In a striking turnaround, Elon Musk, the world’s richest man and the CEO of Tesla, once expressed his disdain for the use of lidar technology in autonomous vehicles, labeling its implementation as “a silly idea.” However, it seems that the tides have changed, as Tesla recently introduced lidar-equipped vehicles into their lineup. This shift not only highlights the evolving landscape of automotive technology but also marks a significant point of interest for investors and industry watchers alike.

In the realm of lidar technology, two prominent players, Livox Technology and Hesai Technology, have emerged as frontrunners in the market, particularly in China. These companies are not only dominating the domestic scene but are also gaining formidable traction on the global stage, drawing substantial attention from capital markets. Recently, both companies have seen a surge in their stock prices, reflecting the optimism surrounding the lidar market and its potential growth.

The market has been particularly responsive, with Hesai’s stock climbing 11.29% on the East Coast last Friday and accumulating an impressive total rise of over 70% since November 26. Meanwhile, Livox did not lag, starting December with a hefty increase of 11.67%, resulting in a remarkable 24% uptick in stock price since November 27. This volatility in stock performance is fueled by the companies' accelerating sales and expanding production capabilities, signaling a burgeoning interest in lidar as a critical component for smart vehicles.

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Both Livox and Hesai have reported substantial increases in their sales volumes, hinting that they are on the verge of reaching profitability. For the first three quarters of 2024, both companies have successfully expanded their clientele while also witnessing a marked increase in the integration of lidar technology within vehicles. Livox disclosed that the adoption of their lidar systems in smart vehicles priced between 150,000 to 200,000 yuan is rapidly gaining momentum.

Several vehicle models from notable manufacturers, including GAC Aian, Geely, and Zeekr, are now equipped with Livox’s lidar products. Livox’s new MX products have been chosen for partnerships with seven different automotive manufacturers focusing on L2+ autonomous driving capabilities. As of September 30, the company has secured mass production contracts from 26 manufacturers, resulting in 84 different vehicle models being outfitted with their lidar systems.

Hesai, on the other hand, announced significant progress in the Advanced Driver Assistance Systems (ADAS) market, partnering with 20 automotive manufacturers across 75 vehicle models. This collaborative success has played a crucial role in both companies' increasing delivery volumes. In a remarkable expansion, Livox reported a staggering 259.6% year-on-year growth in deliveries, totaling 381,900 units, while Hesai saw a 108.2% increase, reaching 279,800 units, although Livox remains the clear leader in total deliveries.

The surge in lidar deliveries has inevitably translated into impressive revenue performance for both companies. Livox recorded a revenue of approximately 1.135 billion yuan during the first three quarters, marking a phenomenal increase of 91.51%, already surpassing their entire revenue from 2023. Hesai reported a revenue of 1.357 billion yuan, exhibiting a more modest growth of 3.16%, though their third-quarter revenue surpassed expectations at 539 million yuan, reflecting a year-on-year growth of 21.06%.

After years of operating in the red, both companies appear to be on the cusp of breaking even. Livox narrowed its losses to 351 million yuan for the first three quarters, a significant reduction of 69.03% year-on-year, while Hesai reduced its net loss to 249 million yuan, a decline of 25.58%. These improvements in financial performance are heartening news for investors who have been closely monitoring the developments in the lidar market.

As both companies strengthen their operational scales and improve cost management, gross profit margins have seen considerable improvement: Livox's gross margin surged from 8.7% in the previous year’s third quarter to 17.5% this time, whereas Hesai's gross margin rose dramatically from 30.6% to 47.7%. With mounting demand for in-vehicle lidar technology, the prospects for both Livox and Hesai in achieving profitability loom large.

CEO of Livox, Qiu Chunchao, recently announced that the company is approaching a pivotal moment of profitability. Hesai similarly projected that by the fourth quarter, their net revenues would skyrocket to nearly $100 million, potentially yielding $20 million in net profit and positive operating cash flow. Furthermore, Hesai is optimistic about achieving full-year profitability based on non-GAAP metrics in 2024.

With analysts suggesting that the lidar market is on the brink of explosive growth, there is consensus among industry experts that the technology's integration in vehicles is set to skyrocket. According to reports from the Gaishi Automotive Research Institute, the adoption of lidar will surge as advanced driver-assistance systems become more prevalent. The institute projects that by 2030, the penetration rate of lidar-equipped vehicles will leap from the current 5.5% to an impressive 40% in the market.

Interestingly, some firms are shying away from lidar technologies. Companies like NIO and Xpeng have shifted towards pure vision-based solutions, igniting a heated discussion in the industry about the superiority of vision-based technology over lidar. However, the advantages of lidar for safety and reliability in autonomous driving remain highlighted.

Analysts from Haitong International assert that while end-to-end solutions have improved performance in purely vision-based technology, the long-term safety value of lidar should not be underestimated. As costs decrease to competitive levels, lidar could still emerge as a standard feature in vehicles. In supporting this sentiment, Lin Jinwen, Vice President of Zeekr, stated, “Lidar is indeed expensive, but the unparalleled safety achieved through its combined algorithms is unattainable through pure vision solutions alone.”

With the landscape of automotive technology rapidly evolving, both Livox and Hesai are poised to take advantage of cost decreases and growing demand. Reports suggest that by 2030, the penetration rates for advanced driving functions such as L2+ urban Navigation-Assisted Driving are expected to reach 25%, with highway NOA penetration hitting 55%, which could herald a new era of smart driving functionality in the market.

Addressing the historically high costs that have impeded widespread adoption of in-vehicle lidar, Hesai plans to implement a considerable price reduction strategy, announcing a 50% decrease in prices for their main lidar products in the upcoming year. CEO Li Yifan expressed confidence that this price adjustment would promote lidar's broader application across electric vehicles, even in budget-friendly models priced below 150,000 yuan.

Although Livox has not publicly committed to similar drastic price cuts, the company has steadily reduced prices over the years, which has resulted in impressive sales figures for their more affordable solutions. Both companies convey an optimistic outlook for the sales volumes of lidar products in the future, backed by insight from customer guidance that suggests significant growth in the ADAS sector is anticipated for the upcoming year.

In conclusion, with the rapid penetration of advanced driving technologies and the continuous decline in lidar prices, the industry is on a robust growth trajectory. As Livox and Hesai capitalize on these opportunities, it remains to be seen if they can further elevate their product sales and profitability to new heights amidst this ongoing technological revolution.