Greetings and welcome to the Mobileye Second Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is my pleasure to introduce your host, Dan Galves, Chief Communications Officer. Please, you may begin.

Hello, and welcome to Mobileye’s second quarter 2023 earnings conference call for the periods ending July 1, 2023. Please note that today’s discussion contains forward-looking statements based on the business environment as we currently see it. Such statements involve risks and uncertainties. Please refer to the accompanying press release, which includes additional information on the specific factors that could cause actual results to differ materially. Additionally, on this call, we will refer to both GAAP and non-GAAP figures. A reconciliation of GAAP to non-GAAP financial measures is provided in our posted earnings release. Joining us on the call today are Prof. Amnon Shashua, Mobileye’s CEO and President; and Moran Shemesh Rojansky, Mobileye’s Acting CFO. Thanks, and now I will turn the call over to Amnon.

Hello, everyone, and thanks for joining our earnings call. On the revenue side, the quarter was in line to better than our expectations. Customers were very cautious in the first half of 2023, which led to below-normal growth but we have seen the production schedule solidify for the second half of the year, where we expect to grow 16% year-over-year on much higher volumes than the first half. Profitability was better-than-expected with an adjusted operating margin of 31%, up four points versus Q1. At the midpoint of our updated guidance, the adjusted operating margin for 2023 is 29.5%, nearly three points higher than our original guidance back in January. The good news on the cost side is a combination of macro factors, negotiations with customers on engineering and reimbursement, and results of a continuous refinement of our spending plans in order to heighten efficiency and optimize returns. Importantly, despite the lower base of operating expenses in 2023, we still see OpEx growth rates in future years moderating to more normal levels compared to 2022 and the 30% growth we originally planned for 2023. This should support good operating leverage over time. Turning to business development for our advanced product portfolio, we continue to move more and more OEMs towards the design win phase. We can now count nine large established OEM prospects that we consider to be in advanced stages for products like SuperVision and Chauffeur. In most cases, we are not competing against anyone. The process is about physical testing to convince the OEM of the performance and the design domain of the system, establishing what role the OEM will have in customizing the system, and often negotiating the bundling of different products like SuperVision and Chauffeur across various brands, legal segments, and launch dates. Beyond our history of execution and our ability to prove the capability in physical testing across long distances, multiple road types, and conditions, what appeals to the OEM is that our product portfolio is scalable, cost-efficient, and design-efficient, and above all, displaying leading and cutting-edge performance. In terms of scalability, the core technologies of computer vision and our extremely efficient IQ processing platform boosted by remapping form the baseline for solutions that are relevant across all vehicle price points and the wide range of feature sets from eyes on, hands on, all the way to eyes off, hands off, and drive off. Our work with Volkswagen Group is a good example. Since 2018, all new vehicles across the group have used Mobileye-provided ADAS, and this relationship exists well into the 2030s. Beginning in 2021, REM mapping functionality was added to the NED platform, leading to a relatively low-cost way to provide class-leading lane centering capability among many other functions, and providing an early opportunity for the OEM to generate recurring subscription revenue. The success of this product, which we call cloud-enhanced ADAS, led to a recent design link to Cascade REM across most of the entire group over time. Next, we have the SuperVision design win with Porsche. Porsche shares common platforms with other premium brands of the Volkswagen Group. While not formalized yet, we expect SuperVision to be adopted by the other premium brands to increase economies of scale. In fact, Audi and Bentley executives are already on record expressing excitement to bring SuperVision to their product. An additional benefit of SuperVision to our OEM customers is that it creates a bridge to our consumer-level eyes-off solution, Chauffeur. The surround computer vision, REM, and IQ-based domain controller on SuperVision is also the baseline for Chauffeur. The difference in the systems is the additional secondary perception system made up of LiDAR and radar, which results in significant increases in the meantime between failure, which is obviously key to enabling eyes-off. This also forms a baseline for our Mobileye Drive mobility-as-a-service solution. On this front, there has been recent news on our delivery of multiple self-driving systems, which have been integrated into Volkswagen’s ID Buzz for testing by Volkswagen commercial vehicles in both the U.S. and Europe. The fact that Volkswagen has recently demonstrated these vehicles with analysts and media after only several months of us working together is a testament to how evolved this technology already is. The ability to provide efficient and high-probability products across all vehicle price points for both consumer-owned and mobility-as-a-service solutions—all based on the same proven core technology—is a huge selling point to OEMs. As is the increased flexibility of our technology; we provide tools to OEMs to both secure the system and also to develop and deploy their own software in order to differentiate and to enable true ownership of the systems. For example, with the Porsche SuperVision program, our software team is providing about 600 tunable parameters that Porsche engineers can adjust to create a unique customer experience. As an enabler for tuning, we have designed a formal high-level tuning language that we call driving policy behavior shaping that allows one to describe the desired driving policy as someone would write code on top of our driving policy operating system. Then we have EyeQ Kit on top of that to offer them bespoke software integration within the Mobileye stack as well as the potential to deploy non-Mobileye functions such as automated parking or driving monitoring on the EyeQ, saving the cost of additional EyeQ. Finally, before turning it over to Moran, I'd like to discuss the continued rollout of the software to ZEEKR vehicles on the road. As you all know, the full SuperVision capability is being delivered to ZEEKR vehicles over time through over-the-air updates. Mapping is key to this. The complexity of mapping in China means that data collection must be done through Chinese partners, and as a result, data collection started much later in China than North America and Europe. The map coverage in China is behind those other regions, but it is quickly being built. All ZEEKR vehicles have had a very sophisticated highway assist system for many months now, but until recently the full point-to-point navigate-on-pilot functionality was only available to a fairly small number of beta users. We are very pleased that ZEEKR recently significantly broadened the number of users with Highway Navigate on Pilot, and we expect a full rollout to all users within weeks. Initial feedback has been very good. ZEEKR's system is performing much better than other NOT systems in terms of its ability to complete maneuvers without takeover in many difficult situations like construction areas, highway margins, and heavy traffic, and performing lane changes within sight curves. Influencers and media have also highlighted the strength of the system versus competitors, focusing on the assertive, human-like performance of the car, with several calling it the most efficient and capable navigate-on-pilot system that they've ever experienced. Any negative feedback has been around some difficulty in the map, which will be rapidly built out over the following months. The eyes-on, hands-free market is much more developed in China than in other regions and it is a significant proof point to other OEM customers that ZEEKR’s system is outperforming. This supports the feedback we've received from other OEMs that have performed benchmark tests of their own in a test environment, but proof points from actual production vehicles driven by non-engineers is obviously much more powerful. I now turn it over to Moran to go over the financial results and guidance in more detail.

Thank you, Amnon, and thanks for joining the call, everyone. Before I begin, please be aware that all my comments on profitability will refer to non-GAAP measurements. The primary exclusion of Mobileye non-GAAP numbers is the monetization of intangible assets, which is mainly related to the indoor acquisition of Mobileye in 2017. We also exclude stock-based compensation. Starting with Q2, overall revenue was down about 1% year-over-year. This core EyeQ revenue was also down 1% year-over-year, and higher ASP did not fully offset a modest volume decline. We believe the destocking of inventory at our Q1 customers impacted the growth rate in both Q1 and more sharply in Q2. Looking ahead to the second half, our guidance implies that we will be back to meaningfully outperforming industry production volumes. SuperVision shipments were 10,000 units in the quarter. This was exactly as expected. As we noted on the April earnings call, Q1 shipments of 25,000 were significantly higher than end market volumes. The intent in Q2 was to fully reduce that inventory build from Q1. The strong recovery in weaker end market volumes and our intentionally low shipments accomplished this goal. Gross margins were in line with our expectations. On a sequential basis, EyeQ margin was stable. The approximate one-point increase in Q2 compared to Q1 was simply due to SuperVision revenue being a smaller mix of overall revenue. Operating expenses were lower than we expected, leading to a strong adjusted operating margin of 31%, up about four points versus Q1. The following three areas accounted for the majority of the lower-than-expected cost in the quarter: number one, on the payroll side, depreciation of the Israeli shekel led to payroll savings in U.S. dollar terms. The FX rate was approximately 4% favorable to what we had forecast for the quarter. Number two, the move to our new Jerusalem campus was delayed from May until the fall of 2023. The higher facility expenses from the new campus will now begin later in the year than we expected. Number three, we also experienced lower costs for our efforts around mobility-as-a-service. We are constantly reviewing our activities to ensure that our product rollouts are as efficient as possible. In the case of mobility-as-a-service, we have the exercise plan to certify an EyeQ 5 based Neovasc fleet of vehicles for our customers in the near-term. The costs simply weren't justified relative to the volume that was possible on the Neovasc platform. The benefits of the new Neovasc fleet, however, still exist in terms of continued testing and validation of the software. In terms of scaling production volume from the Mobileye drive self-driving system, our go-to-market strategy is focused on the integration of the system into purpose-built vehicles from vehicle builders, including Scheffler, Holland, and Volkswagen commercial vehicles. We expect these vehicle platforms to begin serial production in 2025, which also coincides with volume production of our EyeQ six base compute platform and our software-defined imaging radars, each important for scaling the mobility-as-a-service business. In terms of cash flow, we continue to rebuild our strategic inventory of EyeQ chips, which have been largely consumed over the course of 2021 and 2022 during the supply chain crisis. Our ability to satisfy demand during recent years was partially by consuming our inventory buffer, which was a big positive. Rebuilding of the inventory is a very important activity so that we will be prepared in case of any potential disruption in the future. Capital expenditures in the quarter were consistent with our view that CapEx should be roughly similar this year versus 2022. Turning to the guidance, revenue is tracking in line with our prior guidance, which we are reaffirming today, both for the core EyeQ business and SuperVision. On EyeQ, schedules have become more solid over the last couple of months, and customer requests to move volume around have largely ceased. Customer orders support a steep ramp of expected volume in the second half, with Q3 expected to be up over 10% versus Q2 and Q4 up more than 20% versus Q3 levels. On SuperVision, weaker end-market volumes have recovered strongly in Q2, which both reduced the inventory build in Q1 and solidified the volume trajectory for the second half. We continue to expect full-year shipments consistent with our prior guidance, with Q4 expected to be higher than Q3. Given the new vehicle launches and the ZEEKR 001 entry into Europe, gross margins for individual product lines are stable. We expect SuperVision revenue mix to be higher in Q3 and Q4 versus Q2, which will drive some reduction in overall gross margins versus Q3 levels. On the adjusted operating income side, the positive updates to our guidance are related to lower than expected operating expenses. Year-over-year growth of OpEx is now expected to be around 22% to 23% versus our prior indication of 30% growth. Nearly half of the reduction already occurred in Q2. The rest of the reduction is primarily from the following two areas: number one, to varying degrees, the areas of lower costs in Q2 like payroll, facilities, and mobility-as-a-service are generating some savings in the second half of the year as well. Number two, non-recurring engineering reimbursements in the second half of the year are now expected to be higher than we originally forecasted. In terms of tax rate, we continue to expect an effective tax rate in between the 12% and 13% range for the year. Before we start the Q&A session, I would like to thank Anat Heller for being an amazing mentor to me and for her continued support as an advisor to the finance team and management. I would also like to thank our entire finance team for their professional and tireless work since we have become a public company. Thank you. We will now take your questions.

So we are ready to start the Q&A session.

We will now conduct a question-and-answer session.

Thanks, everybody. It is Dan, and just in the interest of time, please limit yourself to one question and one follow-up please. Thank you.

I do have one question and one quick follow-up. So, I think in the prepared remarks you had started with a comment that you now have nine estimated OEMs engaged in terms of Chauffeur and SuperVision. I think last quarter you talked about having six large OEMs kind of deployed looking out in the 2024 timeframe. So I’m just curious, can you walk us through how things have changed in terms of your pipeline of design wins on SuperVision?

We noted in the press release that our serious engagements on SuperVision and Chauffeur have expanded versus the beginning of the year in terms of the number of OEMs. Now, I'm defining serious engagement as where OEM engineers are fully aligned with Mobileye that Mobileye is the right path forward in terms of technology, performance, and cost, where we already are in production executing an official product program or in a funded physical concept phase. Currently, this list of OEMs represents about 30% of global volume. This is very encouraging because the vast majority of the rest of the industry remains very open to us. So for these OEM engagements, we are not competing with another company or technology, but there are other complexities in the decision-making process that have nothing to do with the competitive landscape. Things like go-to-market and consumer pricing strategies, how to best align the product into the portfolio launch plan, defining roles within the program, and what to do with the internal development assets. So real level two plus, what we call eyes on, hands off, and the path to eyes off, as well as a new potentially gigantic automotive term. With strategic implications and complexities that make the decision-making process more complicated than a simple ADAS care program. Working in our favor is increased competitive pressure as Tesla and the China startups, including ZEEKR, push the envelope on hands-free technology. We have noted an increase in seriousness within the OEMs over the past one to two years, and have seen some OEMs that appear to be far away from us on advanced technology move rapidly to align behind our approach. This is all very positive for us as a technology and cost leader. We still see a high likelihood of significant design wins announcements in the second half.

That is very helpful and very interesting. And then I guess on the other front, I’m just curious as we think about ZEEKR 001 and 009, you’ve got Polestar 4, I guess it sounds like the inventory dynamic and the issues that ZEEKR has kind of normalized out. So, as we look forward, I guess I’m trying to understand is what are you embedding as far as the ZEEKR volumes for the full year? Are you reiterating the full-year guide, or what I’m trying to gauge is how do we think about the potential upside if these volumes continue to improve? Just updated views on just ZEEKR and what you’ve seen as a setup into the back half of the year?

I think 2023 is very solid in terms of our corrected guidance that we did last quarter. Regarding 2024, look, we provided a long-term outlook for SuperVision volumes at CES early January. And we will make annual updates, but we are not going to update this on an ad hoc basis. But in order to provide some more color, everything is on track with new SuperVision customers that we talked about in general. We closed the Porsche design win and the expansion of the SuperVision platform to other Volkswagen group brands, and that is proceeding as planned. The pipeline of OEMs is advanced. The discussion of SuperVision has grown versus where it was in January. And in terms of 2024, the number of vehicle models with SuperVision systems has not changed. We expect to have five vehicles in production by Q1 of 2024 compared to one at the beginning of this year. Two of those vehicles are sold outside of China. The one thing that has changed is that our 300K unit outlook for next year assumes that ZEEKR 001 would sustain its Q4 2022 demand pace in China. That was the best data point available in January. The pace in Q2 of this year for that specific vehicle was about 60,000 units lower than the Q4 2022 pace on an annualized basis. So that is consistent with what we assumed in our guidance update last quarter, but that gap is a risk to the 2024 forecast we provided in January. Now, I will point out that there has already been a significant adjustment in expectations for about half of our covering analysts, while projecting volume within the 220,000 range for 2024.

Hey, team. Two roadmap questions, if I may. So first on the SuperVision rollout. And Amnon, I appreciate the 2024 update; I think that has been clear. My question is really around maybe, as we think about 2025. And it is more not asking about a target, but more, are you starting to get the visibility on some of these larger, more sequential programs on whether they could launch in 2025 or 2026? Or is it just too early at this point? The OEMs themselves are still trying to determine launch timing mode. When is that sort of typical goal, no-go where you would sort of have an idea whether 2025 programs would be significant?

We will probably be more confident in the 2026 forecast than 2024. The business will be much more diverse in 2026 with Porsche and likely several other automakers being added, as well as significant volume outside of China with deeper relationships with other related brands like Polestar. This will reduce the reliance on just a few vehicles and one region like we have now, leading to less fluctuation in volumes. Now on the high-probability potential wins that we included in our 2026 forecast, they still look very good in terms of booking design wins and launching over the course of 2025 and early 2026. But we feel very confident in the overall trajectory of the SuperVision business line in terms of a big inflection point in volumes around the 2026 timeframe. We also see the potential for our SuperVision platform to spread to more models within OEM customers as automakers get more bullish on the potential profit-making opportunities. Now, this could positively impact our mid-term projections. So I think we are very confident in 2026. Things look brighter than they looked back in January.

Okay. That is great. And then the quick follow-up, always sort of a delicate one. But regarding the more aggressive talk of full self-driving licensing over the last six months. Amnon, maybe just even very generally, you could talk about the recent tone of your customer conversations with respect to full self-driving specifically, either good or bad? I mean, it could honestly make some OEMs move faster to compete with their offering or maybe some OEM discussions could slow down if they just want to take a free look and engage Tesla. So any, you know, it is just such a relevant topic. Anything that you can add on that tone, if it has had any effect on the conversations that you are having directly?

I think that Tesla has mentioned several times in the past about licensing their FSD. So it is not really a new concept. It is not new to have competitive noise in the market. And I would say that we have lots of respect for what Tesla has accomplished with FSD. In fact, we see the rapid development as a significant positive for us that pushes the market to move faster to implement advanced solutions like SuperVision. Now, the specific question regarding Tesla working with OEMs—I think there is one argument that really clarifies the matter. I would put it as performance versus cost of the system. If you look at SuperVision, it is in an FSD-like category, with 11 cameras, radars, and so forth. SuperVision is also REM, the high-definition mapping. In addition to what FSD can offer. Today, we have 120,000 SuperVision-enabled vehicles in China, more than 1,000 beta testers. The response in terms of a comparative analysis is very, very good. It is on par, superior to FSD, as measured by the rate of intervention and ability to handle complex maneuvers. REM is a stronger differentiation. But now let’s look at the cost; the price of a SuperVision subsystem, including the cameras and radars, the ECU software or REM is approximately somewhere in the $2,500 range. Now, if Tesla matches that system price, then OEMs will be able to offer SuperVision or FSD at less than half the price that FSD is offered to Tesla car owners. Now, this would immediately cannibalize Tesla's strategy to reduce gross margins on the vehicle and rely almost solidly on the value of the FSD for creating their growth. Now, I would also mention—and this bodes well with our OEM customers—now there are 400,000 FSDs on the road since 2019 and Mobileye has already 120,000. In approximately two years, we will surpass the 1 million mark, and from there, we will grow much faster. There are also important differences with respect to access to data. Something that Tesla often highlights as an advantage is another key advantage that OEMs recognize. For example, at their Margin Investor Day, Tesla noted they had a video cache of 30 petabytes and we intend to grow to 200 petabytes. Our video database is 400 petabytes. Not to mention all the data that we collect for the program—the high-definition mapping—we collected almost nine billion miles of this type of data in 2022 alone, while Tesla talks about 300 million miles of driving to date. So I think overall, when you look at what Tesla has accomplished, it is a very, very big positive for us. We believe that SuperVision is a much more optimal solution for our customers, both in terms of cost and performance and customization basis.

I appreciate the details. Thank you.

I appreciate the color that you gave on how you are thinking about SuperVision in 2024, in particular on the lowered 001 production numbers. I was curious compared to the original expectations, how you are thinking about, I guess, the other four that should be meaningfully in the 24 numbers. Has there been any more, I guess, incremental handicapping to how you are thinking about those vehicles given they are new vehicles that haven’t really launched yet with the new technology, or are your expectations for those similar to what they were six to nine months ago?

So we feel good about the other models. The ZEEKR 001 for example is performing exactly to the expectations that ZEEKR provided to us and that we baked into the forecast. There is another vehicle launching right now, and then Polestar 4 looks to be on track to launch. Yes, we feel good about the expectations, and in 2023 as well. Like relative to the revisions that we made last quarter, the ZEEKR 001 and ZEEKR 009 are performing exactly as we expected. And with some minimal volumes from the additional launches in the back half, we should be able to comfortably meet our guidance for that product. So we feel good about how the performance is going in 2023 and everything looks solid for 2024, except for that gap we identified versus where we originally expected back in January.

And then congrats on the VW win for the more fully autonomous vehicle. I was hoping you could help us understand any guardrails you can give on timing and scope of this project. When should we expect this to contribute to initial EV revenues and is this planned for? The press release read like commercial vehicles, but is this planned and do you see a roadmap for the Chauffeur type technology moving into more consumer types of vehicles? Thank you.

The only reason that we mentioned the ID bus is because Volkswagen, in their own PR, mentioned the Austin vehicles—they shipped to Austin with our technology for test and also in Germany. It is still ongoing, all the formalities of the actual design win for this, but there are already more than 30 vehicles already in the testing phase at VW. Hopefully, this will mature into an official design win this year.

So can you provide more details on your latest outlook on the AV opportunity with Mobileye drive? I think you mentioned in the prepared remarks not putting less emphasis on upfitting new vehicles and it makes more sense to ramp on purpose-built vehicles in the 2025 timeframe. Could you share a bit more on what change led you to have that view and your confidence on purpose-built platforms being ready in 2025?

Sorry, Mark, you broke up a little bit. Just repeat the question.

Yes, I will take that. So back at CES, we mentioned that we are working with the platform builders. We mentioned Scheffler, we mentioned the brand with their auto company hold on, and we also mentioned a third company who by now has made their own press releases which is Volkswagen Commercial Vehicles on the ID buzz. We are working also with another personal car maker called the P3. I think we announced that a while ago with the Mobileye 64. So the focus is on collaborating with or partnering with platform builders rather than having our own big and homologating our own vehicle and then performing the entire chain of owning vehicles, operating vehicles, customer-facing applications. We do that through a way of partnerships. So that is the new focus that we announced back at the CS, and then everything is on track, including what you saw in the press a few weeks ago by Volkswagen on actual testing of ID buses equipped with our technology.

Okay. That is helpful, thanks. And I was hoping you could also share a little bit more of an update on the progress you are making in developing your own radar and LiDAR sensors, as I believe they could be helpful in supporting your opportunity with both the Chauffeur offering as well as Mobileye drive? Thank you.

So the imaging radars are on track for end of 2024 SOP. We are already interacting and engaging with a Tier 1 partner to work together on offering the radar to the market and it is on track for end of 2024. The FMCW LiDAR is on track for second-generation LiDARs around 2027 to 2028 timeframe, where we feel that first-generation autonomous vehicles would be served with time of flight LiDARs, and second generation with the FMCW.

Hey, thanks so much for taking my question. Maybe first just thinking about the revenue or potential margin upside that you could see from ZEEKR as they are now unlocking some of these more advanced features? And is that something that we would be seeing more into 2024, potentially, or could we see some of that even in the back half of this year?

I think that potential we will see in 2024 because the NOP feature powered by REM is for the first six months being offered for free to all the ZEEKR customers, and then we will start seeing revenue based on certain traction. So we are talking about hundreds of dollars per vehicle potential in 2024.

Okay, understood. And then I’m not sure if this is relevant. So feel free to dismiss if I’m off base on this. But does the current political situation in Israel have any implications for you from a business perspective?

It is creating distress. It is creating personal distress, and I think also most of Mobileye—not all of Mobileye employees—are experiencing this kind of distress. But now when you look at the Mobileye employees, they are all professionals. We haven’t seen any effect on efficiency and productivity in the past few months. We are not manufacturing anything in Israel. Israel is not the source of revenue for Mobileye. So we don’t see any material impact from the political upheaval that is going on in Israel.

Yes, so it is basically coming from base ADAS. So we have, in our programs, we have NRE reimbursement. That is for most of our programs, and sometimes these are things we cannot expect at the beginning of the year, so we might get additional benefits on these reimbursements. But it mainly relates to ADAS reimbursement for this year, for 2023.

Yes. And I think there was one smaller item related to Mobileye drive that we are expecting now as well.

So you characterized a couple of times in the script about not seeing competition in many of the discussions you are having with OEMs. I’m wondering if you could just take a step back and help us understand your view of the competitive landscape, not relative to Tesla, FSD, but more to some of the other internal OEM efforts and some of the point solutions in the marketplace, and how you see the market evolving over the next 12, 24, 36 months? Thank you.

Think about the competitive landscape of the category of SuperVision and beyond. The majority of the competition comes from the in-house development of the OEM. We have seen in the past six months a form of awakening of OEMs that went through this process of building an in-house solution for a SuperVision-like product or even trying an eyes-off product. They tend to be somewhere between four to six times more expensive than our solution and, performance-wise, we don’t see an advantage. They come to the conclusion that it may satisfy a very slim piece of their business in terms of very high-end models and keep a big gap in terms of the medium-segment vehicles. This brings OEMs back to us to talk about the SuperVision. We have a large number of serious engagements with OEMs that in the past were very bullish on talking only about in-house development. We are now around the table talking with them about the SuperVision products and beyond the SuperVision. So that is the majority of the competitive landscape. It is not the likes of NVIDIA and Qualcomm; they offer the tools for the in-house development of OEMs. So the competitors are essentially the OEMs themselves. Additionally, we see a wave of awakening coming from that attempt.

And George, just to follow up on one point. What we said specifically was that OEMs that represent about 30% of global volume were in these serious engagements where essentially these OEMs have aligned behind our approach and are telling us there is no competition there. The rest of the industry is still in this—so I don’t want to make the comment that we don’t have any competition. Like Amnon said, it is mostly coming from internal efforts, but with these 30%, that was what the comment was really reflecting.

And just as a follow-up, you talked about this awakening. Is there one particular element of what you bring to the table that is causing that? Is it the REM mapping, our assets? Is there anything that you can point to that is more important than the other component pieces? Thanks.

I will point you to the competitive landscape in China. You have Xpeng, Li Auto, and Nio; they have products on the road. We look at their products. They have many more sensors than a SuperVision. All of them have front-facing LiDARs; some have multiple front-facing radars. They have much more compute, sometimes between 10 to 20 times more than we have—very high-priced products. When we start doing benchmarking, we see that we are superior in terms of performance in almost every aspect. This gets exposed to other OEMs. Once we start putting vehicles on the road with our technology, where people can test, OEMs can test. The public can also start testing. The difference is becoming visible and it is all about cost versus performance. Even if they have the same performance as the SuperVision but they cost four times more, then it is not competitive. So I think this is becoming visible now that things are really in production.

I think that that is exactly right. The fact of being in production, being able to demo the systems over thousands of miles because the REM maps are now existing across the U.S. and Europe is the actual cost of the system. It is no longer a projected cost. It is really an actual cost. And then it is this pressure from other automakers moving fast like Tesla and some of the Chinese OEMs that Amnon referred to as well. These are all kind of areas where we think are driving this awakening.

Just the first question, going back to the engagements with the nine large automakers. Can you talk about just the reception thus far in the EyeQ Kit as well as the driving policy behavior model? And then secondly, roughly when do you expect these automakers to make their sourcing decisions? Is it partially this year or next year or maybe mostly this year?

We believe that the sourcing decisions will take a number of months—sometime this year, beginning of next year, in the first quarter. This is kind of the timeframe that we are seeing. In terms of working together, EyeQ Kit and the behavior shaping language, we are gradually creating this as a platform. Now, the behavior shaping language is really something very powerful. It allows the OEM to write actual code—kind of XML files that describe in great detail a lot of aspects of the driving policy that they wish to have, and it is all running on top of our driving policy. When you test it, you are simply amazed by how good it is. Now you can shape it to your own needs. It is like writing code on top of an operating system. So as we move forward, we are adding more and more innovations that allow OEMs to have serious hands-on control over our platform. This has received very, very good reception.

That is very helpful. As a quick follow-up, I was hoping you could touch upon the second generation of the REM maps. I think you are developing or maybe launching in terms of what that does to the journey from eyes-on to eyes-off, and maybe when you expect that to roll out.

The REM maps is a continuous development. It is not that there is a first generation or second generation. Our focus now is on expansion in China and activating the REM maps in Europe and the U.S. But China is the first priority because this is where the production vehicles are now being deployed. We are adding more and more automation to the REM maps. This is necessary in China because in order to comply with the Chinese regulations, foreign entities cannot even view the data. So it makes us more efficient and much, much better in order to comply with those regulations. This is our first priority. As we move forward to the Porsche program, and as additional programs come up in 2025 and 2026, we will start shifting towards Europe and the U.S. to make the REM maps there productized for deployment.

Hey. Thanks, guys. Appreciate you taking the question. Two quick ones. Is there any way to provide context about how we should anticipate the interplay between the mix that you talked about, kind of heading into 2024 and the various OpEx dynamics? You mentioned some cost savings. You also mentioned some costs coming on. How those things play together— the gross margin, OpEx dynamic as we head into 2024? And then I have a quick follow-up after that. Thanks.

Okay. So I will pass the cost savings and all of that to Moran, our acting CFO.

Yes. So yes, as for operating expenses, we have said in the past that 2022 and 2023 will be higher than our historical levels. We believe that 2024 will be returning to our historical levels of between 15% and 20%. So 2022 had almost 35% growth, and our expectation for 2023 was around 30%. Despite the good news on 2023 OpEx, we still believe that 2024 will be close to 20% growth than 30%. The OpEx growth would be affected by the decreasing base, and we are still not going to increase the expectation for 2024.

And then the quick follow-up is, you had mentioned, I believe, this might be more of a clarification, that Tier 1 OEM inventory destocking has had some impact on demand, and you had talked about a timeframe over which it will normalize. Can you just clarify the timeframe that you expect that to normalize? And that is it for me. Thanks.

Are you talking about SuperVision inventory or IQ?

No, I think IQ.

Yes, actually, we have seen in the second quarter and also in the first quarter the fluctuation between the quarters was pretty big. We see the second half being much more robust than the first half. We think this is a result of our customers coming into the beginning of the year with higher levels of inventory, possibly resulting from price increases at the beginning of 2023. Now, we see schedules stabilizing in terms of IQ. So if at the beginning of the year, we had requests to push volumes from Q2 to Q3 or Q3 to Q4, we are no longer seeing that. So it is pretty stabilized. We think the last two years have been very bumpy in terms of the supply chain crisis and production volumes. But of course, it is not the same situation we entered this year. That is why we see the volume increase, and the inventory issue we think played a role more in the first half of the year.

I think I will add a bit in terms of there are two types of inventory, right? Inventory that our customers have piled up in terms of IQs, and that has stabilized, right? We don’t see any requests to push volumes from quarter to quarter. Then there is our own inventory that we build six months ahead of IQ chips just to make sure that if another crisis knocks on our door, we are prepared. That inventory has been completed and that affected costs because we had to buy more EyeQ Kit than we normally have in order to build our inventory. I think we have completed this, or it is going to be completed by the end of the year.

First, a clarification on some of the volume commentary that you received as far as it relates to sequential improvements. Maybe you could just clarify again just what the cadence of volume should be over the next couple of quarters as far as it relates to SuperVision? Thank you.

Thanks, Dan. Yes, just to clarify what we said in the prepared remarks—referring to EyeQ volumes being up more than 10% versus Q2 levels, and then Q4 levels being more than 25% above Q3. We should also see some average selling price increases because of SuperVision becoming a bigger part of the mix, and that was really not part of the comment about the volume. So I just wanted to support that volume expectations, volume orders from our customers have been very solid and point to much higher volumes in the second half of the year.

Thank you everyone for joining the earnings call. We will talk to you next quarter. Thank you.

This concludes today’s conference call. You may disconnect your lines at this time. Thank you for your participation, and have a great day.