Innoviz Part 2: Traction Traction Traction

Traction is the name of the game in early stage technology and Innoviz is winning the game

Company overview

This is part 2 in a series on Innoviz and the lidar market, if you haven’t read part 1, please do.

Innoviz is an automotive Tier-1 (i.e they supply directly to the OEMs) developing LiDAR hardware and software to automotive original equipment manufacturers (OEM). They were founded in 2016 by a very talented management team, were quickly anointed as one of the darling LiDAR companies of the late 2010's (of which there were many many competitors) and took Innoviz public in 2021 via a SPAC. The entire sector which boomed, has been busting in the public markets with the company currently trading at ~$2.40 (down from $10 at IPO).

Innoviz is the first and only lidar provider [AS1] [YZ2] to bring their lidar, the InnovizOne, to commercial use in L3 driving in real highways. They've since changed their product focus to the InnovizTwo, a slimmer, more advanced lidar platform that can be utilized for both long (up to 300 meters) and short-range lidar. As a tier one they provide both the hardware and software stack needed for OEMs to integrate their lidar into their perception and decision-making ADAS and autonomous driving solution.

In Part 1 I covered the automotive market in general and lidar specifically. I highly recommend you start there. In today’s article I’ll cover:

1. Go to market in the lidar business, challenges and dynamics.

2. Traction: The most important part for evaluating a lidar company

In Part 3 I’ll finish up with answering the questions of competition, market timing, Innoviz’s financials, management and some discussion of portfolio positioning.

Go to market

Selling into the automotive market is a very business development intensive game. You need to build up long term, trusted relationships with the different arms of the OEMs and Tier 1s. These relationships have to span the entire organization: senior management, innovation teams, engineering, product design, marketing and procurement. Needless to say that this business development push takes years, the right personnel and geographic footprint. While this can traditionally be a barrier to entry for new companies there are some advantages to this go to market. It's relatively predictable and actionable. Companies in the space have a clear playbook to play and unlike online advertising where you need to juggle a lifetime value of your customer to the cost it takes to acquire them (LTV/CAC ratio), here they can realistically control costs.

Innoviz has been around long enough to build up the relationships needed. In fact they were one of the first startups to 'cross the chasm' and build meaningful partnerships with key industry players - Magna and BMW all the way back in 2017, just a year and a half after being founded. Innoviz started out with the classic approach of being a ‘tier 2’ – a supplier to a tier 1. They have since become a tier 1 in their own right, a strategic move that enables them to work directly with the OEM, without relying on another tier 1 to be their middleman. This also has significant impact on the revenue Innoviz can generate from NREs (Non Recurring Engineering revenue).

As we'll see in the traction section below, the established go to market channel that Innoviz has established is a proven avenue that's led them to be a lead contender in most of the top 10 automotive Requests for Quotations (RFQ).

The automotive Lidar market is impacted by a few key dynamics: Cost, premium user experience, risk aversion and deep technical integration.

Cost: Cost is a key driver in the automotive market. It's one of the hardest negotiating markets where cost is everything and almost any new feature added to a car has to be justified, go through a rigorous cost cutting process and analyzed for its value to sales. As a new technology, especially one that isn't yet mass produced, lidars fall on the more expensive side of things, challenging the ease of integration for many OEMs. While this is true in the early days, as lidars become more mass produced and the technology matures, the cost will come down, making them more accessible in all kinds of vehicles. This has been a dynamic we've seen play out before in many areas, ADAS and AEB most recently. When it comes to cost, Innoviz is a market leader (especially outside of China). Their decision to go for 905nm lidars means they can source components more easily, making the cost per lidar much lower than some of their competitors that have opted for 1550nm lidar. This also means they don't need a dedicated manufacturing facility for early traction.

Premium user experience: Cars have been commoditized over the past half a century. What's really the difference between a GM, Toyota, Honda, VW or Ford car? Not that much. 98% of the features and functionality overlap.

The main differentiation therefore has come on the high end, with premium features or on the lower end on price. The premium brands are in a race to justify their pricey models to an ever more price conscious and tech savvy buyer. This has been part of the reason in revamping infotainment systems to better graphics, updated displays and advanced driver systems. Tesla has been a major driver (pun intended) in pushing OEMs to innovate. Tesla cars ship with some of the best of these features across the board - fast acceleration and good handling, great modern infotainment, app controlled vehicles and of course - full self drive (FSD).

These trends have pushed the luxury vehicle providers, mainly BMW, Mercedes, VW (via their Audi brand), Volvo and GM (via their Cadillac brand) to push into these technologies as well. While Tesla has pushed FSD without an additional lidar sensor, this is something the majority of the automotive industry isn't comfortable with. The predominant wisdom, and current ISO 26262 regulation, is that redundant sensors (cameras, radar and lidar) are all necessary.
Premium brands can afford a higher cost structure for early adopting audiences that can afford to pay and therefore many of these new technologies first show up in these brands. Tesla charges $99 a month for FSD, whereas BMW charges €6,000 for their Personal Pilot. Mobileye first launched with BMW. The Lidar market is taking a similar approach: BMW partnered with Innoviz to get their i7 on the road with L3 driving. VW is working with Innoviz to get Audi on the road as well. Volvo partnered with Luminar, and Mercedes Benz is in advanced stages of launching their L3 offering.

Risk aversion: Unlike many consumer technology sectors, cars can kill or save lives. They're some of the most reliable pieces of technology we take for granted every day. The supply chain is incredibly global, long lasting and robust. OEMs must ship spare parts that last for a decade for most models in most countries they sell into. Decisions for vehicle models are set years in advance and once made, they're not easy to change. As a result, OEMs are more risk averse than many other companies. This makes integrating critical technology, especially hardware and software that is developed externally into a heavy lift. Often it requires a major technology shift, business model shift or huge competitive risk to make the OEMs do this. It's these dynamics that are playing out in the lidar market. As shown by the significant interest and traction in the sector, lidars and ADAS are the future for the automotive sector, which is why they're getting so much attention. However, the time to full implementation is measured in decades and not years.

Deep technical integration: OEMs demand a high level of technical integration from their suppliers to meet diverse and exacting requirements. Each RFQ typically involves substantial customization across hardware, firmware, and perception software. These customizations often necessitate years of development, involving hundreds of engineering hours to tailor solutions to specific vehicle platforms and operational environments.

The complexity extends beyond the core technology. OEMs dictate stringent manufacturing strategies, balancing cost efficiencies and geographic preferences. Some OEMs insist on U.S.-based manufacturing for their supply chains, rejecting alternatives like NAFTA countries, yet expect cost structures comparable to Asian factories. Conversely, others prioritize proposals solely from Asia, while a subset demands diversified manufacturing operations spanning multiple continents. These requirements often entail upfront investment from suppliers, emphasizing the need for robust funding and operational flexibility.

When it comes lidar all of these affects play in the decision to integrate. Some OEMs require a full perception hardware and software stack, including sensor fusion and decision making capabilities. Others want just a perception stack. Different OEMs want the lidar in different locations with different sizes and requirements. A long range lidar for highway driving will be different from a short range lidar for low speeds.

Traction

This is the most important part of the entire report. More important than GTM, Management or technology - because the traction is the ONE real factor that can show us who is best on all these metrics, who's built up the best order book, partnerships, technology and who's going to emerge as the leader in the lidar space. The problem with judging based on traction is that, as listed above, this is a slow moving market where PR is rare and partnerships and their terms are opaque[AS1] at best. Because of the long lead times and difficulty in differentiation, secrecy is the name of the game. This makes judging traction an incredible challenge for the market.

It's important to state upfront the main competition and their traction so as to put Innoviz in the right context. Outside of China there are only three lidar companies that have meaningful partnerships with OEMs. Valeo, an established tier 1 with BMW, Luminar with Volvo's EX90 and Innoviz with BMW, VW and Mobilieye's Drive platform.

Innoviz has secured commitments and partnerships with some of the industries' leading OEMs, importantly some of those known for early innovation and technology adoption: BMW and Volkswagen most notably. I'll explore each of Innoviz's main partnerships and then dive into a bit of speculation.

BMW

Innoviz started collaborating with BMW in 2017 via a partnership with Magna, a Tier 1, to be their Lidar supplier. This program is a great example of automotive cycles. They started collaboration and joint R&D in 2017 and the targeted car, the BMW i7 finally went into production and sale during Q1 2024. A seven year product cycle is long, even for the automotive world, and is mainly due to both companies developing the product for the first time. Future product cycles will be faster, however still, multiple years.

In 2023 Innoviz announced an additional advance in their partnership with BMW, a collaboration on the series 5 for the Chinese market.

Unfortunately, the BMW partnership shows how hard the early stage lidar market is. Despite years of joint collaboration, and being the first western OEM to ship a fully capable L3, BMW recently selected Valeo, a French tier 1 to be their lidar partner for the Neu Klasse, their new vehicle platform. This is a big hit to future plans for Innoviz as this work will be the driver for a lot of other BMW plans and pushes. The bullet points below are enabled by InnovizOne in the i7 but credited to Valeo (From BMWs Q1 2024 presentation):

Overall, the BMW partnership has been fantastic market validation and an education, at the cost of decent commercial terms. Much has been speculated in the market that BMW not doubling down on Innoviz as their lidar supplier speaks detrimentally to Innoviz's product offering. This has clearly been rebutted by Innoviz's other partnerships. Collaborations in the automotive world break up for many reasons. Magna was also involved here and perhaps they didn't fit into the future roadmap. Perhaps Valeo lumped in lidar into another offering or perhaps simply BMW wanted to work with a tried and true tier 1. At the end of the day, the BMW partnership has been a great case study for both companies and has brought the only L3 car to the road successfully speaking volumes about the product robustness, hardware and software integration.

Volkswagen Group

VW, the parent company of brands such as Audi, Porsche, VW, Bentley and Lamborghini has been growing their relationship with Innoviz over the past two years, and recently signed a multi year NRE contract with Innoviz in the tens of millions of dollars.

In 2022 Innoviz was selected by Volkswagen's Cariad unit as its direct LiDAR supplier for automated vehicles. Cariad, is VWs internal software group working on autonomous driving.

In 2023 Volkswagen announced that they aim to expand its use of InnovizTwo to an existing light commercial vehicle program for L2+ driving. In March 2024 VW revealed further details regarding this collaboration and that it revolvs around VWs luxury brands such as Audi, Bentley, Porsche and Lamborghini but has potential for up to 17 brands in their portfolio. Mobileye will be providing the automated driving stack, integrating Innoviz's Lidar as one of the key sensors.

From VW Twitter

In all, Innoviz has three programs with VW:

1. Audi, in collaboration with Cariad and Qualcomm's snapdragon platform

2. A L4 light commercial vehicle based on the ID. Buzz concept in collaboration with Mobilieye.

3. L2+ programs for a suite of VW brands in collaboration with Mobileye.

Unlike the BMW relationship, which has proven how fragile a 'land and expand' can be, the VW relationship proves the opposite: a land and expand that is working extremely well. A relationship that started with one smaller win is expanding to multiple programs, models, tech stacks and autonomy levels.

The VW partnerships have launch times towards the end of 2026 and achieve mass scale from 2028 onwards and vary in the amount of lidars per vehicle. Commercial light vehicles like Audi could have one forward facing long range lidar, others can have two or as many as nine lidars, as in the case of the ID. Buzz.

Mobileye and other compute platforms

Autonomous Vehicles rely heavily on powerful compute platforms for all the perception and decision making capabilities of the system. The three major players here are Nvidia, Mobileye, and Qualcomm. Being integrated into one of the three platforms Nvidia DRIVE, Mobileye's EyeQ chips or Qualcomm Snapdragon Ride can help lidar companies, and startups in particular to become a 'default' supplier.

Innoviz has relationships with all three major compute platforms, and is developing solutions for OEMs that work with each. Qualcomm is the platform for the Audi L2+, Nvidia and Innoviz recently announced their collaboration at CES 2025.

By far the most meaningful relationship for them at the moment is with Mobileye. In December 2024 Innoviz and Mobileye jointly announced that the InnovizTwo is the lidar of choice for Mobileye's Drive platform - their L4 autonomous vehicle platform. This means that Mobileye L4 customers such as VW Commercial Vehicles, Schaeffler / VDL, Holon, and Verne will all be using Innoviz's lidar. In addition to L4 vehicles and Mobileye's Drive platform, they've also been collaborating on Mobileye's L3 "Chauffeur" platform. This is the partnership they have around VW passenger vehicle brands.

While Nvidia and Qualcomm both have significant inroads into the autonomous vehicle market, and Innoviz's partnership with them is meaningful for future wins, it's worth spending more time on the Mobileye relationship.

Mobileye is a leader in automotive ADAS. For perspective they've won 95% of the RFQs that the top 10 OEMs offered during 2023-2024. Ninety five percent.

Source: Mobileye 2024 Investor day

Their autonomous solutions, which spans from L2 to L4 are the future bet for the company. With relationships in the automotive market, Mobileye is poised for a lot of future growth in SuperVision, Advanced ADAS and beginning 2026 and onwards, Chauffeur and Drive.

Innoviz looks like the 'go to' lidar supplier for both Chauffeur and Drive. Looking at Mobileye's business development status, that bodes very well. With two prospective Drive OEMs (VW + a Japanese OEM) at nine lidars per vehicle, and several Chauffeur clients producing mass market vehicles with one to three lidars, this is a significant future business opportunity.

A bit of speculation

Beyond BMW, VW and Mobileye what else can we expect from Innoviz? After all this is a winner take most market and the land grab is critical. The automotive market is notoriously secretive and it can be years until there's an official statement of partnership, but here are some well educated speculations on the state of the industry and partnerships out there.

Aurora

Aurora is a leading L4 truck company. They're one of the best of the batch of mid 2010s startups that launched to solve autonomous vehicles and have since focused in on trucking with some great partnerships, including a large investment and collaboration with Continental, a major German tier 1 (Aurora's platform utilizes Nvidia Drive Orin highlighting the importance of working with all three compute platforms).

On the Q2 2024 call Omer Keilaf, Innoviz CEO, mentioned that:

In addition, last quarter, we mentioned that we were working with the leading Level 4 platform company in the trucking space. We are in close contact with this customer and met with them just a few weeks ago. This opportunity continues to progress with large volumes expected as we will add multiple LiDAR per Level 4 vehicle. The customer has also informed us that they may be interested in incorporating our short-range LiDAR for this broad platform. This partner has multiple customers for this platform. The next step for this program is a supplier agreement.

This followed a trip to the US by the Innoviz management, all pointing at Aurora as the prospect. Aurora is well positioned in terms of their partnerships (Uber Freight is one for example), and financing. They plan on launching in 2025 and as they scale up and include the InnovizTwo into their product roadmap (they currently use a different lidar) this could be a very meaningful win.

GM, Stellantis or Mercedes?

In Q2 of 2024 the CEO pointed out that:

I wanted to call out 1 potential new customer in particular that was added to the pipeline just over the last quarter. This important potential customer is working with us on an RFQ for their second-generation Level 3 platform. The RFQ is moving along well. The program, which features strong volumes, is expected to launch in 2026.

My best guess is that this is either GM, Stellantis or Mercedes. GM and Mercedes both have L2+/L3 products that have had setbacks recently. GM was planning on launching the SuperCruise for their Cadillac lineup but ran into software and Lidar problems - leading them to cancel their collaboration with Cepton, another lidar supplier.

Mercedes has in the past signed a collaboration with Luminar, one of Innoviz's competitors, but many signs (see this thread for example) seem to show that this collaboration is no longer in the works - meaning that Mercedes needs to find a new supplier and fast. Innoviz would be the natural fit.

Stellantis has a similar story. They planned on launching a fully capable L3 platform in 2024, which never happened and is currently delayed. I suspect the reason for this is their lidar partner, Valeo. Valeo is an established tier 1 whose lidar offering has received decent industry uptake and yet despite the announced deals and partnerships has yet to hit the road in production for anything above basic ADAS. The proof is in the pudding in the lidar and AV market and this leads me to believe that Valeo's lidar offering is simply subpar. Perhaps Stellantis ran into the same issue of being delayed with their current lidar offering and need to change, and fast. The Innoviz team also visited them in their US roadshow during Q2 of 2024.

A win with either of these top 10 OEMs (or even two of three) would be huge. It would further validate Innoviz as the winning lidar supplier and provide much needed NRE revenue.

BMW: There and back again?

While I discussed BMW picking Valeo for their new vehicle platform above as a large loss for Innoviz, I think there’s a decent chance they return to Innoviz at some point in the coming years. Valeo is clearly having issues with their lidar offering - they’ve promised it to two large OEMs and have failed to deliver in time. If this continues, BMW will have to look for a new partner, and who better to work with than the partner that’s already been integrated?

Additional pipeline

Innoviz is in contention for selection in 15 additional programs, 50% of which are in the RFQ stage, Eight of ten top ten global OEMs are in the pipeline.

Where to next

Innoviz’s significant traction bodes well for the company over the long term. In part 3 I’ll bring this together with a look at the company’s competition, financials, management and answer the question of timing.