Hesai Review

Another set of Lidar companies has reported their 2022 results. I have written in the past about two. A new addition is the Chinese company Hesai Group (HSAI), which was newly listed on the Nasdaq in February.

On March 15th, Hesai reported its full-year and Q4 results. Having sold 80K sensors in 2022 and 47K in Q4 alone, Hesai is the top earner in the Lidar industry, generating a total revenue of $174M. This figure exceeds the combined revenue of all other Lidar companies.

Additionally, only Ouster (OUST) can come close to Hesai’s gross margins of 39% for the year and 30% for the quarter. It’s worth noting that Ouster also benefits from the sale of sensors by Hesai. Of the 80,000 units sold, roughly 18,000 were in the non-ADAS category, including spin sensors. Consequently, Ouster will receive licensing fees for every spin sensor sold by Hesai and Robosense, another major Chinese Lidar company.

Hesai has guided for around $60M in revenue for Q1 2023, which implies a total revenue of about $240M for the year, representing a 38% growth rate. With cash reserves of $446M, including $177M from its IPO, and a market cap-to-revenue ratio of just over 7, Hesai appears undervalued. Luminar (LAZR) is trading at 39 times its revenue. The only other company trading at a lower ratio than Hesai is Ouster, with a 3.74 times revenue if it meets the forecasted $100M revenue for 2023.

Based on my experience evaluating solar panel companies, particularly those of Chinese origin, it is reasonable to anticipate that a Chinese enterprise will typically have a lower valuation than its US-based counterparts. For example, even currently, First Solar (FSLR) is trading at 8.7 times its trailing twelve-month revenue of $2.6B. In comparison, Canadian Solar (CSIQ) is valued at only 0.43 times its TTM revenue of $7B – yes, this is not a typo – a company with $7B in revenue is valued at only $2.4B. Therefore, it is essential to understand this valuation mechanism to avoid the outcome of the devaluation of Hesai’s share price.

Secondly, it is crucial to acknowledge that the Lidar sensor is a data-generating device that could potentially infringe on security matters in several ways. For instance, the cloud-based data generated by Lidar for mapping purposes could provide a tactical advantage for both ground and aerial military operations. The same holds for infrastructure data generation. As governments across the globe become more familiar with this technology, the transfer of Lidar sensors in and out of China may face similar scrutiny to that of the current situation with Huawei or concerns regarding TikTok and its data. A company which sells only in China, which is not the case for Hesai today, may not be the best investment even if it does sell millions of sensors in the future when bans are evoked or data fears become a prominent concern.

Then there is a matter of reporting and accounting methodologies, the issue of subsidies where state-sponsored enterprises can sell for less and be compensated. And the matter of delisting threat from the US exchanges due to failure of disclosure rules.

Considering all these factors, I do not advise investing in Hesai. Although the company can be a valuable benchmark for ASP, volume, and revenue capacity, finding a domestic performer would likely create more long-term value. Nonetheless, any such company will have to survive the competition from the Chinese.

Cepton 2023 Outlook

Cepton (CPTN) also reported its results; they have been as I had expected before, nothing fascinating. Koito (OTCPK:KOTMY), a Japanese tier 1 automotive supplier, supported the company long before the SPAC days of Cepton. As Cepton spent its cash in 2022, Koito came to the rescue with a $100M injection paid for preferred equity. Cepton has paid the short-term loan also from Koito and another from the private equity firm, and it is ready with $89M of cash left for 2023. Since the operational spent is only $57M, Cepton has enough to run into mid-2024. The company also has the option to sell $98M worth of stock to Lincoln Park, which will create a significant dilution at $0.50 per share.

The company’s revenue forecast is about $15 to $20M, more than Innoviz (INVZ). Cepton has its OEM deal with General Motors (GM), and Cadillac Selestiq, a handmade vehicle priced at $300K, is said to receive its sensor. The management told investors during the conference call about the possession of a 10K sensor order from GM, adding that two more models would also receive its Lidar. The price tag for the sensor is likely $1000, as the company has other non-ADAS opportunities within the revenue forecast. Finally, the order book was disclosed as $1B.

The stock dropped almost 50% on March 10^th during the SVB shutdown and has not recovered since. I consider the possibility of a considerable dilution with Lincoln Park and a smaller but dilutive turn of the preferred shares into common shares, impacting the share price. Still, the company’s valuation of $82M stands in contrast to the $540M of Innoviz, having effectively a deal like the Israeli company does with BMW. However, as with Innoviz, I am not intrigued by the technology or its potential today. For me, the company is a watch-and-see situation. If Cepton survives, waiting and buying it even at $1 or $2 will be profitable when there is tangible evidence of success. For now, in my view, Cepton is to be avoided.

AEye’s Lost Focus

AEye (LIDR) appears to be one of the most dismal companies in terms of outlook, with the newly appointed management unable to provide revenue guidance for 2023. With $94M in cash and spending at least $74M annually, the company admits to seeking an equity offering sometime soon. First, AEye will likely undergo a reverse split to remain listed. However, offering just a paltry $700K in revenue for the first quarter, despite the unique but aging relationship with Continental (OTCPK:CTTAF), may not be enough to attract investor attention to the stock. Continental plans to produce sensors based on technology licensed from AEye by the end of 2024, but it is unclear what OEM will buy it.

In my opinion, AEye’s stock should be avoided. If they succeed, there will be plenty of time to spot this condition. While the $63M market cap may appear to be an opportunity to the untrained eye, it is not. Turbulent times are ahead, and caution is advised.

Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.