Earnings Call Transcript - MBLY Q1 2024

Dan Galves, Chief Communication Officer

Thanks, Maria. Hello, everyone, and welcome to Mobileye's first quarter 2024 earnings conference call for the period ending March 30, 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 as always are Professor Amnon Shashua, Mobileye's CEO and President; and Moran Shemesh, Mobileye's CFO. Also joining today for the Q&A session is Nimrod Nehushtan, Mobileye's Executive Vice President of Business Development and Strategy. Thanks and now I'll turn the call over to Amnon.

Amnon Shashua, CEO and President

Hello, everyone, and thanks for joining our earnings call. From a revenue and income perspective, Q1 was fully aligned with the outlook we provided in January. And I'm pleased that the inventory consumption is tracking as we expected. Based on information from our Tier 1 customers and our own analysis, we believe that 70% to 75% of excess inventory was consumed in Q1 this year. Adjusting for that, as well as some level of inventory growth in Q1 of last year, our volume growth in the core ADAS would have been mid-single digits, which is very solid performance in the current environment. In terms of business development and executing on our strategy, we continue to make meaningful progress across our portfolio. This starts with our eyes-on/hands-off ADAS business and extends throughout our advanced product portfolio, including SuperVision, Chauffeur, and Drive. Starting with eyes-on/hands-off systems, or what we generally refer to as base and cloud-enhanced ADAS. Our sustained success in this business has always been about providing incremental safety features to meet the constantly expanding regulatory and ratings requirements while leveraging scale and purpose-built hardware to maintain a consistent overall cost to the automaker. In Q1, we had our best-ever design win quarter for base and cloud-enhanced ADAS, generating 26 million units of future projected volume across many OEMs and all key geographic regions. Design wins activity, so you shouldn't annualize this number, but we believe this should address any open question about whether the excess inventory indicated some weakening of our position and opportunities for continued growth. It did not. We believe a key driver of this elevated design win volume was the start of production of our next-generation high-volume ADAS chip, the EyeQ6 Lite. This system on chip packs 4.4 times the processing power of its predecessor, the EyeQ4, into half the packaging size and supports many incremental safety and convenience features that are aligned with the global regulatory and NCAP safety rating roadmap for the next many years to come. And this was accomplished without any material price increase to our customer or cost increase to Mobileye. Turning to Mobileye's advanced product portfolio, we see three waves of future growth. Initially, eyes-on/hands-free navigation on pilot through SuperVision. This system is in production now with more than 200,000 systems on the road and has customer wins that imply significant scaling over the next few years. Progressing towards eyes-off, we have Chauffeur for consumer-owned vehicles and Drive for network-deployed driverless vehicles, each are still in development, but have series production wins that will begin to scale in 2026. From a revenue per unit perspective, we believe these products can accelerate our growth in a meaningful manner. For example, our future projected revenue from design wins in 2023 was $7.4 billion. Approximately 40% of this future projected revenue was accounted for by SuperVision and 20% by Chauffeur, yet those products combined accounted for only 4% of the future volume. Over the last 12 months, we have observed an increasing consensus among automakers that eyes on/hands-free across a broad operational cost domain is a must-have feature to be competitive over the rest of the decade and beyond. What's new since the start of the year is that we have seen a diffusion of this interest from primarily premium brands to more mainstream brands. We have also seen additional prospects reach out to Mobileye due to challenges in their current intervention, whether that was fully in-house development or collaboration with our competitors. We now have design wins all in advanced discussions with 14 OEMs representing 46% of the industry production as compared to 11 OEMs representing 37% of industry production at the end of 2023. We continue to make steady progress with more mature prospects. We've been working with since mid to late 2023 and see the likelihood of converting a number of these during the second half of 2024. In the aggregate, Mobileye is now betting on RFQs representing a multiple of the approximately $4.5 billion of pipeline revenue generated in 2023 from SuperVision and Chauffeur design wins. There are several reasons for this significant expansion in interest, and I'll elaborate on five driving factors. 1. The public announcement by Volkswagen Group for their alignment with our SuperVision, Chauffeur, and Drive products was very important, both in terms of a large global OEM moving forward on these product categories with conviction and then endorsement of our capability and the ability to execute. As expected, the announcement led to incremental traction with other OEMs. 2. We believe that Mobileye has significant and somewhat unique advantages in delivering an optimal balance of performance and cost. Our SoC cost is a fraction of competing high-end SoCs. And very importantly, our SoC comes with the full software stack validated for production readiness with a proven record of quality. Moreover, REM enables geographic scalability at very low cost. Overall, our eyes on/hands-off performance is best in class, despite running on low-cost silicon and requiring many fewer sensors than the competition. 3. As EyeQ6 High approaches production in mid-2025, we are now able to utilize late-stage SoC and ECU samples in testing. The software stack built to run on these next-generation ECUs includes state-of-the-art novel artificial intelligence systems, including end-to-end perception and end-to-end actuation running in parallel, for purpose of redundancy to the networks powering our current generation of SuperVision. Our target for the camera-based subsystem for perception is 1,000 hours of driving on highway roads without intervention and our testing shows that we are on the right path of achieving those targets. I would mention that those mean-time between intervention targets are expected to be industry-leading to quite a large group. 4. We believe that SuperVision provides a validated bridge to a true eyes-off system across a wide domain, which is seen by many OEMs as a true value driver long term. But the performance requirements for eyes off are really underappreciated by the public and also by certain OEMs who are throwing everything they have at an eyes-on system with seemingly no clear plan on how to boost mean-time between failure from one safety intervention every few hours to one every hundreds of thousands of hours. Mobileye, on the other hand, has a unique methodology and offering including crowdsourced mapping that boosts perception performance, redundant perception layers, a market-leading imaging radar to support our True Redundancy concepts, RSS, and purpose-built efficient compute. These areas of vertical integration experience, in our view, are considerable assets. 5. We've already seen an initial positive impact from Tesla's decision to double down on FSD and robotaxi which adds to the desire for other OEMs to have competitive offerings, but also is seen as an area where our legacy customers can utilize Mobileye's strength to introduce far-reaching intelligent driving systems. Overall, I'm very pleased with the progress of our technology and business building with OEMs. I look forward to more updates throughout the year and now turn the call over to Moran.

Moran Shemesh, CFO

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 measurement. The primary exclusion in Mobileye's non-GAAP numbers is amortization of intangible assets, which is mainly related to Intel’s acquisition of Mobileye in 2017. We also exclude stock-based compensation. Starting with Q1 results, they were closely aligned with the Q1 outlook we provided back in January. I'll provide a brief summary and then get into a bit more detail. The severe year-on-year decline in the key metrics was almost exclusively isolated to EyeQ volumes, which were impacted by the inventory correction. During the quarter, we delivered 3.5 million EyeQ chips. In addition to these new shipments, our customers used a significant amount of EyeQ inventory to satisfy the demand for products during the quarter. The approximately 4.6 million units year-over-year decline, which converted at our high gross margin essentially counting for substantially all the reduction in gross profit. Our cost is nearly all variable. The fixed component is very minimal. The balance of the year-over-year decline in operating income was driven by some growth in operating expenses, but this was relatively minor and our operating expenses do not flex with revenue, as R&D spending is correlated with the execution of our advanced product strategy and is not impacted by short-term fluctuations in revenue. Beyond the volume decline, we also saw some modest decline in EyeQ ASP and gross margin related to mix. SuperVision was pretty strong in the quarter. We delivered 39,000 units compared to 25,000 units in the year-ago period. This was above expectations, but this was due to timing. We continue to see the first-half deliveries totaling around 70,000 units, in line with our initial expectations, but with Q1 slightly higher than expected, Q2 slightly lower. SuperVision gross margin improved somewhat in Q1, both sequentially and year-over-year. The more meaningful increase into the low 40 range is expected in Q2 as close to 100% of our volume will be with the new low-cost domain control. On an overall blended gross margin basis, the lower than normal percentage was related to the fact that SuperVision was around 20% of revenue in Q1 compared to an average of 6% in the 2023 calendar year. While SuperVision volumes grew year-over-year, the mix of SuperVision was exaggerated by the temporary reduction in EyeQ volumes in the quarter, which will return to a more normalized level in Q2 and even more so in the back half. Despite the operating loss, operating cash flow was modestly positive in the quarter. One item to note here is that our balance sheet inventory rose sequentially. This has nothing to do with inventory at the Tier 1 customers. Our balance sheet inventory rose modestly due to lower shipments in the quarter and the need to maintain steady purchasing of EyeQ chips over the course of the year. By the end of 2024, we would expect our balance sheet inventory to be consistent with the 2023 year-end figure. Looking ahead, we believe that the inventory consumption process is on track. At this point, the vast majority of Q2 volume is based on binding purchase orders from our customers. There is a considerable level of uncertainty regarding the timing of late-quarter shipments, but we are comfortable in projecting approximately 7.4 million units, up more than 100% as compared to Q1. Based on our own analysis and information from our customers, we expect that inventory at our Tier 1 customers will be back around normal levels by the end of Q2. Please note that we may not continue to provide as much specification on quarterly unit volume outlook, but given the unusual cadence of this year, we think it is worthwhile. We expect gross margin to move higher to around 67% and for operating expenses to continue to grow steadily on a sequential basis. Overall, our revenue and adjusted operating income expectation for Q2 are well aligned with the current analyst consensus. In terms of the full-year guidance, it is unchanged from the outlook we provided on January 25. From a volume perspective, we are assuming 31 million to 33 million EyeQ shipments and 175,000 to 195,000 SuperVision shipments in 2024. On the EyeQ side, the midpoint of our guidance implies around 21 million units in the back half. This is supported by regularly updated indications from our customers, which have been quite stable over the last couple of months. And it also appears to be reflective of the true level of demand in the back half of 2024 based on our own analysis of OEM production forecasts. If we isolate average system price for the single-chip EyeQ business, we expect it to be down slightly in 2024 on a year-over-year basis, consistent with our view in January. The modest weakening in vehicle mix that impacted us somewhat in 2023 is expected to continue in 2024. This is compared to a very rich mix we saw in 2021 and 2022 due to overall automotive industry production constraints. Higher-priced chips for cloud-enhanced ADAS and other advanced programs are providing an offset, but we do not view this tailwind as very material in 2024 as cloud-enhanced ADAS volumes are still not a meaningful portion of the total and the base of vehicles paying us annual REM-related license payments continues to build. On the SuperVision side, these volumes can be more difficult to precisely predict given that we are currently only on five models that are all in the EV space, which has been in a period of volatility. The increase in volumes in the second half of 2024 versus the first half of 2024 is supported by several factors, including: 1. The recent mid-cycle refresh of ZEEKR 001, which caused a significant uptick in demand. 2. Incremental scaling of ZEEKR 001 volumes in Europe. 3. An additional version of the ZEEKR 009 with enhanced features. 4. The start of Polestar 4 deliveries in Europe and the U.S. in the second half. 5. Continued ramping of smart #1 in Volvo EM90 volumes. On a total company basis, we expect average system price to rise to approximately $55 in 2024 from $53 in 2023 based on SuperVision growth. We expect gross margin in the range of 67% to 68% for the remainder of the year based on current expectations for the mix of SuperVision and EyeQ revenue. We continue to expect adjusted operating expenses to grow approximately 25% on a year-over-year basis as we execute on our advanced product portfolio in preparation for substantial numbers of SuperVision, Chauffeur, and Drive product launches in upcoming years. We continue to believe that our operating expenses in the near and long term should be structurally lower than we expected as of a year ago and that OpEx percentage growth in '25 and beyond should be significantly lower than in 2024. Lastly, in terms of tax rate, we continue to assume a non-GAAP effective tax rate of 15% to 17% for 2024 in comparison to 11% in 2023.

James Picariello, Analyst

So just on the gross margin guide. Was it declared that it's 67% to 68% as the range through the remainder of the year or was that a full-year number for gross margins?

Moran Shemesh, CFO

Yes. This was for the remainder of the year. I believe I also mentioned, the full year that it's approximately 67%. But this quarter, of course, was lower due to the mix of SuperVision. As I mentioned, SuperVision was 20%. So it's not a representative gross margin.

James Picariello, Analyst

Can you please confirm the SuperVision shipment number in the first quarter? Additionally, could you explain what is driving the significant increase in operating expenses for the remainder of the year that leads to the 25% year-over-year growth in operating expenses?

Moran Shemesh, CFO

Yes. So in the first quarter, we delivered 39,000 units. And I also said we are expected to deliver 70,000 for the first half for SuperVision units and the rest of the year, again, is on track with our guidance. As for the OpEx, the main bucket for increase is headcount. So headcount to support our activities, our design wins, and the new advanced programs that's approximately $100 million of headcount growth and some compensation inflation. The other element is R&D related to headcount, again, to support the advanced program, EyeQ6, EyeQ7, LiDAR, radar, and also software related to design new programs building the hardware. So all this R&D around maybe $80 million or $90 million, but offset with some higher NRE reimbursement mainly related to our new programs and also related to Drive, that offsets some of this amount. We also have approximately $20 million or $30 million as a result of occupancy, the new campus and other sites, including depreciation. So these are the main drivers for cost increase and our OpEx increase in 2024.

Joshua Buchalter, Analyst

For my first one, any more details you can provide on the 14 advanced engagements and in particular, the incremental 3 that you added in the quarter, whether by geographic mix, drivetrain, and perhaps most importantly, any updates on timelines to conversion for the advanced engagements?

Nimrod Nehushtan, Executive Vice President of Business Development and Strategy

I'll take this. In general, we have been making steady progress with our activities, and the increase comes from a mix of geographies, including Europe, America, and Asia. The progress we're achieving is on three fronts: commercial, technical, and legal, ensuring that all aspects of these agreements are addressed. We continue to expect to reach a convergence in the second half of the year. I would also like to mention the Volkswagen partnership, which took us between one year and one and a half years to finalize; however, we see shorter time frames in our current engagements. Therefore, I believe the second half of the year will be a favorable time to start seeing more convergence.

Joshua Buchalter, Analyst

For my follow-up, I wanted to ask about the EyeQ6L. There are some promising initial design win metrics. Could you spend a minute or two discussing the features that customers can utilize with the 6L? Also, how are you managing to gain additional average selling price from this part? I was surprised to hear that the average selling price isn't changing much, especially since you're transitioning from 28-nanometer to 7-nanometer on that chip, which should offer significant performance improvements. I would love to hear more details about the engagements in core ADAS as EyeQ6L becomes a more important part of the overall mix over time.

Amnon Shashua, CEO and President

Okay. The ASP is driven by the functional bundle and not the process node of the chip. The bundles are increasing due to regulatory expansion and also NCAP rating expansion. Many of the programs that we win also include cloud-enhanced. So right now, the programs that we won in Q1 have a similar ASP to the existing generation, but we do see a drive towards higher bundles, which would increase the ASP. But the big ASP jump comes from the advanced product portfolio, the SuperVision, Chauffeur, and Drive. Any ASP increase in base ADAS is really incremental.

Nimrod Nehushtan, Executive Vice President of Business Development and Strategy

I want to follow up on that to emphasize that historically, with each generation, our goal has been to provide additional features that enable OEMs to meet regulatory and NCAP requirements without increasing prices. This has been our strategy over time. Higher performance may allow for more bundled offerings, which could lead to a higher average selling price. However, our primary aim is to maintain pricing and costs at the same level with each new generation while still offering incremental features.

Shreyas Patil, Analyst

Maybe just firstly, as we think about SuperVision profitability, I think you're indicating a low 40% gross margin by the second quarter, I believe, and the long-term target is closer to 50%. So how should we think about the progression towards that long-term target over the next few quarters or even beyond?

Amnon Shashua, CEO and President

No. We are on track of increasing the gross margin. We have a second-generation domain controller, which is now in production and on the road. In a few months, we'll completely replace the generation 1 of domain controller, and that increases the gross margin considerably. And the future products with the EyeQ6 are also designed with the gross margin approaching our target of 50%. So we are converging.

Shreyas Patil, Analyst

I'm interested in your perspective on the trends we see in markets like China, particularly with some automakers seemingly willing to invest in and deploy expensive systems while trying to own the data or develop the software internally. You've mentioned the challenges those automakers might face in scaling outside of China. Do you view this as a risk within China if more automakers choose to pursue these strategies, even if it comes at a higher cost compared to what SuperVision can provide?

Amnon Shashua, CEO and President

Our view historically is that competition is good because it creates more demand for those high-end solutions. In-house development in China exists. We work hand in hand with those OEMs. So they have some car models in-house development. Some car models are Mobileye equipped. But all the models you see out there are eyes-on systems. Now with eyes-on systems, what wins at the end of the day is cost versus performance. No one will pay a higher cost for the same performance. Mobileye's SuperVision system is about 50% of the cost of competing systems. Some of those systems have 3 LiDARs. We have a SuperVision without any LiDAR. It's not necessary to have LiDAR in our SuperVision system. So when you look at it asymptotically, it is for an eyes-on system, it is cost needs to move performance and not first performance and then cost. And we have a great advantage there. Another advantage we have in China is our rapid expansion of REM. This allows to enable hands-free driving also in urban settings. We are going to launch, I think, next month or in the next 6 weeks the first urban drive in Shanghai, which is going to be deployed on all the 200,000 vehicles that are currently on the road. And this is going to be really an industry-leading experience, and then we can expand throughout China quite quickly. And this is something that if you don't have the Crowdsource technology to do that, it's very, very difficult to scale high-definition maps across urban areas. And then comes the next generation, which is eyes-off, and none of our competitors have a concrete plan on how to get to an eyes-off system. Mobileye is the only company, only supplier that has eyes-off production programs and not only one; multiple production programs, especially with a leading company like Audi, which also generates volume, not only credibility. So I think putting everything together, the kind of competition we see in China is not a risk. We see this as an advantage because it puts pressure on other OEMs also outside of China to deploy these kinds of advanced systems. The in-house development outside of China, we see that declining considerably. Many OEMs that made announcements of in-house developments have taken a step back. We are starting to have serious engagement on adopting SuperVision and so forth.

Nimrod Nehushtan, Executive Vice President of Business Development and Strategy

If I may follow up, I think what's important for us in this dynamic in China is that it's evidence that when OEMs seek differentiation, autonomy is kind of the most important aspect for them to invest in and ensure that they have a competitive product. While some OEMs lean towards in-house development with expensive systems and investing significant capital, it still says that they believe that autonomy will be the key differentiator in the future for them. And this was recently supported also by statements that Tesla made in their earnings call earlier this week that this is going to be kind of the next big thing for OEMs who seek to escape from the price challenges that today are ruling the world in China. So we see this as a very important development because it solidifies our long-term perspective. And most OEMs, we expect will lean towards competitive products with a short time to market with competitive cost and with the best-in-class performance. And now we know that they need to compete within the next couple of years. And we believe we have the product that best suits this need at this point in time. So I think this stands behind the increase in the number of engagements we've had in the last quarter.

Gautam Narayan, Analyst

The first point is quite high level. You mentioned Tesla's recent announcement, which appears to be a shift towards focusing more on the robotaxi front. Certainly, Full Self-Driving is a significant factor in that, particularly with their version 12. However, it seems, based on conversations with them, there’s a hesitance to engage with Level 2 Plus. Yet now, there seems to be a movement towards Level 4. As a proof of concept, when consumers see Level 4 and have confidence in it, with robotaxis on the road, it could create a positive influence on autonomy as a whole. So, do you think that the robotaxi aspect, particularly Level 4, may not be as far off as some believe? Could this development be a catalyst for Level 2 Plus, or do you see these two aspects as completely independent?

Amnon Shashua, CEO and President

Well, Tesla's FSD is Level 2 Plus. They call it now FSD Supervised but this is a Level 2 Plus. We are all in favor of Tesla accelerating the robotaxi plans because we have also robotaxi in production with Volkswagen on the ID. Buzz coming out in 2026. So any uplift in the demand for robotaxi is also an uplift for us. Now whether they could introduce robotaxi using only cameras, we are kind of skeptical, but no, we don't know what they're going to introduce. Maybe they'll introduce a robotaxi with additional active sensors; not only camera. We believe that eye-off systems, rather than calling this robotaxi, let's call it eye-off systems because eyes off means that you can drive autonomously on selected types of roads; not necessarily on every type of road. It's still a great value. An eyes-off system, which is our Chauffeur product line, has a great value proposition. We also believe that in time, it will even overtake Level 2 Plus in terms of volume, but we see that something for the next decade in terms of the volume ramp. SuperVision is this decade, and eyes off would be in terms of scaling and overtaking Level 2 Plus, we see that as something for the next decade. But we'll be very happy to be proven wrong and to have this accelerated.

Gautam Narayan, Analyst

I have a quick follow-up. You mentioned there are 14 OEMs you are engaging with, and you have already secured five of them, along with three new ones. There’s the standard SuperVision that you’ve won, and then a lighter version of it. I'm curious, among the 14 OEMs you are talking to, beyond those you’ve won, are the majority selecting the standard SuperVision, or are they showing interest in the different versions, like the SuperVision Lite? How do you see the distribution among these options?

Nimrod Nehushtan, Executive Vice President of Business Development and Strategy

Well, first of all, the answer is it's a mix between SuperVision, Chauffeur, and SuperVision Lite. And it's kind of a very balanced mix, I would say. What we see is that OEMs are trying to build their vehicle lines such that some of the vehicle lines will have a full SuperVision or Chauffeur or both, and then maybe the bulk of the volumes will have instead of just the front camera, a SuperVision Lite type of system, which has 5 cameras and 5 radars or 6 cameras and 5 radars. But still offers very advanced functions compared to the base ADAS we have today, which will improve their competitiveness in the low-cost cars, will offer new value propositions to consumers, but at controllable costs. This kind of lives on like in parallel to the SuperVision and Chauffeur, which will be for other car lines. And this is what we see in our engagements with OEMs. This is, for us, really kind of changes the way we're looking into base ADAS in the future because we actually think it will potentially diverge to two streams. One will continue to be low-end, front camera only, just to meet kind of the lowest cost possible with regulation. In addition to that, we see a growing demand for SuperVision Lite as the next generation for the base ADAS segment, let's say. So it's kind of an extension and this coexists next to SuperVision. That's what we are looking for.

Gautam Narayan, Analyst

Yes. Just to clarify, most of the engagements involve discussions about several of these products, similar to the Volkswagen Group design win.

Nimrod Nehushtan, Executive Vice President of Business Development and Strategy

Yes.

Dan Levy, Analyst

Wanted to start with a question on Volkswagen now that that's more publicly known. So maybe you could just give us a little more on the parameters of the program, what's the software versus hardware components, how much of this is actually using your domain controller. What's the extent of the functionality that's going to be enabled, the regional split? And then in the release, I think there was some commentary that at some point, VW would eventually use in-house solutions. Maybe you could just comment on, I guess, the stickiness of your agreement with them or is this maybe a bridge solution for that?

Amnon Shashua, CEO and President

In relation to the deal with the Volkswagen Group, Mobileye is acting as a primary supplier. We are responsible for the complete hardware, and we collaborate with other secondary suppliers for components like parking systems. In this specific program, we fully assume the role of a primary supplier, managing the entire system from start to finish. This includes all aspects of software such as perception, driving policy, and control, along with a DXP element to personalize the driving experience for different brands. Regarding the possibility of Volkswagen switching to in-house development, that has been a consideration for a long time. Their software division, CARIAD, is still actively operational. While they may eventually develop a system similar to what we provide, we are confident in the strong attachment our systems have. The validation process needed to achieve the exceptional performance levels of SuperVision is substantial, and the requirements for hands-off operation exceed what the industry has encountered to date. Therefore, I believe our systems have a strong retention capability.

Nimrod Nehushtan, Executive Vice President of Business Development and Strategy

Yes. I may add a little bit more color. First of all, the partnership we announced includes SuperVision, Chauffeur, and Drive, as Amnon mentioned, and it's going to be deployed overall in 17 car models, and it includes most of the brands in the Volkswagen Group, the premium brands, Audi, Porsche, Bentley, Lamborghini, and so on. But just to maybe sharpen the stickiness aspect, this partnership addresses the existing architecture or the next-generation architecture that Volkswagen plans to launch in 2026 onwards. There is kind of a plan to deploy specific car models that are allocated today with this product for many years to come after the start of production. Their in-house activity that still exists today is for a future architecture that maybe at some point in time will mature. It includes many other things that they're working on, but it's not that it will replace our product in case it will mature. It will live in a different architecture in different cars, some part in the future in case it will indeed materialize. So in terms of stickiness, once it reaches production, there are many, many cars that will be deployed with this for many years after the series production.

Dan Levy, Analyst

And then as a follow-up, I wanted to go to some of your China commentary, and I think just some time ago, you noted that ZEEKR was offering a free 12-month trial of highway SuperVision. I don't know if you could provide any feedback. But is there any way to get a sense of what the take rate is going to be in the future of this functionality? Is this something where you have confidence that this could be fairly high take rate or even maybe a standard fit throughout the ZEEKR lineup or ZEEKR 001?

Amnon Shashua, CEO and President

We are in discussions with ZEEKR to make it really a standard fit rather than a take rate type of functionality because of the rising competition in China. I believe the convergence would be that it will be a standard fit.

Samik Chatterjee, Analyst

This is Joe Cardoso on for Samik. Maybe a follow-up on the OEM engagements myself. You guys have shown good progress moving from 3 to 14 OEMs now, production now covering 46% versus 9% a year ago. Just curious, when you think of the headroom that you have left to go after, how would you characterize it? And has your views relative to, let's call it, a ceiling change relative to 6, 9 months ago or even a year ago, given the developments in the ecosystem and now that you're approaching 50% of production, at least in kind of the engagements that you have already under your peripherals?

Nimrod Nehushtan, Executive Vice President of Business Development and Strategy

Yes. I think that there is a flywheel effect that we're seeing in which the more we have engagements with OEMs and the more we announce partnerships with OEMs, the more it builds our credibility on these advanced product lines. We are also more prepared today, let's say, in terms of our business development activities and supporting 14 engagements in parallel. We have the capacity to support this and even more than this. What happened in the last year are multiple factors as Amnon laid out at the beginning. 1. Competition in China and also outside of China is moving towards this hands-off as the next differentiators for cars. 2. We build our credibility, and more announcements kind of help us to reinforce our position as leaders in this front. I think we know more today about what needs to be done in order to secure these engagements after a year-long negotiation with one of the biggest car companies in the world. So I think this is what stands behind this increase. This is kind of the adoption curve where today, what's interesting, as Dan mentioned, is that we are working with kind of the early majority and the middle of the pack type of OEMs, not just the innovators of the market today on these engagements, which kind of shows us that in '26-'27 timeframe, these hands-off products will become very available in terms of the number of OEMs that launch them.

Joseph Cardoso, Analyst

Just a quick follow-up, I have a second question. I'd like to discuss the destocking situation. It seems you've made significant progress. Could you explain some of the changes or processes you've implemented to enhance your inventory visibility with customers and how things are currently tracking or functioning?

Moran Shemesh, CFO

Yes, we discussed this in the last call regarding a situation we haven't faced before. We implemented certain processes this year. For Q1, we analyzed the actual global production and ADAS fitment rates per OEM to determine the gap between what we shipped and what we would have expected without the inventory issue. This analysis provides us reassurance, and we also reviewed year-over-year growth to ensure it aligns. We conducted a similar analysis for the full year, which looks promising with increasing volumes from our key customers. For Q3 and Q4, our projections are consistent with our customers' order indications, which is encouraging. Our analysis involves breaking down the order indications, and while we receive some verification from customers, it's only indicative and we lack complete visibility. However, through our top-down analysis process, we can cross-verify the data received and ensure alignment with our expectations.

Ananda Baruah, Analyst

Just two quick clarifications for me, if I could. The first was you guys commented on expecting mix to normalize into the second half of the year. Is it back to mid-single-digit SuperVision or will it look something different sort of given the SuperVision ramp? And then I have a quick clarification follow-up as well.

Amnon Shashua, CEO and President

I think the issue that we have with inventory is not related to SuperVision.

Moran Shemesh, CFO

Yes.

Amnon Shashua, CEO and President

It's related to the EyeQs. SuperVision is on track. This quarter, the volume we shipped 39,000, it was above expectation, but we believe that the number for the first half of the year would follow our guidance, which is about 70,000. And the full guidance of the year, we have the remaining second half is according to the guidance we gave at the beginning of the year.

Ananda Baruah, Analyst

I would like clarification on the average selling price. I think I may have misheard, but I thought I heard that the average selling price for 2024 is expected to be $55, an increase from 2023. At the same time, I thought there was also a statement about the average selling price for 2024 being lower compared to the previous year.

Moran Shemesh, CFO

Yes. The $55 compared to $53 reflects the combination of SuperVision and EyeQ. SuperVision has a higher average selling price since we also supply the hardware. Therefore, the overall average selling price of $53 or $55 in 2024 is primarily influenced by the proportion of SuperVision revenue in total revenue, which is quite significant in this segment. Regarding EyeQ's average selling price, it was lower specifically in Q1. We don't consider this to be the normal average selling price for this year. In Q1, we only shipped 3.5 million chips, which altered the mix. For instance, if a larger share of the low-cost programs in China comprised this 3.5 million chips, it would reduce the average selling price. This fluctuation is expected during a quarter when only 3.5 million chips are delivered. We anticipate an increase in Q2 and Q3 for EyeQ's average selling price, by about $0.4 or $0.5. For the entire year, we do expect EyeQ's average selling price to decline, as it did in 2023, by approximately $0.5 to $0.75 year-on-year, continuing the normalization from the high levels seen in 2021 and 2022. This had a modest effect in 2023, and we foresee a similar effect in 2024 for the full year.

Adam Jonas, Analyst

Well, first, I just want to share my thoughts to the Mobileye team and the community and people of Israel during the ongoing situation and Am Yisrael Chai. Amnon, 7 months ago, you posted on LinkedIn that Tesla's decision to adopt an end-to-end generative AI approach to full self-driving to train neural networks was, I'm quoting, neither necessary nor sufficient for full self-driving programs. Do you still feel the same way today, Amnon?

Amnon Shashua, CEO and President

Yes, indeed. Now in my prepared remarks, I mentioned that on the EyeQ6, we're going to have end-to-end both perception and actuation, and that does not contradict the point that we made. The Tesla end-to-end is the sole technology. Our end-to-end is just one engine on top of multiple engines in order to create a decomposable system that is explainable, that is modifiable, that you can explain what it does to the regulatory body, that you can customize the driving experience for OEMs. If you look at some of our competitors like Waymo, they have the same view that there's a very, very strong reliance on the neural networks and data-driven networks, language models. But at the end of the day, it needs to be a system that is designed to be explainable and modifiable. So we're not against end-to-end. We are against end-to-end being the sole engine for the system.

Adam Jonas, Analyst

And just as a follow-up, I know you've mentioned that some of your design wins are also for SuperVision, which includes internal combustion architectures. There may be some skepticism on this call regarding whether your OEM customers would adopt software-defined internal combustion vehicles. So my question is, when do you expect to see a SuperVision fitment in production internal combustion architecture vehicles, based on your current visibility?

Amnon Shashua, CEO and President

So the Volkswagen Group win, there were 17 models, 9 of them are combustion engine models, right, so 50% of the models is going to be combustion engine. It doesn't have to be a software-defined vehicle. It's a system just like ADAS is a system. It's really encapsulated in our ECU. So it doesn't have to be a software-defined vehicle. All the over-the-air updates are done through our ECU. Everything is very self-contained.

Nimrod Nehushtan, Executive Vice President of Business Development and Strategy

If I may follow up on this, I think that maybe a few years ago, some OEMs said that their future plans in terms of future architecture, software-defined vehicles will be based on EVs under the assumption that EVs will become the leading powertrain for their cars and towards the back half of the decade. What has changed for some OEMs in the last year is that the plans are today may be a little bit more moderate in terms of the EV percentage versus combustion engines or hybrids, but this still means that they are kind of aligning their architectures to the powertrain in a more balanced way as opposed to going all in on EVs for future technologies.

Dan Galves, Chief Communication Officer

We can take one more question, Maria.

Chris McNally, Analyst

Last, but hopefully not least, maybe we can dive into some of the SuperVision details on the potential wins for the second half. I would love to know if we look at the wins by type with the RFPs. Is it sort of the old model-by-model RFP approach where we've seen the legacy OEMs kind of bid this out in the past or maybe DXP or sort of the wide Audi Porsche deployment has led to a broader fleet deployment for the potential RFPs, i.e., could we have hundreds of thousands of vehicles per OEM in the '27-plus time frame?

Nimrod Nehushtan, Executive Vice President of Business Development and Strategy

Yes. What we typically do is observe the plans from OEMs regarding the launch of specific vehicle models, but it's more about the overall platform rather than individual models. Usually, a platform will encompass several vehicle models that are launched according to these plans. We don't assess each OEM individually in a strict process; instead, we look at a collection of car models. The volumes may differ based on the OEM, of course. However, when we secure a deal, it can involve multiple car models, as seen with Volkswagen Group, where one announcement encompassed 17 car models across various brands and geographies.

Chris McNally, Analyst

And maybe for the follow-up. If we could follow on to Adam's question and sticking to this topic of at least for now Supervised eyes-on performance, autonomous evolution to the side. Amnon, in the past, I think Mobileye has discussed something like you were hoping for 10 times better miles per disengagement from SuperVision when we compare it to something like full self-driving. I think a lot of those comments were pre-Version 12. Any thought on how you think SuperVision, again, as a Supervised eyes-on system, how the competitive statistics stacks up today?

Amnon Shashua, CEO and President

No, we are targeting the current generation with EyeQ5. It's improving all the time, right? We have over-the-air updates every 2 months or so. We are close to achieving a 100-hour mean-time between intervention on highways, less so in urban, but it's more than one or two hours of mean-time between intervention. On the EyeQ6 system, as I mentioned in my prepared remarks, just for the camera subsystem, it's about 1,000 hours of mean-time between intervention on highways. Now I don't know what the mean-time between intervention on Tesla's Version 12 is; I don't know if anyone measured that, but these are the kind of things that we measure in terms of KPIs on how we progress.

Dan Galves, Chief Communication Officer

There are no further questions at this time. I would now like to turn the floor back over to Dan Galves for closing comments. Thanks, everyone, for your time, and we will talk to you next quarter, and thanks to the Mobileye team for the session. Thank you.

Operator, Operator

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