Mobileye Global Inc

NASDAQ:MBLY

Earnings Call Analysis

Mobileye's Strong Q3 Performance and Outlook

Mobileye reports robust financial and operational results for Q3 2023, with an 18% increase in revenue, 27% rise in adjusted operating income, and a remarkable 59% growth in adjusted net income. An impressive 34% adjusted operating margin was achieved, mainly driven by cost efficiencies. Bookings suggest surpassing the prior year's $6.7 billion revenue forecast, indicating solid future growth. Notably, new basic and cloud-enhanced ADAS programs are contracted at significantly higher prices, showing potential for margin expansion. Expansion in product offerings includes the addition of SuperVision light customers, which supports limited hands-free operation, and upcoming start-up production with FAW set for late 2024. The Mobilized Drive initiative aims to deploy up to 10,000 autonomous shuttles in Hamburg by 2030. A recent software update rolled out to over 100,000 vehicles strengthened consumer confidence, with a 95% intent-to-purchase rate following a successful trial. Increasing interest from OEMs is evident, now encompassing 34% of global auto production, and growing engagement from OEMs that represent an additional 15% hints at future expansion. China's high adoption rate forecasts up to 25% of new cars to have advanced supervision-like features shortly.

Mobileye Achieves Strong Financial Performance Amidst Ambitious Technological Rollouts

Mobileye revealed significant progress in its financial and operational aspects during the third quarter of 2023. The company succeeded in growing its top line by 18% while expanding its adjusted operating income by 27% and adjusted net income by a substantial 59%. Strong revenue growth, combined with strategic inventory investments and robust operating cash flow, reflect the company's resilience and strategic foresight.

Record Operating Margins and Efficient Cost Management

Management highlighted an impressive 34% adjusted operating margin for the quarter, crediting both macroeconomic factors, such as currency impacts, and planned cost efficiency initiatives. This effective cost control, paired with a focused approach toward strategic investments, underscores Mobileye's ability to drive profitability while investing for future growth.

Booking Trends Position Mobileye for Continued Growth

Bookings in 2023 are on a trajectory to surpass the previous year's record $6.7 billion in future revenue from design wins. This outlook is bolstered by the anticipated launch of the first EyeQ kit ADAS program in early 2024 and the addition of numerous basic and cloud-enhanced ADAS programs, signaling a robust pipeline of high-value deals ahead.

Strategic Customer Additions and Product Rollouts Strengthen Market Position

Mobileye has increased its momentum by adding SuperVision light customers, a chauffeur program with Pollstar, and showcasing technology for autonomous shuttles with the support of Volkswagen Commercial Vehicles. This is further reinforced by the impressive over-the-air update delivery to more than 100,000 vehicle owners, highlighting Mobileye's competitive edge in technology and the high demand for its systems.

Consumer Sentiment Fuels Optimism for Subscription Revenue

The strong consumer response, with a notable 95% indicating plans to purchase the system after a trial period, exemplifies the potential for a significant software revenue stream. This customer enthusiasm is a testament to Mobileye's product quality and positions the company well to capitalize on recurring revenue opportunities.

Increased Adoption Among OEMs Signals Expanding Influence

Mobileye's influence in the automotive industry is growing, with 10 OEMs representing 34% of auto production now adopting its technology, up from 3 OEMs at the start of 2023. Interest from an additional wave of OEMs could add another 15% of global auto production, showcasing the increasing demand for Mobileye's hands-free systems.

Supervision Shipments Align with Projections and Expectations

Mobileye reported a total of 29,000 supervision shipments in the quarter, aligning with expectations and setting the stage for two catalysts that are anticipated to improve supervision gross margin in 2024. However, a modest adjustment to the 2023 revenue guidance was made due to the fine-tuning of shipment forecasts, still anticipating to end the year within the initial range of 100,000 to 115,000 units.

A Cautious Outlook for 2024 Amid Strong Current Performance

Despite a record expected Q4 volume for 2023, Mobileye urges caution against using this as a baseline for 2024 projections. The company anticipates a high volume hangover effect impacting Q1 2024, suggesting the need for a nuanced approach to forecasting next year's volumes. With operating expenses expected to grow at a higher rate and an effective tax rate consistent at 12%, investors are encouraged to consider the various factors at play as Mobileye prepares for the year ahead.

Earnings Call Transcript 2023-Q3

[Operator]

Greetings, and welcome to the Mobileye Q3 '23 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Dan Galves, Chief Communications Officer. Thank you, sir. You may begin.

[Daniel Galves, executive]

Thanks, Kyle, and hello, everyone, and welcome to Mobileye's Third Quarter 2023 Earnings Conference Call for the period ending September 30, 2023. Please note that today's discussion contains forward-looking statements based on the business environment as we currently see it. Such statements involve risks and uncertainties. Please refer to the accompanying press release, which includes additional information on the specific factors that could cause actual results to differ materially.

Additionally, on this call, we will refer to both GAAP and non-GAAP figures. A reconciliation of GAAP to non-GAAP financial measures is provided in our posted earnings release.

Joining us on the call today are Professor Amnon Shashua, Mobileye's CEO and President; and Moran Shemesh, Mobileye's CFO. Thanks, and now I'll turn the call over to Amnon.

[Amnon Shashua, executive]

Thanks, Dan. Hello, everyone, and thanks for joining our earnings call. Before going through our business commentary, I'll make a few comments about the situation in Israel. Israel is now at war. The current effects on Mobileye are twofold. First, roughly 9% of our employees are currently serving in the IDF reserves, with their teammates gladly working longer hours to compensate. Second, we are allowing more flexibility to work on home. I see no material impact on our operations. Mobileye does not have any production facilities in Israel now [ or ] customers in Israel.

Furthermore, there has been no material effect on our operations and ability to develop test, perform business activities or meet our objectives as a result of the board.

Okay. Turning to our results in Q3. Moran will provide more detail, but at a high level, Q3 was another excellent quarter. On a year-over-year basis, we grew the top line 18%. Adjusted operating income grew 27% and adjusted net income grew 59%.

Operating cash flow on a year-to-date basis has been impacted by investments to rebuild our strategic inventory of EyeQ chips, which we had used to maintain steady supply during the chip crisis. If you adjust for that investment in inventory, which is now largely complete. Operating cash flow has also grown very strongly so far in 2022.

Another third quarter financial highlight is the 34% adjusted operating margin. The beat versus consensus here was driven primarily by costs, some of which was related to macro factors like currency, and some related to planned cost efficiency initiatives.

Turning to our product portfolio. Our bookings so far in 2023 put us on track to outperform the $6.7 billion of future revenue from design wins we generated in 2022, which was by far a record year. We'll have more details on that at CES in January.

We are having a tremendous amount of success with our EyeQ6 based product portfolio. The diverse platform supports everything from basic ADAS, to SuperVision, to Chauffeur, to Mobilize Drive, and we're excited to launch the first EyeQ6-based ADAS program in early 2024, consistent with the time line we laid out several years ago.

While SuperVision continues to be a major focus, I would note that we continue to add a very high number of basic and cloud-enhanced ADAS programs. On the cloud enhanced side, these deals are at significantly higher prices than current ADAS, and typically include REM, REM data sharing agreement. This will reflect -- this would result in a very meaningful expansion of the OEMs that contribute REM-mapping data in the coming years, improving math refresh times and diversifying the data sources.

In addition, we added our first SuperVision light customer this week, a system based on a single EyeQ6 high chip, with a reduced configuration of cameras that supports hands-free limited to highways. The design win is from a large global OEM, with plans to equip the systems on high-volume vehicles.

We also had some important SuperVision and Chauffeur design wins in Q3. We added FAW as a customer with what is relatively near-term start-up production date of late 2024 for the first of many SuperVision vehicles, and a year later, with the first Chauffeur vehicles. More on that in a minute.

We also added a Chauffeur program with Polestar for SOP in late 2025. The Mobility Drive, Mobility-as-a-Service side, the various key components towards scale are progressing on schedule, including our software stack, the EyeQ6 high-based compute engine and the imaging radar.

Our vehicle platform partners are also making progress. Recently, our strategic partner, Volkswagen Commercial Vehicles, as well as [ Hollow ], demonstrated our technology in their vehicles in Hamburg for the German Minister of Transport. The event indicated strong support to deploy this technology to improve transportation efficiency, with the goal to put up to 10,000 autonomous shuttles on the roads of Hamburg by 2030.

But what I believe was the most important development in Q3, was the delivery of highway SuperVision software, to an over-the-air update to more than 100,000 Zeekr vehicle owners in late August, with Navigate on Autopilot feature, providing hands-off navigation from point A to point B. This was an extremely critical proof point in front of our OEM customers.

It's one thing to demonstrate technology on a fleet of test vehicles, it is a completely different level of product validation to deliver an eye on hands-free system to 100,000 consumers. Feedback has been outstanding, with media in China consistently noting that the Zeekr system outperformed strong competition, despite significantly lower sensor content and a fraction of the compute power.

Out of the more than 1,000 beta users who use the system a couple of months before the broad rollout, 95% of them said they plan to buy the system after the 12-month trial period that Zeekr is offering.

I can't emphasize enough that this over-the-air update amplified a flywheel dynamic that's been developing for the last year or so. The industry has noticed a higher pace of innovation and a significant growth in demand in China for systems that take over more and more of the driving. This creates higher pressure among all OEMs to develop competitive hands-free systems, to generate value from software but also not to fall behind. This pressure forces more emphasis on pragmatic factors like time to market, cost and performance, as opposed to the desire to in-source. This creates higher demand among OEMs for the Mobileye products, which offer clear advantages in time-to-market cost and performance.

Deploying the software in more than 100,000 consumer vehicles and receiving many accolades and the world's most competitive market, clarified our ability to deliver and serve as the final component in the [ fly ] room.

We felt the impact of this proof point immediately. The successful rollout led directly to the FAW design win, and an acceleration of progress towards potential design wins with other key prospects. What I mean by acceleration is that there is an increased urgency to converge towards production programs. This is reflected as more clarity from customers on next steps, for example, clear deliverables, time lines and approval processes.

While the design win process rarely moves as fast as we want, we expect that we'll have more news on SuperVision in Chauffeur over the next 5 months. I'll put some numbers against it. Last quarter, we disclosed that we either had already booked design wins or were in advanced stages for SuperVision and for Chauffeur design wins with 9 OEMs, representing 30% of global automotive production. That number is now 10 OEMs, representing 34% of auto production. If we go back to the beginning of 2023, that number would have been 3 OEMs, representing 9% of the industry.

This group does not include any low-volume brands or early-stage start-ups and it's broad geographically. It's 1 U.S. OEM, 2 European OEMs, 4 Chinese OEMs and 3 Asian OEMs.

We're also very encouraged that we have received meaningful interest from the next wave of OEMs that represent an incremental 15% of global auto production. While not at the point that we would call these advanced stages, the initial work looks very promising.

Before turning it over to Moran, I'll close with a few words about China and FAW. I traveled to China with our executive team in September to meet with several key customers. It's not an exaggeration to say that this market is moving at light speed towards putting eyes on hands-free systems on the road. Premium ADAS is a huge selling point in marketing materials. The media is extremely knowledgeable about the technology, and consumers demand it.

There is so much traffic congestion in China, and consumers are tired of battling it on their own. They want cars to battle the traffic for them. I can see the potential for 15%, 20%, 25% of cars sold in this market to have SuperVision like capability a few years from now. So it's very important for us to win there and we are winning.

Of the group of 10 OEMs I mentioned before, 4 are China-based. JD Group, FAW and 2 other significant automakers. We also have opportunities to expand with existing customers. The [ Zeekr ] Mobileye collaboration has been very successful, and is leading to opportunities for additional Zeekr vehicles, as well as from other brands in the [ Geely ] Group. This could add significant volume in the near future.

And the FAW relationship is key for us. A government-owned automaker choosing a non-China partner in this highly strategic technology area is the next level validation in front of other China OEMs. It's also a very broad program. FAW is going all in on SuperVision. The stand-alone car brands have a very robust product cadence starting in late 2024, and every vehicle model launched from that time on will include SuperVision. There is also ambition to sell the resulting platform into their JV brands as well, which would increase the volume opportunity by a factor of 5.

Thank you for your time and interest in Mobileye. I'll turn the call over to Moran.

[Moran Rojansky, executive]

Thanks, Amnon. So thank you, Amnon, and thanks for joining the call, everyone. Before I begin, please be aware that all my comments on profitability will refer to non-GAAP measurements. The primary exclusion of mobilized 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 Q3 results. We had an excellent quarter with revenue up 18% and adjusted operating income up 27% year-over-year. Overall, EyeQ and SuperVision volumes increased about 16%, with the remainder of the growth related to higher EyeQ ASPs, and some initial small mobility as a service revenue that was related to self-driving systems shipped to customers for installation on test vehicles.

SuperVision shipments were 29,000 units in the quarter, which was in line with expectations. These units were primarily for Zeekr 001 and to a lesser extent, Zeekr 009. Although in Q3, we also had some initial deliveries for the [ Smart One ] and [indiscernible] SuperVision gross margin improved somehow as compared to Q2, due to lower overhead per unit on the higher volume.

Looking ahead, we expect 2 catalysts to drive further improvement in SuperVision gross margin over the course of 2024. Number one, in collaboration with our supply chain, we are introducing the second generation of the SuperVision domain controller, which we expect will result in meaningful cost savings. We plan to begin the transition to this new controller in late Q4 and into early Q1. We will share the savings with our customers by modestly lowering average selling prices, but the net result is expected to be an improvement to gross margin beginning in Q2, and more meaningfully, in Q2 of 2024.

Number two, as Amnon mentioned, the rollout of Navigate on Pilot software to Zeekr vehicles in August to end very well. Any existing Zeekr owner or a new buyer through December 31 this year, will get a 12-month free trial of this software. After this period, the consumer will need to choose whether to pay an incremental cost to continue to utilize the SuperVision features. We will receive meaningful software revenue for any consumer that chooses to keep the software. This should lead to an incremental boost of SuperVision gross margin in the back half of 2024.

Turning to operating expenses. They were again lower than expected in Q3, which combined with the strong revenue growth, led to a robust adjusted operating margin of 34%, up about 3 points versus Q3 2022. Approximately, half of the lower-than-expected costs were again related to lower-than-expected payroll costs driven by depreciation on the shekel. This is a meaningful driver, of course, for us due to payroll and related expenses being the majority of our operating expenses, and the significant majority of our employees being in Israel.

Payroll expenses were actually slightly lower in Q3 than compared to Q2 despite higher headcount. The remainder of the lower-than-expected costs, primarily related to timing of certain expenditures over general efficiencies we achieved.

In terms of cash flow, we had a strong quarter compared to Q2, but continue to invest a significant amount in rebuilding our strategic inventory of EyeQ chips, which was largely consumed in 2021 and 2022 during the supply chain crisis.

As of the end of Q3, we have almost reached our target of approximately 6 months of strategic inventory. So cash used for restocking should be significantly lower in the next few quarters.

When adjusting for cash consumed by inventory year-to-date, in 2023, our operating cash flow conversion as a percentage of adjusted net income remains very high. Capital expenditures in the quarter were consistent with our unchanged view that CapEx for the 2023 calendar year should be roughly similar to 2022.

Turning to the guidance. As we look ahead to Q4, EyeQ volumes are tracking in line with our prior guidance. At the midpoint of our guidance, EyeQ volumes are expected to be a bit more than 20% above Q3 levels, with ASP down a bit sequentially due to a mix. I would just note, this implies a record level of quarterly EyeQ volume and importantly, should not be used as the starting point for estimated 2024 volume.

We encourage you to look at a full year 2023, and apply a growth rate to that when thinking about 2024, and consider that the high volume in Q4 could lead to some hangover effect in Q1, similar to the dynamic in the first quarter of 2023.

Turning to SuperVision. Implied Q4 volumes based on the midpoint of the guide for 2023 is approximately 37,000 units. This should bring us to around 102,000 units for the full year of 2023, which is towards the low end of the 100,000 to 115,000 we incorporated in our guidance at the time of our April earnings call. This fine-tuning of the shipment forecast is what led us to modestly adjust our 2023 revenue guidance.

The consumer demand for Zeekr 001 and 009 was well aligned with our shipment levels in Q3. Continuation of this, plus incremental volume for new products like [ Smart One ] motor 4 and Zeekr 001 shipments to Europe, supports the growth in volume from Q3 to Q4. As these new products ramp up and we add a fifth vehicle in Q1, the [ Volvo EM90, ] we are set up well for continued sequential growth in 2024.

Based on our assumption for mix and volume, we [ expect ] Q4 gross margin to be consistent with Q3. We expect operating expenses for full year 2023 to be about 13% on a year-over-year basis. In 2024, we'd expect operating expenses to grow at a higher rate, assuming some normalization in the relative value of the Israeli currency, as well as the ramp-up of project spending related to expected new SuperVision and Chauffeur program.

Lastly, in terms of tax rate, we continue to expect an effective tax rate in the 12% range for the year. Thank you, and we will now take your questions.

[Operator]

We'll now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Joshua Buchalter with PD Cowen.

[Joshua Buchalter, analyst]

And most importantly, I hope everyone is doing safe and your families are okay in Israel. To start, you mentioned the 10th OEM, and I believe it's the first time you explicitly have called out a U.S. OEM. Can you -- for SuperVision, can you please -- can you confirm whether or not those are the same thing and also provide any details on the scope or timing of how that would ramp into the model?

[Amnon Shashua, executive]

Well, as I mentioned in the script, I believe in the next 5 months, things will play out. I would say that the percentages of turning those remaining OEMs into design wins range from 99% confidence to 50% confidence, depending on which OEM we are talking about. And in the next 5 months, we will -- I think will be a much -- we'll have much more clarity.

And as I mentioned, it's kind of a global spread from the U.S., Asia China, it's really global, starting from just the [ Geely ] Group a year ago, to now really a global spend.

[Daniel Galves, executive]

Josh, just -- this is Dan. Just to clarify, the incremental OEM was not the U.S. OEM. The U.S. OEM was in this group as of last quarter as well, and we continue to progress and feel good about that customer.

[Joshua Buchalter, analyst]

Got it. And then in the guidance for the full year, you kind of called out SuperVision is driving the very modest tick down at the midpoint for revenue. Has anything changed with how you're thinking about 2024? And can you walk us through what are the drivers of that? Was it any -- is it a new -- new vehicle model? Or was it volumes at the 001 that's changing things?

[Amnon Shashua, executive]

The new vehicle volumes for 2024 is the expansion of the Zeekr 001, expansion of 009 of Zeekr. We have Polestar 4 coming out. We have smart #1 coming out. We have the Volvo EM 90 coming out. Towards the end of 2024, we have the SAW brand coming out. And there is a certain, I think, high probability that will have another OEM in China that will also launch end of 2024.

[Operator]

Our next question comes from Itay Michaeli from Citi.

[Itay Michaeli, analyst]

Just 2 questions for me. First, on the new wave of automakers expressing interest, can you maybe just share one, how many automakers are in that second wave? And two, to what extent these automakers have existing sort of in-house operations for advanced Level 2+.

And second question, just on the SuperVision Light award, hoping you could share just the ASPs and expected start of production for that program.

[Amnon Shashua, executive]

Okay. So I'll start with the second question. The SuperVision light. When we are a Tier 1, it's about 60% of the revenue compared to SuperVision. When we are a Tier 2 with a few hundreds of dollars revenue. And this particular program that we won, we are in Tier 2. So we supply only the EyeQ6 chip just like in any Tier 2 relationship. It's a really high-volume global brand. And I think it offers a new level of kind of the intermediate premium, in which the SuperVision capabilities would be limited only to highways, but still the very, very high hand-off capabilities. The SuperVision allows you to expand way beyond the highway, our [indiscernible] roads, urban roads and also be the basis for Chauffeur at a later stage.

So this allows us to have an entry point to medium and low segment car brands, car models, and this is a very important win.

As for your first question, the next way, this 15% of the global auto production that I mentioned, it's about 4 OEMs. And they don't have anything comparable to a SuperVision. And they are starting to notice that the SuperVision-like system is really the next premium in the coming years.

I believe that eventually every carmaker would offer a SuperVision-like product in the coming 2, 3 years.

[Operator]

Our next question comes from Joseph Spak with UBS.

[Joseph Spak, analyst]

I guess the first question is, I know your solution is technically powertrain agnostic. But as we're hearing about some program delays on next-generation EVs. I guess not in China, where I know a lot of your wins are to date. But if there is sort of a pushout, does that at all change your trajectory on SuperVision? Or do you think there's an opportunity to maybe add more features, whether it's cloud-enabled ADAS or whatnot to existing programs?

[Amnon Shashua, executive]

The cloud-enhanced ADAS is progressing on a separate track. We have 2 already that we mentioned last quarter, which are responsible for $1 billion revenue until the end of the decade. And we have 4 more in the pipeline ready to be signed in the next few months. So that's a separate track. SuperVision, stand of production, if there are delays, that it's weeks or a few months. It doesn't change materially forecast in terms of revenue for here.

And as we get more design wins, our kind of weakness towards one particular program that's delayed or not becomes much, much -- we don't rely we're not susceptible to such a delay.

Obviously, when we have only one car OEM with a program, then we are really dependent on delays. But when we have 10 or more, then a delay here or there should not change the revenue guidance.

[Joseph Spak, analyst]

Okay. Perfect. And then just maybe a clarification on the OEM commentary around SuperVision. First of all, the 9 to 10, does that include the SuperVision light customer? And then also, I know you provided some comparisons versus what you said earlier in the quarter or even last year.

I think at CES, you mentioned 6 brands. So how does that sort of the 10 OEMs compared to sort of that brand comment earlier this year?

[Amnon Shashua, executive]

Okay. So the 10 OEMs does not include SuperVision like. SuperVision Light is a separate track. We have one design win for that, and we are kind of working towards getting more business for that truck. SuperVision is a separate track. So those 10 OEMs are for SuperVision.

In terms of brands, it's really 10 OEMs. Last time, when we talked about brands, we really met the Zeekr 001 and Zeekr 009 as 2 brands of the same OEM. All others are separate OEMs. So the ones that we announced was Polestar, Smart. Now we are revealing Volvo in China, Porsche and all the rest are separate SAW and all the rest are separate OEMs, not brands within that group of OEMs that I just mentioned.

[Daniel Galves, executive]

Just to clarify. Just one clarifier, Joe, on that. Just to be super clear, within the 10 OEMs, we're considering Geely Group as 1 OEM, right? So we have 4 brands, 5 models. But within this metric, we're considering that one OEM. We plan to continue to update this metric on a regular basis, along the same methodology as we move into the future, and we'll try to be very consistent with kind of what we're considering an OEM.

So OEM is the parent level effectively -- the parent level effectively. There could be some -- some parent levels have 2 different product developments, but we're trying to be consistent at the parent level within this metric.

[Operator]

Our next question comes from Chris McNally with Evercore.

[Chris McNally, analyst]

And also I just wanted to echo the best for the Mobileye family. Amnon, one of the high-level questions I have about the push into SuperVision light is, I think you have something like 3.5 million plus of [ enhance, ] just RSM for this year. What would be the reason an OEM would continue with enhanced, rather than SuperVision light?

Other than the time to change over, it seems like that entire base of units should quickly change over to SuperVision light. But we just would love to hear about sort of the [ Procon ] you get all the increased features that really no additional cost at the program level.

[Amnon Shashua, executive]

Well, no, there's a significant cost to the OEM, between a front-facing camera, with or without cloud enhanced, and the SuperVision light. SuperVision Light has about, between 6 to 7 cameras, feeding on to a domain controller powered by an EyeQ6 chip.

On the other hand, a front-facing camera adjusted front-facing camera, right? There's no domain controller. A cloud-enhanced is our ability to add value to a front racing camera. So you have a front-facing camera, which is very low cost to the OEM, and just by adding software capabilities, we can considerably enhance the feature set, the value proposition of the front-facing camera.

For example, allow to do lane keeping when you -- we don't see any visible lanes or providing a traffic-light information and providing alerts against running on a red light or breaking against -- running on the red light and so forth and so forth.

So the price difference is significant between a front-facing camera, with or without cloud enhanced, SuperVision light, SuperVision, Chauffeur and then Drive. These are big, big steps in terms of cost.

[Chris McNally, analyst]

Maybe I'm -- I thought on a lot of these Gen 1 programs, there was also on the [ ENHANCE ] that you're on, there was also a significant amount of RADAR, for example. So if you have multiple RADAR, you'd be adding or to the total cost of the system to the OEM, which you may be able to remove with SuperVision light?

[Amnon Shashua, executive]

Well, so many of the front-facing camera do not have a radar. It's not that every ADAS program has the front-facing radar. So a lot of our front-facing camera penetration is vision only. There's no radar. With the SuperVision light, it's the 7 cameras, including 4 of them are parking cameras, of course. Sometimes they come with radars and sometimes they not. In this particular program that we won, there's a front-facing radar.

[Chris McNally, analyst]

Okay. Makes sense. And that's why you'd have the limited operational design domain of when -- the Gen 1 program will only had the camera.

Just the second question, for getting OEMs on the low end to sign up for SuperVision light, could you talk a little bit about how the system would scale, meaning do they get to see how REM and RSS works, and then it leads for them to potentially use higher levels of SuperVision for more premium vehicles, and just the ability for them to upgrade on those existing platforms over time to higher forms of SuperVision. If you could just kind of go through that sort of that escalation that upsell that you could have a year?

[Amnon Shashua, executive]

Well, if an OEM buys into Supervision light, they cannot upscale because Supervision has more sensors, as more cameras -- as less than cameras.

Normally, it goes the other way around. We have an OEM that is signed into supervision in some of its models, and now has a low-end model and wants to upgrade the low-end model from a front-facing camera to a supervision light.

[Chris McNally, analyst]

And just if I could follow up, in that logic, the supervision win -- the Supervision Light win was -- that is the new OEM, right? So you didn't downsell this specific OEM? This supervision light is the first supervision they're taking.

[Amnon Shashua, executive]

Well, the supervision Light win is with new OEM. It's a design win -- it is with a new OEM. It's not part of the OEMs that we mentioned before.

[Chris McNally, analyst]

Perfect. Appreciate the detail. I'll follow-up answer.

[Operator]

Our next question comes from Adam Jonas with Morgan Stanley.

[Adam Jonas, analyst]

Amnon, again, my thought compares with you and you loved ones in the Mobileye community, following atrocities in Israel.

My first question is on the legacy OEMs. Many of them are dialing back their investment plans. I -- we continue -- we expect that will continue. If it does, does slower EV adoption categorically have any impact on SuperVision adoption over the next few years in your mind?

[Amnon Shashua, executive]

I think the opposite is happening. When they're dialing back investments are basically dialing back in-source, because those are very, very big investments, and pushing them towards a better time-to-market performance and ODD scaling that Mobileye can provide. So our engagements with OEMs on Supervision is really all over.

[Daniel Galves, executive]

Yes. Just to be specific. [indiscernible] is not an EV targeted system. It's agnostic to powertrain. So we don't see any impact from relative.

[Adam Jonas, analyst]

Okay. That kind of bring to my second question then, Dan, is of the 10 identified -- and does those also include -- how many of those are EV? Do any of those include architectures for ICE or hybrid?

[Daniel Galves, executive]

There's -- none of these 10 OEMs are EV-only companies. And I think that we're involved with design win discussion and negotiations. I think what I would say is that we have announced design wins with Geely with Porsche with FAW. The other 7 are in negotiation around a variety of models within each group.

Anything to add, Amnon?

[Amnon Shashua, executive]

No, no. It's really agnostic to the power train.

[Adam Jonas, analyst]

Yes. I was thinking the operating system though. I'm sorry, I'm almost done here. But powertrain, I can see agnosticism, but my understanding was that starting clean sheet with an operating system, and our electrical architecture did have some advantages for integrating a very invasive and important new system like the technologies you offer, relative to, say, retrofitting an existing or kind of kind of fading out or run off of an ICE architecture. But I don't know if that logic is correct.

[Amnon Shashua, executive]

I think that the Supervision system is really a closed system, where with the new wins, there is the cooperation with the OEM on tuning the driving policy. As I mentioned last quarter, we have a new language. We call it tuning language or [ behetero ] shaping language, which allows the OEMs to really take control of all the driving policy decisions on top of our kind of operating system of driving policy, but it's all within our system.

So whether you have an EV or new architecture or not a new architecture, there is no different. It's really agnostic.

[Operator]

Our next question comes from Shreyas Patil with Wolfe Research.

[Shreyas Patil, analyst]

I guess as we look out over the next few years -- in a few years, you've talked about Supervision ramping up to maybe the low 200,000 unit range for next year. So that would imply a pretty big ramp in 2025 and '26. So maybe, can you talk a little bit about the visibility, how much visibility you feel like you have there in supporting that kind of ramp?

[Amnon Shashua, executive]

Well, our visibility is getting better and better as time goes by naturally. The more design wins or close to design wins gives us a much better visibility. I would say that among all the opportunities that we have, 50% of them are going to launch in 2025 or 2025 and earlier and 50% in 2026, right?

And we're talking about kind of an inflection point in revenue, because Supervision revenue per car is in order of magnitude higher than our ASP of EyeQ. Now pinpointing exactly the date of that inflection point is difficult, but the 2025, 2026 time frame, we are confident with the numbers that we gave.

[Shreyas Patil, analyst]

Okay. Great. And then just to maybe clarify, so you mentioned on Supervision light in this award that you secured, you're playing a Tier 2 role versus a Tier 1. So can you maybe talk a little bit about what a Tier 2 role entails for you? Is it more just software versus providing the domain controller as well. Is that how to think about it?

[Amnon Shashua, executive]

The Tier 2 role main, this is our classic role in almost all other non-SuperVision programs where we provide the chip. In this case, it's the EyeQ6 high and all the software around it that powers the EyeQ6 in terms of the driving functions. And our revenue is for the chip and the software and a few hundreds of dollars.

[Shreyas Patil, analyst]

Okay. Maybe just a last quick one for me. Just shifting to profitability. It looks like Q4 is tracking towards 36% for operating income at the midpoint. It was just quite strong. I think you've previously talked about 20% OpEx growth for next year. But it sounds like this year, it may be coming in a little bit lower. So should we still be assuming that kind of growth? Or should we assume something higher?

[Amnon Shashua, executive]

Well, there was some things that were not in our control, like the depreciation of the Israeli shekel, which is responsible for most of our operating expenses. We were still late in moving on to our new campuses. So there's also sales on operating expenses. But our plans of investments, we're not changing that. No, we have big investments to make going forward, and those have not changed.

[Moran Rojansky, executive]

You would just add to that on 2023, there's also an issue worth mentioning of the nonrecurring engineering reimbursements that reduce R&D. So for more advanced development programs like Supervision or Chauffeur, the NRE reimbursements are much more significant than what we used to see in ADAS. Of course, to tie we mobilize investments and therefore, more challenging to predict. So this reimbursement for 2023 are expected to be higher than our conservative assumption at the beginning of the year. That's also part of our savings for 2023.

And for 2024, based on our current forecast for 2023, we would expect to see 20% or 25% growth in 2024. So an important factor is, of course, the design with what we are winning Supervision and Chauffeur, but assuming we win everything, we expect it to be even closer to 25% in 2024.

[Amnon Shashua, executive]

There was another point -- there was a point that I forgot to mention on the Supervision line, our revenue includes also [indiscernible].

[Operator]

Our next question comes from Mark Delaney with Goldman Sachs.

[Mark Delaney, analyst]

Yes. And let me add my support for everything that the Mobileye family is dealing with. A question on the tech road map for you, Amnon. Do you think the latest GPUs and AI training technology will help Mobileye to accelerate its product development time lines.

On the topic of the tech road map, I'm curious what feedback you've had on your paper about how end-to-end or all nets may not be the best approach for autonomy.

[Amnon Shashua, executive]

Well, our view about end-to-end, we put it in that paper, and I don't think this is the forum to kind of repeat what I wrote. So it's out there in a block. We spent some thought on writing it. So I'll not add more to that.

In terms of our compute infrastructure, our compute infrastructure is not GPUs. It is the EyeQ. It provides us much more flexibility than GPU. It's much more cost efficient. It's much more power efficient. And this is what is driving, kind of big value proposition to our customers, that we can be very efficient in cost performance and [indiscernible] scaling, because we have a tailored system on chip to our needs.

[Mark Delaney, analyst]

Got it. And in terms of the potential for Supervision gross margins to expand, you spoke about a new domain controller, and that being a meaningful driver over the course of '24. Any more details you can share about how impactful that may be to gross margins?

[Amnon Shashua, executive]

Our asset out of gross margin for Supervision is aiming at 50%. We're not there yet, but this is where we're going.

[Moran Rojansky, executive]

Yes. And yes, for Supervision, I mean as we mentioned, the gross margin now will sense the 2 figures that I mentioned. One is that cost reduction for the ECU -- the next generation of the ECU that's supposed to have a significant impact in the beginning of 2024 as of Q2.

And also, again, the software bundle. That will have more effect in the back half of 2024, but we will have a meaningful growth in gross margin for Supervision in 2024 versus 2023.

[Operator]

Our next question comes from Aaron Rakers with Wells Fargo.

[Aaron Rakers, analyst]

Yes. And my thoughts to the Mobileye family as well, given your current situation. So I guess I wanted to ask about the longer term, how we should think about just the model attributes of monetizing cloud-enhanced data? Obviously, with the Zeekr functionality across the 100,000-plus vehicles. Just maybe walk me through, how we think about that monetization, which sounds to be kind of kicking in, in the latter part of '24. Any metrics you can help share on how we should think about that?

[Amnon Shashua, executive]

Dan, do you want to say a few words and then I'll add?

[Daniel Galves, executive]

Sorry, Aaron, could you repeat the question?

[Aaron Rakers, analyst]

Yes. Dan, I appreciate that. So I'm just -- I'm asking about the monetization, the effect of the Zeekr vehicles, for example, taking the full license of the REM functionality, the cloud enhanced ADAS. Just how we think about that flowing into the model as we look through '24?

[Daniel Galves, executive]

Yes. I think maybe I'll start, and then maybe Moran can talk a little bit more. So cloud-enhanced ADAS has the potential to generate recurring annual revenue from the maintenance of the map. Those volumes are still relatively small, because it was really just one, a couple of platforms from Volkswagen Group, Ford will be adding REM to their [ Blue cruise. ] So the volume should start to ramp pretty significantly next year.

But the function of annual recurring revenue is you want to see kind of repeated years building up a cumulative number of cars, and that's when it starts to make a big difference. So we'll see some effect next year of the recurring revenue, but that's -- it could get much more meaningful in the future years.

I think that on software bundle revenue, we're really encouraged by the feedback that we're getting from consumers in China. At the end of the day, to take these the Supervision functionality and pay an incremental cost from the consumer perspective, obviously, that's going to come from whether they value the system or not. That's why we think that the free trial was a really good idea, because there is a lot of value in the system and it's better for people to experience that, rather than make them make the decision before they've ever experienced it.

And just one thing to reiterate is of the beta users of that system, 95% said that they would pay for the system. We don't think that the penetration rate is going to end up that high, but it's a really encouraging sign.

I don't know if Moran has anything else and that should start to happen in the second half of next year. Moran?

[Moran Rojansky, executive]

Yes. So yes, so neither the volumes or recurring revenues are made a material impact this year in 2023. But we see the growth trajectory on ASP, the cloud in ADAS and RAM revenue will start to provide some modest tailwinds to ASP in 2024.

And as that mentioned for Supervision, it's only in maybe the back half of 2024 after the [indiscernible] agenda.

[Amnon Shashua, executive]

Yes. But to be more concrete about Supervision with Zeekr, every customer that is converted to paying for NDP is a few hundreds of dollars to Mobileye. That's the range.

[Aaron Rakers, analyst]

Yes, very helpful. And then I think there was a comment in the prepared remarks that I think it was in the context of also Zeekr and other brands within the Geely Group that you said could add significant volume in the near future. Can you help us appreciate that a little bit more? What are you kind of referring to there? It sounds like within Geely?

[Amnon Shashua, executive]

Yes. Within Geely, it's more design wins. So we're working on more platforms beyond the 2025 time frame.

[Operator]

Our next question comes from Emmanuel Rosner with Deutsche Bank.

[Emmanuel Rosner, analyst]

First of all, I would also like to express my [indiscernible] prayers and support to the Mobileye family in the current horrible circumstances. I wanted to ask you first on your the FAW is obviously extremely encouraging in the new customer and then pretty -- start pretty soon in late 2024. Can you just frame for us, again, the scope of what the current win is in terms of the brand and perhaps vehicle models or time line? And then what would be the time line around potential expansion of it? And in which direction would that relationship expand?

[Amnon Shashua, executive]

So the relationship is on design wins of Supervision starting from end of 2024. So it's the same domain controller that is running on the Zeekr vehicle. It's not the EyeQ6, it's EyeQ5. And it's a rollout for all brands of FAW starting from end of 2024. I think more than 6 brands.

Then a year later, based on EyeQ6 is the Chauffeur. So they're going to be one of the first customers. Polestar 4 is also a customer, but also FAW. On the Chauffeur highway eyes off with a Chauffeur system of [ 3 ] EyeQ6 will include also one of our imaging radars. So it's not just the domain controller, but also we'll start providing also sensors. So that's the scope of the relationship.

[Emmanuel Rosner, analyst]

Then in your prepared remarks, you also alluded potential expansion to some of the joint venture brands. How would that play out? Who needs to take this sort of decision? And what is the time line for that?

[Amnon Shashua, executive]

Yes, I don't know if it's a speculation. I wouldn't -- it's difficult to put a probability on it. But I believe that a successful rollout of SuperVision on W's owned brands would be a good catalysis to start moving to the joint venture brands as well. But at the moment, there is nothing concrete there.

[Emmanuel Rosner, analyst]

Understood. And I guess just following up quickly then, since this is launching already in late 2024. Obviously, helping with some of your Supervision volumes next year. I understand your point on higher confidence in 2025, 2026 since this is the bulk of the launches. But still curious about your latest mark-to-market on what 2024 volumes could look like for SuperVision is a little bit more than doubling this year, still on track, especially with the addition of FAW?

[Amnon Shashua, executive]

Yes. I think this is a good estimate about doubling what we have in 2023, slightly more, but this is a good estimate.

[Daniel Galves, executive]

Yes, we feel the same as we did last quarter when we made the comment.

[Emmanuel Rosner, analyst]

Great to hear.

[Operator]

Our next question comes from [ Pierre Ferragu with New Street Research. ]

[Unknown Analyst]

So I think you made interesting comments about China in your prepared remarks. It must be like a very interesting market at the moment with you guys ramping up SuperVision. And at the same time, you have like a handful of competitors, who started to pull on the market, like in the hands of drivers of consumers kind of like self-driving features that provide like, I would say, a similar service but with more compute and more sensors, more than just camera.

And I'd love to hear how much you've been able to assess the difference in user experience between SuperVision and these alternative features? And how you feel about it is -- at the end of the day, all these systems competing within that like a very similar ground. Are they offering very similar experiences? Or do you see like significant differences emerging between SuperVision and what the rest of the market has been able to put on the road so far?

[Amnon Shashua, executive]

So there have been detailed benchmarks comparing by us, by Geely, by stores parties comparing Zeekr 001 with NCP, comparing to Xpeng to the auto. The difference is striking. In terms of measuring the mean time to intervention, all sort of how much time it takes to go to point A to point B, the Zeekr 001 was by tens of percent faster much, let's say, intervention rate by order of magnitude, less intervention rate.

Now the difference is really striking. Some of those systems, I think all of them are relying on a high-definition map, the conventional high-definition map, which they already have mentioned that they cannot scale it. It's too expensive to scale, whether Mobileye doesn't queue the conventional high-definition map. And those systems are much more expensive.

As you mentioned, the compute sometimes it's about 10x more compute than what we have many more sensors, more radars, transfacing Lazars, and some of them, they have 2 front-facing labors.

So I think we're very confident we have a good value proposition in terms of performance, in terms of cost, in terms of scalability. Our RAM capabilities allow scalability, geographic scalability that a conventional high-definition map maker would find it very difficult to compete.

Other -- the kind of benchmarks that have been conducted is how the behavior when you approach a construction zone, when there is a block plane. So it was a very detailed benchmark. It's not just intervention rates. And really, the difference is striking.

[Unknown Analyst]

Great. And just a quick follow-up, and I'm sorry to come back to that, but I just want to make sure I had the whole thing complete. So you have your 10 OEMs, of which like 3 you've announced they represent 34% of the market. And what you say that of the 7 that are not confirmed yet, you're like confidence ratio, I would say, in terms of converting them is between 50% and 99%, depending on which one we're talking about. And then you had an additional 15% of the market, on which confidence is below 50%, I assume. Is that the right way to wrap all that into just one sentence?

[Amnon Shashua, executive]

Yes. I'll say it's a range within 50% to 99%, but the 50% is only one of them. The rest is higher than 80%, and one of them is 99%.

[Unknown Analyst]

Excellent. Thank you for the final clarification on that.

[Daniel Galves, executive]

Thank you, Pierre. Tyle, unfortunately, we've run out of time. So if you could move to close the call, please. Thanks, everyone, for joining us. We'll talk to you next quarter. I really appreciate the interest.

[Operator]

Okay. Perfect. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.