Earnings Call Transcript - MBLY Q4 2024

Operator, Operator

Greetings, and welcome to the Mobileye Fourth Quarter and Full Year 2024 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Mr. Dan Galves. Thank you, sir. You may begin.

Dan Galves, Host

Thank you. Hello everyone and welcome to Mobileye’s fourth quarter and full year 2024 earnings conference call for the period ending December 28th, 2024. 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 President and CEO; and Moran Shemesh, Mobileye CFO. Also joining today for the Q&A session is Nimrod Nehushtan, Mobileye EVP of Business Development and Strategy. Thanks, and now I'll turn the call over to Amnon.

Prof. Amnon Shashua, President and CEO

Hello everyone, and thanks for joining our earnings call. Starting with the results. Q4 was closely aligned with our expectations. EyeQ volume was a bit better than expected and was up 9% versus Q3. The upside was largely related to higher than expected volume from Chinese domestic OEMs who continued to order above the levels we talked about back in July. ASP's gross margin and operating expenses were aligned with our review at the beginning of the quarter. Operating margin of 21% was almost 5 points higher than Q3. Operating cash flow was robust in 2024, finishing up at $400 million, that was flat compared to 2023 despite significant year-over-year revenue and earnings declines driven primarily by the previously disclosed inventory digestion period we experienced in the first half. Operating cash flow was approximately double our non-GAAP net income in 2024. Moran will cover the guidance in more detail in a few minutes, but I'll first set the stage. What we are assuming is that if we use indications from our customers for the full year, our guidance would be higher, but we prefer to take a conservative approach that accounts for the risk that uncertainties negatively affect earnings. Our top 10 customers are assuming global production volumes meaningfully worse than that assumed by third-party forecasters. The Chinese OEMs forecasting remains difficult due to less visibility we receive. Volumes appear to have stabilized in the 2 million-plus annualized range in the second half of 2024, higher than we had expected several months ago, but we're assuming a deterioration from that level simply to account for the low visibility. On SuperVision, we're assuming about half of the current run rate of end-market demand for the vehicles we are on. On Zeekr, we are electing to account for the risk that Zeekr could choose to go with our in-house system on Zeekr009, which is currently running at 2000 units to 3000 units per month. We have no indication that this is planned, but we are unwilling to be surprised again. On Polestar, we're assuming volumes of Polestar four to remain at current levels despite their stated plans for further geographic expansion. Turning to seasonality as a percentage of the midpoint of the full year revenue guidance, our assumption for Q1 revenue is 25% of the full year. Typically, it would be lower, so this gives us further confidence that the full year outlook is achievable even if macro conditions deteriorate somewhat. Turning to the commercial and new business side, we continue to win new ADAS business with our core customers at the same very high rate we have for years, and are seeing good opportunities with some new customers. We recently won a multimillion-unit RAM data harvesting and cloud-enhanced driving assist program from a very key customer in parallel with continued due diligence for supervision. This deal strengthened our global data harvesting with another leading OEM with significant global volumes. This data plays a key role in our EyeQ generation AI stack. Additionally, we'll move forward with an Indian OEM on REM data harvesting for this important growth market. A number of upcoming launches from this customer will have cloud-enhanced driving assist capability. On the advanced product side, we have the customer engagements in place to drive a steady cadence of announcements over the course of 2025, which is consistent with the messaging we delivered at the December capital markets day. While our expectations for advanced product design wins remain intact, the exact timing of those announcements remains challenging to predict. The decision for an OEM on what path to take towards autonomy is a very strategic, long-term decision, and this is why the due diligence process is so intense and takes time, but it is clear that the customers believe in our approach and that the path to outstanding products runs through Mobileye’s technology. In the past few months, we have revealed through our AI day back in October, the capital markets day in December and the CES early this month, a lot of technological advancements underlying our stack. The common theme is efficiency of design, efficiency in our silicon design, and we'll be revealing very soon detailed benchmarks of EyeQ high versus competing high-performance chips, efficiency of our AI, for example, on AI day, how to build a transformer network, which is a factor of 100 more efficient than the existing transformer architectures used by practitioners. This efficiency in design is also translated to the amount of resources, data and compute required to train our AI stack. Efficiency in our mind matters and goes against the dogma of brute force development. Brute force development is a signature of our competitors as reflected by the massive investment in compute and data pipelines. Mobileye has a long tradition of excellence and efficiency. Reproduction vehicles powered by our EyeQ high stack show promise for a substantial lead in performance and precision of our next-generation supervision and chauffeur. More updates will come in the course of 2025 as we get ready for standard production during 2026. Thank you, and I will turn the call over to Moran.

Moran Shemesh, CFO

Thank you, Amnon. 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 in Mobileye’s non-GAAP numbers is a monetization of intangible assets, which is mainly related to the acquisition of Mobileye by Intel in 2017. We also exclude stock-based compensation as well as the goodwill impairment that occurred in Q3. Our Q4 results slightly exceeded the Q4 outlook implied by the full year guidance we provided back in October, largely due to higher-than-expected volumes from Chinese OEM; it was down 23% year-over-year. There isn't much insight to be gained from that comparison, as a portion of the meaningful inventory buildup in the first half of 2024 occurred in Q4 of 2023. Q1 will again be an apple-to-oranges year-over-year comparison given the inventory digestion that occurred in Q1 of 2024. Beginning with Q2, the comparison will be more relevant. Gross margin was consistent with expectation and up slightly versus Q3 due to a lower percentage of supervision revenue in Q4 versus Q3. Operating expenses were somewhat in line with Q3 as expected. This is related to the initial impact of the LIDAR unit wind down and an increase in military reserve duty, refund adjustments based on the evaluation of benefited clauses and other items that are largely timing-related. Turning to guidance, we provided 2025 revenue and adjusted operating income guidance in today's earnings release. At the midpoint, we expect $1.75 billion of revenue and $217 million of adjusted operating income. This represents approximately 6% year-over-year revenue growth and more than 10% growth in adjusted operating income. The revenue guidance is based on EyeQ volumes in the range of 32 million to 34 million units. As Amnon mentioned, we are assuming the vast majority of supervision units this year are for Polestar four and expect overall volumes in the low 20,000-unit range at the midpoint. Assuming no expansion into the U.S., I know that for the time being we don't plan on expressly addressing supervision volumes in the near term until we begin launching this system on more products with Western OEMs in 2026. We don't expect it to be significant enough to call out, and we set expectation low enough that any variances to the downside are not material. On the EyeQ volume side, based on our analysis and information from Tier 1 suppliers, we believe that customer inventories are currently at normal seasonal levels. To give you better insight on our guidance, we thought it would be helpful to provide a bridge from the second-half 2024 annualized run rate of 35.6 million units to the midpoint of our 2025 volume outlook of 33 million, which is somewhat below the indications we currently have from our customers. We don't plan to provide this level of detail on a quarterly basis, but think it is helpful as context for our initial 2025 outlook. First of all, some pull forward of volume into Q4 is typical given annual price changes, and we estimate this added about half a million units annualized in Q4 2024, and we are not assuming this occurs again in Q4 2025. We assume in 2025, our production for our core OEM customers, which represent about half of industry volume, will be down almost 7% versus 2024 levels, similar to the decrease we saw in 2024 versus 2023. This is meaningfully lower and more conservative than IHS production of minus 4% and would account for about 2.3 million units of reduction. Partly offsetting the assumed production decline, we do expect share gains and ADAS adoption growth from these customers to drive approximately 1.5 million units of growth in 2025 or about 4 points of growth over market. These are not generic expectations, but rather relate to new programs in additional markets with specific OEMs. Regarding seasonality, second-half production at our top customers is typically 2% higher than the first half. This would represent almost 1 million units annualized reduction versus the second-half runway rate. Finally, regarding the China OEM, we are assuming approximately 0.5 million unit decline as compared to the second-half run rate to reflect the volatility we've seen over the last several quarters. Turning to gross margin in 2025, we are assuming about 1.5 points higher than 2024 primarily due to the lower percentage of supervision-related revenue. In terms of operating expenses, we expect about $250 million per quarter during 2025 on average, which is consistent with our comments on the Q3 call where we said the run rate at the same time would be sustained to 2025. Versus that Q3 run rate we will see savings from the wind-down of the LIDAR unit. We expect this reduction to be offset by typical employee compensation inflation, as well as our expected military reserve investment. I remind you that headcount-related expenses represent well above half of our operating expenses. Other areas of growth, such as AV testing and customer and cloud-related expenses, are largely offset by efficiencies within our data labeling activities, as well as expected higher year-over-year engineering reimbursement on production program spending. In terms of Q1, we expect revenue to be down about 11% versus Q4, which reflects typical seasonality and a bit more than 80% growth year-over-year against the inventory digestion we experienced in Q1 of 2024. Our revenue expectation for Q1 implies about 25% of the midpoint of our full year revenue guidance. We expect overall gross margin to be about a hundred basis points higher than Q4 level, and for adjusted operating expenses to be at or slightly lower than the $250 million per quarter I indicated earlier. Operating cash flow in 2024 was well above adjusted net income, even after taking into account capital expenditures of $81 million. Cashflow generation in 2024 was consistent with 2023, despite substantially lower adjusted operating income, reflecting strong management and control of working capital in a variety of areas. Additionally, we anticipate continuing to reduce our strategic reserve of cheap inventory on our balance sheet in 2025. We should support another year of delivering operating cash flow above adjusted net income. Finally, we expect the full-year effective tax rate to be approximately 20%, similar to 2024. Thank you. And we'll now take your questions.

Operator, Operator

Our first question comes from the line of Shreyas Patel with Wolfe Research. Please proceed with your question.

Shreyas Patel, Analyst

Okay. Thanks so much for taking the question. Maybe just, at a high level, as you're talking to legacy OEMs on adopting advanced automation like supervision I'm just curious what kind of timelines they're considering for this kind of autonomy because, Amnon you mentioned uncertainty by OEMs as it relates to making that decision. So, are the legacy automakers still viewing this as a 2027 or 2028 kind of launch, for real adoption, particularly in markets like North America and Europe?

Prof. Amnon Shashua, President and CEO

I'll start and then maybe, Nimrod would add. During 2024, we did a lot of buildup with the potential customers building and developing vehicles with our stack, working with them on very extensive testing. And we believe all of that will bear fruit in 2025. Exact timing in 2025, it's difficult to pinpoint, but all the indications that all what we did in 2024 are going to bear fruit, both in supervision and in Surround ADA. Surround ADA is also a very interesting category that is being built right now. 2027 seems like still looks like the sweet spot in terms of introduction of these kinds of technologies, and the work of Tesla is really creating a sense of urgency with our OEM. So, we still believe that 2027 is really the right timing for introduction of these systems, and Nimrod, do you have anything to add?

Nimrod Nehushtan, EVP of Business Development and Strategy

I agree and support, but the majority of the RSQs that we have and the engagements that we have are addressing or aiming for 2027, 2028 timeframe and especially for I think around ADAS, which is kind of a new category that has been picking up in the past year. I think that there is an even more expedited sense of urgency, let's say, due to also regulatory drivers, not just the competition. So that still remains intact and we did not see any shift in the timeline so far.

Shreyas Patel, Analyst

Okay, thanks. So maybe just on that point, because I think typically you've talked about OEMs would have to kind of secure a win maybe two to three years ahead of deployment. I know it's hard to pinpoint timelines, but just trying to get a sense of what your confidence level on some of these awards, particularly, the chart that you had provided at the capital market stay, which showed a number of OEMs that seemed fairly closer to crossing the finish line. So just trying to get a sense of your confidence on those.

Nimrod Nehushtan, EVP of Business Development and Strategy

Yes. Again, I think we've been maintaining steady progress in these engagements, and we continue to do so, and as Amnon said in his remarks, and we cannot really predict the exact timings of decisions, but we maintain steady progress since the capital market day in these activities.

Dan Galves, Host

We believe also that any start of production till middle of 2027, if the nomination is within the next four or five months, we meet it, especially if we're talking about the carryover of what we're doing with the portion of the supervision. And there is also a possibility to introduce EyeQ7 in that timeframe as well.

Nimrod Nehushtan, EVP of Business Development and Strategy

Okay. And just maybe to add one comment on this, if I may. I think what is also happening in parallel is that we continue to mature our next-gen products within our programs with Volkswagen Group that do address or have a concrete plan to start the production in 2026 onwards. So, our work in maturing the technology, the hardware, software, next-gen AI technologies is continuing as planned. So, it does give some added confidence also to our future opportunities that we can meet even shorter timeframes. If and when decisions are going to maybe take a little bit longer, they can maintain the same SOP plan, and because Mobileye is continuing to improve and kind of mature its products in parallel.

Shreyas Patel, Analyst

Okay, great. And maybe just a quick one. How do we think about gross margins for 2025? Thanks.

Moran Shemesh, CFO

Yes, I believe, I mentioned it. So, we expect a slight increase in gross margin of 1.5%, as a result mainly of SuperVision being lower volume than 2024. But with that EyeQ, it's really flat within the year. So, no issue with gross margin on 2025.

Operator, Operator

Our next question comes from the line of Chris McNally with Evercore ISI. Please proceed with your question.

Chris McNally, Analyst

Just maybe around the Qs, Amnon, I think one of the questions that we always get from investors is if you were to lose these, what would be the reasons that you were to lose? And I kind of always think about three buckets. The first bucket being sort of timing or pushout OEM just is unclear, which trims, which vehicle they want. They're constantly deciding and that changes year-by-year. The sort of the second, which is very clear within the legacy OEMs is there's no action, and they just decided to go with their basic Level 2 and they pass on advanced solutions. And then obviously, the third is sort of more Mobileye losing, which would be an OEM decides to go to in-house. So, look, I don't want to hold you to percentages, but I'm just curious where you think the risk would be in those three buckets, timing, OEMs taking no action, or an in-house solution? Thanks so much.

Prof. Amnon Shashua, President and CEO

I think the third bucket in terms of in-house development, we don't see a trend there. We don't see anything that is serious about in-house such advanced product. So, it's mostly related to the first two buckets, which is all about now power trade. So, sales of EPCs were below expectations. So, car companies are kind of going back to the design board and putting more emphasis on combustion engine models. So, the issues of powertrains delay also driving assist or big driving assist decisions. But in terms of in-house development, we don't see any significant traction there. Nimrod, do you have anything to add?

Nimrod Nehushtan, EVP of Business Development and Strategy

I think that it's a little bit hard for us to answer this question because we're not aware of all the behind-the-scenes considerations. So, from our perspective, it's obvious that there are attempts in the market for in-house development, and GM recently talked about their plans and so on. So, we are aware of those; I think for the kind of opportunities that we are now pursuing, it's a combination of these buckets that you mentioned that can play into this, mostly the kind of - whether or not the OEMs are ready for such a product at this timeframe, what will it take from them and some perhaps more like a vehicle lineup consideration. Longer term, we cannot really predict what the outcome of this in-house development will be, but we can - we've been working with customers that did have these attempts in the past, and we did manage to build a very successful business in parallel because eventually, we executed. So...

Chris McNally, Analyst

Very helpful. Just as a quick follow-on. In SuperVision, the launches you have in 2026 that are sort of known, and in '27 ones that are in RFQ; are they mostly - or the majority are they standard or take rate? Thanks so much.

Nimrod Nehushtan, EVP of Business Development and Strategy

So, it's not decided yet, to be honest, and it's something that we're discussing with our OEM partners - different models of how to sell these products to consumers. They're in a combination between standard fit and opt-ins. So, the more we'll have information on this as we move forward, we can - we will share this, of course.

Operator, Operator

Our next question comes from the line of Joe Spak with UBS. Please proceed with your question.

Joseph Spak, Analyst

Thanks, everyone. Amnon and Nimrod, I'm just curious again on the OEM conversations if price at all comes up and if that's a pushback. And if so, I just wonder how you think about that, given like it seems like if you give a little bit there to gain a footing, it would seemingly make you stickier and perhaps more valuable to customers over time. And then I guess also on the conversations with your urgency comment, does that also mean that once - if and when they do sign, they're also willing to move quicker to implement than they have historically?

Prof. Amnon Shashua, President and CEO

Well, price is always a consideration. I don't think that price right now is any impediment to making decisions. We are very optimized on price, and we work with our customers to find the right solution. Nimrod, anything you want to add?

Nimrod Nehushtan, EVP of Business Development and Strategy

Yes, I don't think that we have lost program on prices. I don't think it comes down to this at this stage. However, and we can say, aggressive and flexible relatively with our prices in negotiation. We don't want to make this a stepping stone. So, I don't think this is right now a kind of challenge that we need to overcome. I think that the sense of urgency that you asked about is more about how much - how many vehicles they can deploy such as systems on and so on. That is more a question of OEMs’ plans and rollout plans. It's not just a question of they want to do this, but if they can really accelerate execution and deployment in a larger scale of cars. This is something that we are working with them, and we're not the bottleneck for a broader expansion of vehicle integration. We are very, very efficient and have one of our strengths actually in the execution side and being able to support multiple vehicle lineups, multiple vehicle architectures. So, if and when this will become the chosen strategy, we can indeed support this.

Joseph Spak, Analyst

Okay. And just as a second question, obviously, a lot of news in AI this week. And you guys have always talked about the efficiency of your development solution, but just wondering big picture, does any of the developments get you to reevaluate your own approach? Or do you have any views on whether the prevalence of open-source foundational models can lower the barrier to entry to others?

Prof. Amnon Shashua, President and CEO

I think what we have seen is really aligned with the approach that Mobileye has been advocating for many years. You need to build a purpose-built approach, which means efficiency and at the AI Day we had in October, we built a transformer architecture that we built, which is 100 times more efficient in terms of the run time and compute than any standard transformer because it's purpose-built for the task of autonomous driving. So, everything we do in terms of the silicon design, if you look at the area, the area of our EyeQ 6 is 1/4 of the silicon area of our competing chips. We will provide in the next couple of weeks, significant benchmarks that we have been doing with the leading high-performance silicon chips. And EyeQ 6 is exceeding in terms of major KPIs like running both conventional networks and transformers, all the chips that we have benchmarked against. Efficiency is really the hallmark of what Mobileye is doing. And what EyeQ 6 has shown is that if you innovate in engineering, there was nothing there scientifically new that community that I know about. The fact that they created a very tight flow of training in terms of making use of memory bandwidth, making use of efficient reinforcement learning, like the GRP instead of working with quantized precision FP8. There really made the assembly language to bypass all sorts of CUDA bottlenecks that they have there. So, if you are really purpose-built and you want to be efficient, you can gain a lot. And this is what Mobileye has been advocating for many years. So, this is exactly aligned with our approach.

Operator, Operator

Our next question comes from the line of Dan Levy with Barclays. Please proceed with your question.

Dan Levy, Analyst

Thank you for taking my question. I just wanted to ask a question on the guide for '25 and specifically on the EyeQ shipment guide. Maybe you could just talk about the extent to which launch activity is factored into that guide, to what extent is that based on launches? I think what we saw in the past was that although you're powertrain agnostic, it's typically EVs that are taking on more advanced content and we saw some slowdown in EV activity. So maybe you could talk about the extent to which launch activity factors into the guide?

Prof. Amnon Shashua, President and CEO

I'll start by saying that maybe Nimrod can add and Moran that we took a very conservative approach with guidance. If we would have taken the numbers we received from our Tier 1s and OEMs, the guidance would have been much, much closer to the consensus than what we did. We took a conservative approach because we don't want to reguide during 2025. We don't want to risk that. And our guidance includes new launches as well. Nimrod, do you want to add something?

Nimrod Nehushtan, EVP of Business Development and Strategy

I think the mix of new launches versus kind of carryover programs is normal this year. There is no higher or lower percentages of new product launches versus carryovers. So, it's pretty consistent with what we have been facing in the past few years.

Dan Levy, Analyst

Understood. Thank you. Maybe we could then just follow up on China. And if we could just mark where you are now. I think based on the disclosure given you're assuming something like 1 million units from the domestic OEMs and something like 5 million from the multinationals in China, the volume outlook. And where do you stand now on resource allocation and efforts in China, especially amongst the domestics and taking into account maybe some of the challenges that you went through in China in '24.

Nimrod Nehushtan, EVP of Business Development and Strategy

Yes. I'll maybe address this and Amnon and Moran can add. So, we have been - our volumes in China next year for EyeQ are growing compared to 2024, and we're close to 2 million units for the Chinese OEMs. What we are finding is there is some good level of stability with the Chinese OEMs that have significant export volumes, and they are willing to - they're very much keen on partnering with Mobileye as a global proven solution that has proven performance. The risk of potential technology restrictions in some Western markets is, of course, lower than adopting a Chinese solution. So, that has really helped us in kind of maintaining and solidifying our position with our core customers and expanding our position with our core Chinese customers. We have been optimizing mildly our investment in China. We still have a strong team there that supports the local R&D needs that maintain full compliance with the local restrictions and regulations for data and so on. So just we're maintaining kind of a very tight investment compared to the business in China.

Dan Galves, Host

I wanted to follow up. This is Dan. To answer your question about where we stand, last year we sold about 5 million units with non-Chinese OEMs in China and approximately 1.5 million units with Chinese OEMs. One of the main reasons our assumptions differ from IHS is that global OEMs in China were down 17% to 18% last year. Currently, the assumption is they are down in the mid to high single digits, but we believe it could be worse. If it is worse, we prefer not to have to change our guidance, as Amnon mentioned. Therefore, we have accounted for a significant reduction in non-Chinese OEMs in our forecast. Regarding Chinese OEMs, as Nimrod noted, the volumes in the second half of 2024 were encouraging, running above a 2 million unit rate, which exceeded our expectations from July. For reasons discussed by Nimrod, we do not anticipate any changes to that, but we are factoring in about a 0.5 million units deterioration from where we were in the second half, just to be cautious due to limited visibility. Hopefully, this gives you a clearer picture of our China business right now.

Operator, Operator

Our next question comes from the line of Adam Jonas with Morgan Stanley. Please proceed with your question.

Adam Jonas, Analyst

So Amnon, you mentioned that you don't observe significant in-house development from OEMs and don’t see it as a true trend. I wonder if the ZEEKR 009's move to in-house development is just a unique case limited to China. Additionally, how do you perceive NVIDIA Kosmos? Although they may not be a direct competitor, could their tools potentially promote and expedite in-house development among your OEMs in ways you haven't yet noticed? I also have a follow-up.

Prof. Amnon Shashua, President and CEO

I think Kosmos is not directly related to empowerment and enablement. There's a big difference between supporting humanity robotics and supporting autonomous cars. But human robotics, every robot is built differently, actuators are placed differently. And if you just train on real data, you'll not be able to generalize among a robotic platform. So, relying on simulators is crucial. For example, in my other company made robotics, we built foundation models just on simulated environment, and we use a lot of NVIDIA tools. In autonomous driving structure, you want to rely on real-world data in order not to create a distribution shift. You do use simulations for edge cases, but you don't build your entire stack on simulators. So, I don't think that, that would be a major enablement. ZEEKR 009 or whatever is going on in China, I think is separate from what's going on in the Western economies. So, when I mentioned about in-house development, I was referring to the Western world.

Adam Jonas, Analyst

Okay. As a follow-up, you mentioned that humanoid robots are gaining significant attention lately due to Tesla's initiatives and those of other manufacturers and tech companies. I'm really interested in your perspective on the potential market opportunities for Mobileye's computer vision technologies in other sectors. You indicated that Mobileye should not become a bottleneck for the auto industry, especially the traditional segment, which may not be fully prepared. If all your talent and intellectual property is tied to this slow-moving segment, it could put your company at risk. How do you perceive the connection between your computer vision technology and areas like aviation, drones, and humanoid robots? Are these projects that Mobileye is currently investigating? If so, at what stage are they, and when could they become significant?

Prof. Amnon Shashua, President and CEO

I think Jensen's CES talk referred to AI in the real world as physical AI. And there are a lot of synergies, and at Mobileye, we are now studying this. We're not in any mature place in which we can make decisions, but we are definitely studying in-depth synergies between our stack and outside of automotive, but it's really early stages.

Operator, Operator

Our next question comes from the line of Colin Rusch with Oppenheimer & Company. Please proceed with your question.

Colin Rusch, Analyst

Thanks so much guys. Can you speak to the cadence of change of incentives within the reinforcement learning platform? And any potential strategies for utilizing elements of any of the emerging architectural models or portions of some of these foundation models that are starting to come to market?

Prof. Amnon Shashua, President and CEO

Reinforcement learning is becoming a very critical tool in building foundation models. And we use a lot of reinforcement learning in our stack as well. The reason you want to use reinforcement learning is when you build a probabilistic engine, right, so the next token prediction you have in pretraining it's a probabilistic engine. There is no concept of correct and incorrect. With reinforcement learning, through adding your reward function, you are adding the notion of wins. So, you need this when you're building useful foundation models. And you need this also when you are building outputs that are relevant to autonomous driving because correctness is talking about precision, right? You want to be precise and not just be probabilistic. So, reinforcement learning is the crucial element. And there's lots of innovation in reinforcement learning. What has been done, they use a kind of a simple reinforcement learning approach called GRPO, which allowed them not to use the critics, not to use complicated reward functions and use the outcome rewards instead of process modeling, process rewards. And the fact that it worked so well is very, very nice. And we're also looking at it instead of using BPO or DPO to use this GRPO. But it's a small thing. Once to understand that it could be useful, you simply added to your stack and experiment with it, and we're doing this all the time.

Colin Rusch, Analyst

Super helpful. Thank you. And then just from a sensing perspective, you talked a lot about the evolution of your imaging radar technology, but can you talk a little bit about what you're seeing in terms of sensor fusion and the ability to integrate some of the sensor data in a more efficient way to streamline the overall system and how that will develop over the next 12 months to 24 months?

Prof. Amnon Shashua, President and CEO

We see imaging in RADAR as a game-changing sensor. And we see now a lot of acceptance from the OEMs to include the imaging radar into our Chauffeur platform. And we'll have more to say about it during 2025. But it's really a game-changing sensor.

Operator, Operator

Our next question comes from the line of Mark Delaney with Goldman Sachs. Please proceed with your question.

Mark Delaney, Analyst

So, maybe you could share an update on how Mobileye drive technology is progressing for robotaxis and the timing of when you think there will be AVs on roads for commercial operation, not only in Germany, but I think VW had planned to launch in Texas usually Mobileye drive.

Prof. Amnon Shashua, President and CEO

So, our activity with the Mobileye drive customer is Volkswagen, the IT bus. We have also additional activity with Holon and Router, which is now starting paid drives with a safety driver in Oslo. We have additional activity with the Holon platform. We're working with additional opportunities. And it's all targeting the end of 2026, 2027. So, throughout 2025, we're replacing the computer hardware EyeQ 5 with EyeQ 6, that's a drive 64. The imaging radars are already inserted and working on this platform using the LADAR there. We finished training all the networks for those sensors. And by the end of 2025, we should be at the right meantime between failure to start experimenting with removing the driver. But SOP is this end of 2026, 2027 for evolving the drive.

Dan Galves, Host

And you should see milestones occur over the course of 2025. The first milestones are closed user group testing, where you're taking actual members of the public and the systems, commercial launch in terms of starting to charge those customers. This is all kind of in the near term during 2025. So, expect to hear more about this.

Mark Delaney, Analyst

My second question was just following up some of the earlier commentary around the RFI and RFQ pipeline. And at the Capital Markets Day in December, there were 5 OEMs in the negotiation or due diligence phase for SuperVision, another three of those more advanced stages of evaluation for surround ADAS. You said today you're continuing to make progress on that pipeline. But could you clarify if any of those opportunities are no longer available to you or have been meaningfully pushed out especially in Japan, with some of the major OEMs there announcing M&A or plans to work with some other chip vendors, at least for full AVs? I'm hoping to get a bit clearer of an update on where some of those opportunities stand.

Nimrod Nehushtan, EVP of Business Development and Strategy

There hasn't been a change — has not been a change negatively in these opportunities so far. So, there is no one that has dropped.

Operator, Operator

Our next question comes from the line of George Gianarikas with Canaccord Genuity. Please proceed with your question.

George Gianarikas, Analyst

I'd like to ask also about the bake-offs that you're in with the OEMs. You talked about the in-house development. But could you also maybe discuss what you're seeing from other alternatives, whether it's emerging competitors like Wave, Waymo has made some noise about trying to sell to OEMs, Tesla. How often are you seeing them in your discussions as well? Thank you.

Prof. Amnon Shashua, President and CEO

We do not see in those discussions, real competition outside of in-house development. All those that you mentioned, we don't see them in competition. I think that those are demo vehicles and could be relevant for the end of the decade, maybe production, but still a long way to go. So, if an OEM is interested in a 2027- and 2028-time frame for a SuperVision or Chauffeur, then the best path to get there is Mobileye.

George Gianarikas, Analyst

And maybe as a follow-up, but just curious as to what your collective thoughts are on Tesla's FSD version 13.2. And any progress you think they've made?

Dan Galves, Host

We have been just driving slides for version 13. A. We have strong conviction that our ITV platform will greatly exceed whatever we experience with the FSD version 13. And I would like to note that really the holy deal that we're pursuing is not just a good driving experience. We are pursuing very high precision, meaning that we can perform an eyes-off driving experience like with Chauffeur. So, there's way more to address than just the driving experience; it's how do you reach a very high mean time between failure. And the mean time between failure that exists today is around 10 hours, even with the best systems like the ASC Version 13 and each tens of thousands of hours. So, this is really the Holy Grail, and we believe we can reach this with our EyeQ 6 platform.

Operator, Operator

Our next question comes from the line of Xin Yu with Deutsche Bank. Please proceed with your question.

Xin Yu, Analyst

First, I just wanted to come back to kind of the AI developments. Would there be anything you would call out that you found maybe interesting in terms of their approach and what they did? I know you highlighted a couple of things earlier. But it seems to be this kind of, I think, read-through that some of the companies in the states are going to apply some learnings from that. Do you get any sense that you would do something like that or you would kind of modify anything you're doing right now differently?

Prof. Amnon Shashua, President and CEO

I think when we're talking about the stack of autonomous driving, what was interesting there is the use of GRPO instead in the reinforcement learning stack instead of PPO and DPO, and we're looking into it. It was very interesting. But I think that this is a very small thing. Their achievement is being able to develop a very tight flow, very tight training flow, taking into account every small bit of memory bandwidth and processing of the available chips that they have and reach a very low-cost training. So, I think that is real. And what we take out of it, which is relevant to us, is really the use of GRPO and the reinforcement learning stack.

Xin Yu, Analyst

It's really interesting. Second one on the - I know there was a Lyft partnership announced back in November. And I think you've mentioned sometimes there's this urgency from a lot of OEMs. I'm wondering, are you getting any increased urgency from kind of the Mobileye operators or Lyft or other parts of the world to try to deploy robotaxis faster because of what Tesla is doing? If there is more urgency, could we get accelerated discussions along with that?

Dan Galves, Host

Yes. We do sense urgency to come up with announcements on robotaxis. But we need to align all the partners together. It's not just the operator; we need also the vehicle platform to be aligned on. So, this is fully aligned with the bus. And with the other two opportunities we have, and we're building now a fourth opportunity, which also will be meaningful. So, I do see kind of a revival of the robotaxi opportunity, mostly due to the success of Waymo. And we see indications from the market in terms of partners, whether it's operators, big platform builders who would like to play a more meaningful - to be a more meaningful actor in this emerging market.

Operator, Operator

Our next question comes from the line of Antoine Chkaiban with New Street Research. Please proceed with your question.

Antoine Chkaiban, Analyst

I have a question on your current SuperVision design wins. So, can you maybe tell us about your collaboration efforts with Potter, Volvo and Volkswagen? And how the relationship is going? Any interesting development over the last 90 days and how to expand the opportunity with those customers?

Prof. Amnon Shashua, President and CEO

I think our first-generation SuperVision in terms of development, we are kind of in the low of marginal returns. We have been adding automated parking to the STACK and recently launched it in China, and we'll continue to develop it further. But in terms of improving that stack, we reached the point in which our focus is on the EyeQ 6 platform. We are doing a complete software upgrade, and we are writing on the EyeQ 6 platform to make better use of the benefit that we have from the EyeQ 6. The 10 times more compute that we have requires some software wherein all our focus is now on the EyeQ 6. And throughout 2025, we'll be able - we have already preproduction vehicles with EyeQ 6 already doing testing — on-road testing in Germany, and throughout 2025, we'll be able to show significant improvement on SuperVision performance with EyeQ 6.

Antoine Chkaiban, Analyst

And maybe as a follow-up, you presented at the CMD, the DXP framework to enable OEMs to code and control elements in the system, affecting the driving experience. I'm wondering what feedback you're getting on DXP from your current engagements and potential additional design wins.

Prof. Amnon Shashua, President and CEO

So, our activity with the SuperVision, DXP is in full use. So, it's a very important stack as part of the development stack that we have with OEMs.

Dan Galves, Host

Thanks, Antoine. Operator, the next question will be our last question.

Operator, Operator

Our final question comes from the line of Tom Narayan with RBC Capital Markets. Please proceed with your question.

Tom Narayan, Analyst

Thank you for taking my questions. My first one is a quick follow-up on Shreyas' question regarding the well-known slides from Investor Day. I wanted to clarify about the two OEMs, one for SuperVision and the other for surrounds, that are nearing nomination. I heard that instead of being two or three months away, you still believe it will happen in 2025. Is that correct? Or should we just assume that we shouldn't associate strict timelines with this moving forward? Is that the new way to think about it?

Prof. Amnon Shashua, President and CEO

I don't think that there is any change. The surround ADS is really imminent, but we don't want to start pinpointing which week or which month of 2025 this is going to be nominated. But all the indications are that we are at the end of the process of nomination. With the SuperVision, the same; all the activity we did in 2024 is bearing fruit. And things should start playing out within the next few months within 2025. So nothing has changed that would change our - whatever we presented at the Capital Market Day. Nimrod, do you have anything to add there?

Dan Galves, Host

We just don't want to be driven by kind of expectations of an exact time. So, nothing's changed on kind of our expectation for where we stand with different OEMs.

Tom Narayan, Analyst

I appreciate your comments regarding the comparison to other OEMs and some Tier 1s using Mobileye products, particularly the focus on precision with EyeQ. My question relates to Level 2+ and possibly Level 3 capabilities. GM recently announced they will double their Super Cruise adoption this year, while Tesla is set to launch their unsupervised FSD in Austin this June and demonstrated Level 2+ functionality. Additionally, Mercedes has raised their Level 3 speed limit from 60 to 95 kilometers an hour. While I understand these products may not fully meet the standards you desire, I'm curious if there is a risk that, as we transition to the eyes-off phase, these offerings might adequately satisfy consumer demand. Is that a concern for you, or do you not see it as an issue?

Prof. Amnon Shashua, President and CEO

It's not a risk because we're doing both, right? We're building SuperVision, which is not an eyes-off system. And we're building Chauffeur at the same time. So, for example, with Porsche, we're building SuperVision. And with Audi, we're building Chauffeur. So, it's all going simultaneously. We believe in the great value of an eyes-off. But regardless of our belief, we're also promoting very, very strongly SuperVision, which is an eyes-on system. So, if an eyes-on system is what the market would think is good enough, it's fine, right? We believe that there's a great value in the eyes-off system. This is why we're pursuing that as well. And we're simply doing both. So, there is no risk here. It's not that we are building on an eyes-off and not doing an L2+ system.

Operator, Operator

Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Galves for any final comments.

Dan Galves, Host

Thanks a lot for everyone's time, and we will talk to you on our next earnings call in April. Thank you.

Operator, Operator

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.