Amid mergers and lawsuits, it's ‘winner take most' for lidar companies

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It is not an easy time to be a lidar company.

Money is tight. Patent infringement claims and expensive litigation have created a terrain littered with legal land mines. And companies are under pressure to shrink their sensors’ size and power consumption, boost their range, and slash prices while scaling production — or risk a competitor doing it first.

Mergers and acquisitions have consolidated the industry, and analysts and company leaders project there will be more.

“There’s literally billions of dollars, if not tens of billions or hundreds of billions of dollars, of opportunity for the lidar players in the space to go and capture in the next 10 to 20 years,” said Angus Pacala, CEO of Ouster Inc., a San Francisco lidar company. “There’s high stakes because it’s winner take most.”

But that huge market opportunity is dependent on lowering the cost of lidar technology. Lidar isn’t widely used in advanced driver-assistance systems yet but is expected to become a crucial component as the capability of the systems expands and prices drop.

Pairings such as Innoviz Technologies Ltd. and BMW, Luminar Technologies and Volvo Cars, Ouster and Motional, and others have showcased new driver-assist and automated technology power couples — and cemented some long-term relationships, securing future revenue and boosting adoption of lidar systems across a wider range of vehicles.
Lidar, which stands for light detection and ranging, is a type of sensor that uses lasers to generate a rendering of the world and detect obstacles. It is used in automotive, agriculture and mapping, among other industries. Along with radar and cameras, it is one of the key sensors that allows for autonomous functions in cars and trucks.

After years of working on Level 4 automated systems, which enable autonomous driving but only under certain conditions, many automakers are redirecting their energy toward less complex Levels 2 and 3. At those levels, as defined by SAE International, humans are still required. This shift is the equivalent of returning to the tennis ball machine after playing Serena Williams. But legal, regulatory and safety quandaries remain with Level 3, including how quickly a human can retake control of the vehicle and where liability lies in the event of a crash.

Automakers are outsourcing a hugely expensive and complex technology to manufacturing partners. As an added benefit, those companies can be sure that their lidar technology is competitive, rather than being developed in a silo in-house.

“This is the most exciting year,” said David Li, CEO of Hesai Group, a lidar company. “This is the year some of us have made it.”

The industry saw a rash of lidar companies go public through special purpose acquisition companies in 2020 and 2021. The roster includes Aeva Technologies Inc., AEye Inc., Cepton Inc., Innoviz, Luminar, Ouster, Quanergy Systems and Velodyne Lidar. Some of these reached stock market valuations in the billions of dollars.

The market valued Quanergy, for example, at $1.4 billion when its SPAC deal was announced in 2021. Just 10 months after it went public in 2022, it filed for bankruptcy protection.

The space has also been marked by cannibalism and infighting.

In 2019, Velodyne filed a complaint with the U.S. International Trade Commission against Hesai and RoboSense, alleging that the companies were importing and selling lidar devices that infringed upon Velodyne’s patented technology. The companies ultimately settled. Hesai agreed to a one-time payment and annual royalties to Velodyne through 2030, and Velodyne and Hesai formed a patent cross-licensing agreement.

From 2021 to 2023, Ouster acquired Sense Photonics in an all-stock deal valued at roughly $68 million, Velodyne filed another trade commission patent infringement complaint, this time against Ouster, and Velodyne and Ouster merged. Megan Kathman, a spokesperson for Ouster, said the complaint was unrelated to the merger.

Now, Ouster and Hesai are locked in a patent dispute, complicated by the settlement agreement Hesai has with Velodyne, which is now a part of Ouster.

All of this braided conflict has costs, literally and figuratively.

Hesai spent more than $20 million on litigation settlement expenses in 2019, according to a Securities and Exchange Commission filing. The price for the Velodyne merger was $306.6 million, according to Ouster’s most recent quarterly SEC filing.

“As the wider ADAS market has become a bit harder and a bit tougher,” companies “had to then shrink down and start acquisitions and mergers,” said Ewan Laidlaw, a consultant at TPP, a technology and product development company. Companies “also realized this is a long game. This isn’t something where a load of lidar sensor manufacturers can all keep afloat at exactly the same time.”

As companies pay out for lawsuits and mergers, they are facing intense pressure to drop prices while keeping revenue up.

Not only are lidar companies facing competition from one another, they are facing off against camera and radar systems, which cost as little as $100 or less per unit, said Pacala, of Ouster.

If lidar sensors are still “$100,000 each, which used to be the case, it isn’t for everyone. Then I would say it’s useless, right? It’s a rich people’s toy,” said Li, of Hesai. “But if you can make it below $1,000, that’s something people will consider as additional safety to greatly reduce the chances of crashing.”

Hesai says it has shipped more than 100,000 lidar units at below $1,000 per sensor this year, and Ouster shipped more than 3,000 sensors in the second quarter for an average price of $6,300. Pacala said Ouster is working on a low-cost digital flash lidar sensor that “can hit low $100 price points,” and he stressed that the company has a diversified revenue profile, as it sells lidar to other industries.

A Luminar spokesperson declined to provide the current cost per sensor or the number of units shipped but said the company is targeting a price of about $1,000 per sensor by 2025 and a production capacity of 250,000 units by the end of this year.

At the same time, even the most stable companies have limited cash reserves. As of their last quarterly SEC filings, using cash, cash equivalents and restricted cash, Ouster had about six months’ worth of cash left, and Luminar, which said its cash burn was caused by “getting our high volume manufacturing facility online before we have generated material revenue from that facility,” had roughly four.

Hesai which files different quarterly metrics to the SEC because of its status as a foreign private issuer, had nearly 16 months of cash left at the end of 2022. Hesai said that its position has improved significantly since then, with its cash, cash equivalents and restricted cash adding up to nearly $285 million in the second quarter compared with about $133 million at the end of last year.

The patent disputes and the push for lower prices and scalability are converging just as automakers form new partnerships and lock down existing tie-ups.

While automakers are turning renewed focus to Level 2 and Level 3 automation, they are still engaged in fully autonomous vehicle development, sometimes partnering with lidar companies. In May, for example, Ouster announced it would be the exclusive provider of long-range lidar systems for Motional, a robotaxi joint venture between Hyundai and Aptiv.

But Level 4 “hasn’t taken off and reached a sense of scale that I think everybody thought” it would “six or eight years ago,” said Colm Boran, a former chief engineer of advanced driver-assist systems at Ford Motor Co. So automakers decided, “rather than trying to shoot for the moon, maybe we can still do something that’s very effective and pleasing for our customers with a little bit more limited target in mind.”

In February, Luminar and Mercedes-Benz expanded their partnership to include Luminar’s Iris lidar in vehicles to scale Mercedes’ Level 3 system. In April, Luminar announced its lidar will be standard on all of Volvo’s EX90 vehicles in China.

Innoviz and BMW are developing lidar to underpin Level 3 functions, and the pair announced a new phase of development in August. Innoviz is also fulfilling a contract it won last year to supply lidar to Volkswagen.