Please see the original article on Seeking Alpha

Lidar is an exciting new technology and a critical component for autonomous vehicles.

Recently, five Lidar companies (Velodyne, Luminar, Aeva, Innoviz, and Ouster) have come public or are coming public through SPACs.
Significant investor interest has driven high valuations for these companies.
This article provides an overview of the lidar market and prospects for these companies.

This is Part 3 of a series of articles on autonomous vehicle investment opportunities. Part 1 provided an overview of a roadmap for investing in autonomous vehicles (Autonomous Vehicle Investment Roadmap - Part 1: Investment Opportunity Overview). Part 2 covered the first and potentially the largest AV opportunity: Autonomous Ride Services (AV Investment Roadmap - Part 2: Autonomous Ride Services And The 'Waymo Bump' For Alphabet).

Another alternative AV investing strategy is to invest in companies that make components for autonomous driving. These components include a variety of sensors mounted on the vehicle and the computing capability inside. There are four primary types of sensors: cameras (or vision systems), radar, and perhaps the most important one: lidar. Lidar recently received much investor attention, so I'm going to focus on this.

Lidar (an acronym for Light Detection and Ranging) is a critical sensor technology for most autonomous vehicles, with the exception being Tesla. Lidar fires off millions of beams of light per second, enabling highly detailed measurements of everything around an autonomous vehicle. It instantaneously computes the exact measurement of any object up to a distance of 100 meters or more. Lidar has a 360-degree field of view, so it can see everything around a vehicle. It can measure the distance, shape, and velocity of all objects. Lidar is far better at judging distances than cameras, as well as being impervious to surfaces that are reflective, textured, or textureless. In addition, lidar is already digital, so it is much more efficient. Cameras require significant computing power to convert video into digital data. Lidar images are digital, but they are typically represented by color and shape images like the following.

Lidar has several important uses in autonomous vehicles. It is used to create highly detailed maps (HD maps) of streets, signs, trees, and all permanent stationary objects. Mapping vehicles will repeatedly drive around an area to develop detailed digital maps of that area, which are much more precise than GPS maps. When the term geofenced is used to describe an area, it means that the detailed mapping has been completed for that area.

These HD maps are then used by autonomous vehicles to accurately position the AV within an HD map. The vehicle knows exactly where it is on that map within a couple of centimeters. This positioning is then used to compute the actions of the AV, and as it moves, lidar immediately repositions the AV in the HD map.

Lidar is also used to detect and measure moving objects around the AV, such as other vehicles and pedestrians. It accurately measures the shape, distance, and velocity of objects. Lidar data is combined with data from radar and camera sensors on the AV in a computing process called sensor fusion. All of this data is then used to characterize objects based on an object library to determine if the objects are cars, trucks, people, animals, etc. This characterization is then used to predict the actions of these objects.

Lidar Market

Lidar is a rapidly growing market that is still in its infancy. Projections for the lidar market vary widely. It will clearly be a big market in the future, but there are some important characteristics to consider.

Lidar is perhaps one of the most crowded markets in the autonomous vehicle industry. Five lidar manufacturers recently went public. There are many other small lidar technology companies in the US and China. More importantly, many AV leaders are developing their own lidar technology because it is so critical. Cruise (GM), Argo (F), and Aurora have all acquired lidar startups to develop custom lidars while using off-the-shelf versions in the meantime. Cruise, for example, acquired Strobe in 2017 and is building its own lidar technology internally, as well as watching to see what comes from the marketplace. Waymo (NASDAQ:GOOG) (NASDAQ:GOOGL) has already gone through multiple generations of lidar, increasing resolution by 10X and dramatically reducing cost. Most likely, Apple is also developing its own lidar. Only the biggest AV companies can afford to develop their own Lidar, so there will be a lidar market for the smaller specialized AV companies. In addition to the AV companies, several automotive tier-1 suppliers are developing lidar technology. Large AV companies may also be interested in acquiring more advanced lidar companies.

Lidar like other technology components is "designed into" autonomous vehicles by companies developing AVs. Once "designed in", the customer agrees to long-term purchases over time. Lidar systems are not easily interchangeable, so design wins are critical.

In addition, price a critical factor in lidar. Early lidar systems for AV cost $10,000 or more. This wasn't a problem at that time since they were used for AV development and testing in low volumes. The cost of lidar is dropping fast as new technologies, such as solid-state lidar, are being used to re-engineer lidar. Lidar price projections now tend to be approximately $600 by 2025. This will make lidar much more affordable for autonomous vehicles, but the lower price will create a revenue challenge for lidar companies unless AV volumes increase extremely fast.

How large is the market for autonomous vehicle lidar expected to be? This is difficult to project, but here is a rough estimate. Using an assumption of approximately one million new autonomous vehicles produced in 2025 (Source: Autonomous Vehicles: Opportunities, strategies, and Disruptions), and assuming 3 lidars per vehicle at $600 each, this would translate into a total available market estimate of approximately $2.0 billion in 2025. The global market for lidar is probably double that estimate or $4-5 billion. Of this market, a large percentage would be served by AV companies producing their own lidar. As you will see, the cumulative 2025 revenue projections from lidar companies, far exceed this market estimate.

Let's look at the five recently, or soon to be, public pure-play lidar companies. All of these came public or are coming public through SPACs. So they provided detailed investor presentations prior to going public. Detailed presentations like these are used by SPACs but are not normally permitted for public companies. These presentations were used to justify the original merger valuations and, in my opinion, are probably overly ambitious. Most likely the revenue projections for 2025 are overlapping in the sense that potential customers are probably the same.

On top of this, the current valuations of these companies are much higher than the original merger valuations. Valuation is clearly an issue to be concerned about in these investments.

Velodyne (VLDR)

Velodyne was the first to develop 3D Lidar and has been the market leader for 13 years. It went public through the SPAC Graf Industrial. Since its inception in 2005, Velodyne has had a cumulative revenue of $750 million from more than 300 customers. Ford, Baidu, and Hyundai were strategic investors in the company, and it claims 165 projects in the works with customers,

Velodyne is focusing on reducing the price of its Lidar. It projects an average selling price of $600 in 2024, down from $5,200 in 2020. It has a solid brand. It is likely that many technology, mapping, and automotive companies pursuing AVs have used its products. Velodyne recently announced a multi-year sales agreement for sensors with Motional, an ARS company. Velodyne will be the exclusive provider of long-range, surround-view lidar sensors for Motional’s SAE Level-4 ARS vehicles. It also announced a sales agreement with May Mobility.

Velodyne reported 2020 revenue of $94 million on 4,100 lidar units. It projects 2024 revenue of $684 million with EBITDA of $148 million. Its current valuation is $4 billion, which is more than twice its original merger valuation. This valuation equates to 27 times projected 2024 EBITDA.

Luminar (LAZR)

Luminar was founded in 2012 by Austin Russell at age 16 when he received a prestigious Thiel Fellowship. It claims to have breakthrough technology using a differentiated lidar architecture and component-level innovation supported by many patents. Its architecture is scalable from passenger vehicles to commercial vehicles. It also has proprietary software to support the capabilities of its hardware.

Luminar has working partnerships with Volvo and Daimler Truck, which has a minority stake in the company.

Luminar's projected revenue includes hardware and software and is primarily driven by automotive production programs commencing in 2022. It forecasts revenue of $418 million in 2024 and $837 million in 2025 with over 90% of it coming from its existing partner base. Luminar's projected 2025 EBITDA is $365 million. Its current market cap is over $10.5 billion, which at $33 per share is more than 3 times its original merger valuation, and its share price was as high as $40. Its current valuation is 28 times projected 2025 EBITDA.

Aeva Inc. (NYSE:IPV)

Aeva Inc. is going public through a merger with the SPAC InterPrivate Acquisition Corp (IPV). Aeva, founded in 2017, is developing a 4D LiDAR on a chip that combines instant velocity measurements and long-range performance at affordable costs. Aeva uses frequency modulated continuous wave (FMCW) technology to measure velocity in addition to depth, reflectivity, and inertial motion. Aeva plans to scale its lidar platform to a range of industries beyond automotive, including consumer electronics, consumer health, industrial robotics, and security.

In September, Aeva announced a production partnership with ZF Friedrichshafen, one of the world’s largest tier-1 suppliers. The partnership will combine Aeva’s expertise in frequency modulated continuous wave (FMCW) lidar with ZF’s experience in the mass production of automotive-grade sensors. Aeva is also engaged with the VW Group on lidar for its next-generation vehicle platforms targeted for 2024 production.

Aeva projects revenue of $880 million in 2025 with 80% of that coming from its top 7 partners. ADAS and autonomous vehicle sales are expected to commence in 2024. A lower revenue prior to that is expected from development unit sales. Its forecasts for 2030 are even more aggressive with $6 billion in revenue and $3 billion in EBITDA.

Aeva's post-money equity value on November 1, 2020, in its combination agreement with IPV, was $2.1 billion. With IPV trading at about $18 per share, its imputed valuation is approximately $3.7 billion.

Innoviz (CGRO)

Innoviz plans to become public through a business combination with Collective Growth Corporation (CGRO). The combined company is expected to be listed on NASDAQ under the ticker symbol INVZ.

Founded in 2016 in Israel, Innoviz was one of the first to bring a high-end solid-state lidar to market and meet the stringent requirements of automotive OEMs. Innoviz’s solid-state lidar sensors and perception software are built for mass-produced consumer autonomous vehicles.

Innoviz has established several partnerships with tier-1 automotive suppliers, such as Harman, Aptiv, Magna, and HiRain.

Innoviz expects very little revenue until 2024 when it projects $220 million. 2025 revenue is projected to be $539 million with an EBITDA of $179 million. The merger has a pro forma enterprise value of approximately $1.0 billion, which is now up about 40% with CGRO trading at about $14. So, the current valuation of approximately $1.4 billion, is approximately 8 times projected 2025 EBITDA.

Ouster Inc. (CLA)

Ouster will come public through a business combination between Ouster, Inc. and the SPAC Colonnade Acquisition Corp (CLA). Ouster claims to have invented digital lidar in 2015, and it has patented digital lidar technology that boasts high performance and low-cost. Four new digital lidar products were launched since 2018. It also has tailored software to provide solutions for the unique needs of its target markets.

Its products are built on a flexible architecture that provides economies of scale and lowered costs shared across products. It has two flexible platforms: high-performing mechanical and solid-state technology. A single software operating system across all products offers virtually unlimited software-defined customization. Ouster claims 450+ customers and non-automotive customers account for approximately 85% of 2025 projected revenue.

Ouster projects 2024 revenue of $818 million, increasing to $1.5 billion in 2025, generating $569 million of EBITDA. 2021 revenue is projected at only about $34 million. Interestingly, it projects only about 15% of its revenue will come from automotive. The fully diluted pro forma equity value was approximately $1.9 billion at the announcement of the merger. With CLA currently trading at about $13 per share, this implies an approximate valuation of $2 billion. This would be approximately 3.5 times projected 2025 EBITDA.

Other Lidar Competitors

As mentioned, there are other lidar competitors. Tier-1 suppliers have traditionally provided components and sub-assemblies to auto manufacturers and have long-standing relationships. The French company Valeo (OTCPK:VLEEY), for example, has had success in lidar. It has been actively demonstrating its SCALA system in autonomous vehicles.

In addition, there are a number of other small companies developing lidar technology that are not (yet) public. These include the following, although there are also others:

RoboSense (Suteng Innovation Technology Co., Ltd.) a Chinese environment perception solutions provider of autonomous driving lidar and perception software. It has multiple trial customers and plans production in 2022.
Cepton Technologies provides state-of-the-art, intelligent, lidar-based solutions for a range of markets such as autonomous driving, ADAS, intelligent traffic systems, smart spaces, and industrial robotics.
LeddarTech is a Canadian company developing an environmental sensing platform for autonomous vehicles and advanced driver assistance systems. Founded in 2007, LeddarTech has evolved to become a comprehensive end-to-end environmental sensing company by enabling customers to solve critical sensing and perception challenges.
Quanergy Systems, founded in 2012, is a Silicon-Valley-based technology company offering smart sensing solutions. It provides time-of-flight lidar sensors and perception software for real-time capture and processing of 3D spatial data and object detection, identification, classification, and tracking.
AEye is the creator of iDAR™ (Intelligent Detection and Ranging), an artificial perception platform for vehicle autonomy, ADAS, and robotic vision applications. iDAR fuses solid-state agile lidar, an optional camera, and integrated AI to create a smart, software-definable sensor. AEye has partnered with leading tier-1 suppliers and system integrators to configure and manufacture the sensor at scale.

Conclusion

Undoubtedly, lidar is a critical technology for autonomous vehicles, and some lidar companies will succeed and prove to be good investments. However, there are still many unanswered questions in this market. Will the major AV companies produce their own lidar or use lidar from others? Which lidar technologies will prove to be superior? How fast will the AV market develop? Will the lower prices for lidar still provide enough revenue?

The five lidar companies covered in this article all appear to have exciting prospects. Most likely though, only a couple of them will succeed. Still, all of the valuations are very high, which should inject some investment caution.

Disclosure: I am/we are long VLDR, LAZR, IPV, CLA, CGRO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I invested early in these companies and still hold some of my investments, but have reduced some of them significantly.