the volumes will be in 2024. We expect volume to at least double or triple from 2023 levels. And that's when we'll see if the price decreases will affect demand.

Okay.

Okay, got it. That's very clear. Thank you, David. Thank you, Louis.

Thank you, Olivia.

Next, please.

Thank you. Your next question comes from Tim Hsiao from Morgan Stanley. Please go ahead.

Hi, David. Hi, Louis. Congratulations on the solid result. I've got two questions. So, the first one, I think David already touched on some feedback and observations about the consumers on LiDAR adoption. But based on your recent conversations with carmakers, has there been any change in their thoughts about the adoption pace of LiDAR during the mounting pricing pressure? Will there be any risk of near-term downgrading to expect or of their upcoming models with lower adoption of LiDAR, or actually, will the carmakers be getting more aggressive to upgrade the spec with more LiDAR adoptions to differentiate themselves? So, this year, what’s the feedback from the carmakers? Thank you.

Yes. Tim, is your question about, in our conversations with carmakers, are they more or less inclined to use LiDAR for next year sort of what you're getting at?

Yes, yes, because I think some of the carmakers might consider to be more cost-conscious and buy more, in fact...

Yes.

...but probably the other customers are even more aggressive in considering adapting LiDAR. So what's the feedback from your major customers because of that?

I think this goes in line with Olivia's question: that our LiDAR is typically on the premium models, so it's less likely that they will cut this because it is a marketing play. If you have a LiDAR and your competitor doesn't have LiDAR, that’s actually a big selling point. In addition, these models are coming in 2024, so what they don't want to do is have their new generation models be seen as really standard models with no differentiation. Thus far, we have not seen carmakers in our 11 OEMs say they're going to cut LiDAR out of any models or reduce the effect of LiDAR in those models. Those models are on track. One thing that may happen is if there's a delay in the SOP of some of these models in 2024, there is some delay risk on that side. But I haven't seen anywhere they actually cut the LiDAR out.

Correct, yes, no.

Did that answer your question, Tim?

Yes, yes, thank you, Louis. My second question is about the manufacturing ability because I think this year's important milestone would be the launch of our new plant, Maxwell. So would you please share with us the current progress of our new plant? Is it still on track to kickstart the next production in midyear, and is all the ramp-up on track to meet our target? Thank you.

Okay, okay. We have Sun Kai, one of our other co-founders here and Chief Scientist. He can answer the question. When will Maxwell be operational?

Okay. So for the Maxwell plant, it will be finished in Q2 this year, probably the middle or late Q2. We'll have some automation lines ready by the end of this year, yes. That's the plan for Maxwell.

And then for Hangzhou, Tim, that will come after Maxwell. We expect to have one or two operational lines in Hangzhou. This will be for new redesigns. For the existing AT128, we have one line already in Shanghai that's producing. As we said in the earnings release, our goal this year is to work on the gross margin profile since ADAS typically has a lower gross margin profile. We have a redesign of the AT coming out, and we don't want to put it in the same manufacturing line as the current AT. The Hangzhou plant will most likely be the current plan to use one line for the new AT redesign that will be much lower cost and will improve the gross margin profile. Okay. Stay tuned.

Thank you very much.

Thank you, Tim. Next question, please.

Thank you. Your next question comes from Bin Wang from Credit Suisse. Please go ahead.

My question is regarding global automakers. Is there any chance this year we can secure a deal from the global automaker? That's number one question. Number two is about margin. Last year, the gross margin was about 30%. Can you provide a breakdown between the ADAS, LiDAR, and the other products? And what's your margin expectation for the first quarter of 2023 and the full year for the two LiDAR products? Thank you.

David will take the first question.

Yes.

And I'll take the second question.

I guess, I'll take that. Should I be doing it in English or Chinese?

English.

Okay, cool. So question is not about the global side of the business. It's hard for me to comment directly on competitors because at their right to disclose, but I want to point out that in our definition, when we say a global deal, we only consider truly global programs, right? When talking about the localization of some joint venture car models and all that. We actually have some of them, but for us, it's a China deal. For it to be considered global, it has to be sourced from car models that are shipping globally, which are typically European and American. We are in late-stage discussions with multiple, including European and American companies. That will come out in Q3 and Q4 as the final results this year. We're in the either RFI or RFQ phase of them, so we are very optimistic about it for the reasons, I think, we explained in the past. One is that this round of sourcing from the global OEMs is really focused on the practicality and stability of delivery. In the past, a lot of the global peers have not demonstrated the capability to deliver volume products as ADAS. As you can imagine, this is one of the most critical abilities for any automotive vendor. We shipped more than 80,000 units in total. The official number for the ADAS sensors is close to 60,000. That is one of the numbers that OEMs really care about today because they want to ensure you have the ability to deliver. The other concern is cost. Historically, for first-round sourcing from global players, these were smaller volume vehicles, and it was probably okay at a relatively higher price. Now, most of them are becoming much more serious about rolling those configurations into more affordable price range large-volume vehicles, in which price becomes a much more critical issue. With our ability and history of developing in-house manufacturing, we have the best ability to do low-cost ADAS sensors at a reasonable margin. That's what they care about. That's why we have high confidence that some of the deals will come to us, and hopefully, we'll be announcing that.

Right. Thank you, David. Great questions, Bin Wang. On the gross margin side, in 2022, our gross margins for the autonomous mobility side were over 50%. On the ADAS side, it was less than 5% because we were just ramping AT. It was only for several months. The production line for the AT128 that’s currently in effect has capacity for 300,000 units a year, but we only manufactured 60,000 and delivered in 2022. This year for Q1 and Q2, the utilization rate will not be very high. By Q3-Q4, utilization will ramp up, and we expect to ship at least 200,000 AT plus a few units this year. So it will improve the gross margin profile. For AT, it will go up from under 5%. By the end of this year, we expect gross margin to be in the high single-digits to low double-digits, probably between 9% to 13% as we exit this year. The long-term gross margin we expect for AT should be around 30% to a little over 35% as we redesign the model and go into mass production. In 2024, we have 11 OEMs shipping in AT, so the volumes will enable us to achieve higher gross margins. On the autonomous mobility side for 2023, this year we are going to undergo a price reduction on a blended basis for Pandar in Q2 and Q3. The ASP last year was about USD13,000 for autonomous mobility products. This year we expect that number to be around USD9,000. Because of this price cut, it will put some downward pressure on the gross margin profile for probably Q2 and Q3. So Q1 should be okay, but Q2-Q3 will have some negative impact. I also want to mention that we are addressing this. We will have a lower-cost Pandar model coming out in the second half of this year. That will significantly reduce our production cost, and we will still be able to maintain our margin at around 50% for this product at scale. By the end of next year, the margin will bounce back. Our long-term gross margin target remains unchanged at 35%, with autonomous mobility at 45% to 50%, and ADAS at around 30%. The blended number should come out to 35%, so nothing has changed on the long-term perspective. However, on the transition for this year, the first half will be slower, which is seasonally typical for us during Q1-Q2. In Q3-Q4, the margins will begin to ramp up again. Does that answer your question, Bin Wang?

And, sir, can I have a follow-up? I think the gross margin will be quite decent in the first quarter. Can I assume the possibility to secure the margin of 90%?

Sorry, I didn't hear that. Repeat.

I mean, you've already given the timing for the quarter. Can I assume there's a possibility to announce a global ADAS deal with customer involvement?

For this year, we have actually multiple European and at least one American major design decision coming out by Q3 and Q4. So the chance of getting more than one at least is very high.

But also, Bin Wang, I will remind our investors that the adoption for China is actually much more rapid than in the U.S., right? We have 11 Chinese OEMs. The volume in China will be four or five times the volume for the U.S. and Europe in the next two or three years. So we focused on where the market is, and the market is China today. We have a dominant share in China already. On the global side, the game is just beginning in '23 for volume production in '26-'27. We are fighting and we are in the game, but the results won't come out until the second half of this year.

And also, the actual shipment will only start in ‘26 and ‘27.

Yes. So in the next two years, it's more important to focus on our China deliveries because that's where the revenue drivers and the know-how and production capacity will come from. That's where the margin will come from. The reason is we completely dominate our global peers, is because they have no volume in production. We're larger than all eight combined because we are winning in China, where that's where the ball game is. You can only play where there's a game, and the game for North America and Europe won't really start before '26 and '27. Thank you, Bin Wang. Next question please.

Your next question comes from Paul Gong from UBS. Please go ahead.

Yes, hi. Thanks, management, for taking my questions. I have two questions. The first one is you mentioned that the mechanical LiDAR has more than 50% gross margin, while the ADAS LiDAR has less than 5% gross margin in 2022. Based on the revenue of Q4, is that fair to assume the revenue mix or revenue split is roughly like 50-50 between the robotaxi LiDAR and ADAS LiDAR? Is that a fair estimate of the revenue split?

For Q4, that's pretty close. For the whole year, ADAS is 25%, and autonomous mobility was the other 75%. So going forward, which is now in '23, ADAS should be 40% to 45% of revenue this year. As I said earlier, the bulk of the units will come in Q3 and Q4 as new models are released. The seasonal factor of our business is that Q3 and Q4 typically have much larger shipments than Q1 and Q2. The reason the gross margin will be better is because there are more autonomous mobility shipments in Q1.

And the other quick point I want to make on the gross margin side is true that last year the ADAS gross margin wasn't what we liked, but remember that this is the first time we're shipping a larger volume of ADAS, right? If you compare that number to all the peers, that's still not overly bad considering most of the companies are posting really poor gross margins.

And, Paul, I'll give you our stats so you understand how fast we are working on the cost side. The average COGS for AT in 2022 was $700. The average COGS today is under $500. So as ASP comes down because of our contracts, our cost is also coming down fast, but there's a transition period. It's another quarter or two to ramp-up the new production lines in Hangzhou for the new AT. That has significant price reduction versus the current version that's in Shanghai. There's a slight lag in the gross margin profile as the new line comes up, and it needs to scale. I believe this is the right decision for us. We are investing this year, and 2024 should be a great year for us in terms of deliveries. We expect to deliver 600,000 to 800,000, even maybe close to 1 million units in 2024 when our competitors aren't even at 50,000 yet. We are extending our lead in the speed of manufacturing.

Understood. Understood. So just to double-check, you said for the full year this year, the ADAS LiDAR is going to contribute roughly 40% to 45%. Is that right?

Correct, correct, about $115 million to $120 million, yes.

Okay. And the long-term margin for the robotaxi LiDAR is 45% to 50%, and target for the ADAS LiDAR margin is 25% to 30%, right? These are the correct numbers to calculate?

Yes, that's about correct.

Okay. Okay.

We've blended out because ADAS is growing faster. The blended target would be 35%.

Understood, understood. My second question is regarding the Q1 guidance. I understand right now the ADAS LiDAR is currently in a ramp-up stage. I think the auto deliveries are somewhere between 10% to 20% quarter-over-quarter growth in Q1 versus Q4, and even though the mix is going to be more skewed towards L8 instead of L9. So that basically means the Q1 versus Q4 guidance is also flattish. That basically means flattish in both the ADAS LiDAR as well as the robotaxi LiDAR. That's the right way to understand, yes.

To be honest, that's not entirely correct for us. In Q4, we had higher pricing for ADAS LiDAR, so we shipped more units. That's why we shipped 20,000 units in December. So Q1, there will be a slight slowdown in ADAS for January and February as those December units are used up. However, in March, we'll pick up again. My current forecast is about 30,000 ADAS units in Q1. Robotaxi will have a very strong Q1. That’s why you see the guidance where it is. You say it's flattish over Q4, but you have to remember Q1 is seasonally our slowest quarter due to Chinese New Year, and there's usually a lag effect. Q4 is our biggest quarter, and Q1 and Q2 are slower. So for us to be flattish over Q4 is quite an accomplishment. It’s over 60% year-over-year growth. And, Paul, you know me for several years. I guide conservatively.

Understood. Understood.

So it could be the biggest quarter of our history.

Understand. So do you feel that the mix is going to be mostly robotaxi LiDAR in Q1? That also means that the margin profile would be even better than Q4.

Yes, and that's what I told you earlier. I said that.

Okay.

So in Q2, but in Q2, ADAS takes over. Q2 is when the price reduction in the robotaxi LiDAR takes effect. Thus, Q2 will have a negative impact on the gross margin because the highest gross margin product is taking a price cut before the new design goes into effect in Q4. There will be a two-quarter impact on the gross margin for the robotaxi due to a price decrease where the reduced price model’s cost will not come in until Q4. I wanted to let you all know ahead of time so you can properly model this. It's a short-term blip but it's important that we don't mislead you.

Yes, that's very responsible and transparent guidance. Thank you so much for the color and...

You know me, I tell you straight, good or bad.

Okay, thank you so much.

Thank you, Paul.

As there are no further questions now, I would like to turn the call back over to the company for closing remarks.

Okay. Thank you once again for joining us today. If you have further questions, please feel free to contact our Investor Relations through the contact information provided for financial communication. Thank you.

Thank you. This concludes today's conference call. You may now disconnect your line. Thank you.