Figure 1: 3D Point Cloud (Top) Generated by InnovizTwo at 10 Frames/second
Innoviz secured a high volume production win in 2018 for the InnovizOne LiDAR with BMW for its planned L3 feature (L3 indicates conditional autonomy – where a human driver can completely disengage in specific geographies, road, traffic, speed and weather conditions). The L3 capability is targeted for launch in 2023 in the iX and 7-series models. InnovizOne is the first generation product manufactured and integrated by Magna, a Tier 1 automotive supplier. It provides a range of 120 m (@10% reflectivity) and 3M PPS (points/second), consumes 17W of power and occupies a volume of ~500 cm³.
The next-generation product from Innoviz (InnovizTwo) essentially retains the volume and power consumption of InnovizOne but delivers substantially better performance (200 m range and 10M PPS – see Figure 1). A significant business structure is also in play with InnovizTwo. Innoviz announced that they would be the Tier 1 automotive supplier for this product for one of the largest suppliers of passenger cars globally – the Volkswagen Group. The group includes brands like Volkswagen, Audi, Porsche, Skoda, Seat, Lamborghini, Man Trucks, Scania, and others. Cariad (a wholly-owned subsidiary of Volkswagen focused on automotive software and autonomy across VW’s line of cars) manages the program. It is a groundbreaking development. Innoviz’s shift from a Tier 2 to a Tier 1 supplier is a substantial disruption for an industry where car manufacturers tend to trust only large, traditional Tier 1 suppliers (Continental, Bosch, Magna, Valeo, Veoneer, Autoliv, Denso, Mobis, ZF, Aptiv, Aisin Seiki, Hitachi). Although many new automotive OEMs have emerged in the last decade (primarily focused on electric vehicles), the number of Tier 1 suppliers has remained stagnant given the difficulties in building OEM relationships, the substantial capital investments and comparatively meager financial returns.
How Did Innoviz Graduate to Becoming an Automotive Tier 1 Supplier?
Innoviz accumulated significant knowledge and capability around critical manufacturing, operational, quality and supply chain aspects of delivering a safety-critical product into a high-volume automotive application as it transitioned the InnovizOne to its Tier 1 supplier. The experience was leveraged in the design of the InnovizTwo in which the product design, production tooling and testing infrastructure were concurrently developed. As a result, all the quality, scalability, supply chain and cost considerations were built into the product beginning with the prototyping stage. The BOM (Bill of Materials) has fewer parts. It also exploits integrated semiconductor optical components, resulting in substantially lower material costs and assembly times than the first generation InnovizOne. The volume manufacturing has commenced at a specialized automotive contract manufacturer based in Germany (Innoviz has supplied all the process recipes, production tooling and test equipment). Acceptance as a Tier 1 supplier was challenging and required patience, resilience and conviction. According to Omer Keilaf, CEO of Innoviz: “The automotive industry is highly reliant on the ability of direct suppliers to provide critical components on time and at the right quality, reliability and cost. We went through a long process of due diligence and multiple audits, eventually enabling us to be selected as a Tier 1 supplier. We are thrilled by the market acceptance of our new position and are expanding our direct supplier relationship with several other OEMs.”
Why Did Innoviz Decide to Become a Tier 1 Supplier?
Margin and profits! Automotive products need to be priced aggressively to the OEM to make their offering (L3 functionality) to the end consumer attractive. As highlighted in a previous article, Daimler offers L3 capability on the S-Class Mercedes for $5000. LiDAR pricing needs to be ~ $300-500/unit to enable this and support the migration of this autonomy to lower-priced cars (assumes a single front-facing LiDAR per car for L3). After accounting for BOM and assembly costs, there is not much margin for a standalone LiDAR company to share with a Tier 1. The answer, of course, is to become a Tier 1 and keep more of the money. Figure 2 below summarizes the financial impact:
Figure 2: The Financial Rewards of Becoming a Tier 1
Making money is essential, but achieving Tier 1 status also creates opportunities for access and direct interaction with the OEM’s R&D, purchasing and senior executive teams. It accelerates learning and innovation for the next series of products (hardware and software) and an easier penetration to other major OEMs in the future.
The Impact on the Automotive Industry
For OEMs, this is good news. Relying on traditional Tier 1 suppliers for non-commodity and high technology products like LiDAR (when Tier 1’s depend on Tier 2 companies to develop these products) is complex, opaque and expensive. It becomes even more apparent when software integration is critical for areas like perception and autonomy. A direct relationship with the product and IP owner is beneficial.
For traditional Tier 1 suppliers, a new entry into the club means more competition and pressure to invest in R&D and product development in areas like optics that are not traditionally their sweet spot. Companies like Valeo are in a good position – they are essentially the only Tier 1 supplier today that has invested in and internally developed their LiDAR and perception software products. One path for other traditional Tier 1’s is to acquire stand-alone LiDAR companies, a development likely to occur as the LiDAR ecosystem shrinks from > 70 independent companies today to < 10 in the future.
Implications for Other Independent LiDAR Companies
They need to seriously consider becoming a Tier 1 supplier or being acquired by one. The first option entails substantial investments in concurrent product and manufacturing infrastructure design and requires commitment and a culture change; the latter is an issue of valuation and return on venture investments. A third option is to integrate vertically and control all elements of the BOM (including the optical semiconductors), eliminating margin stacking with suppliers. A few LiDAR companies (especially those using silicon photonics for coherent 1550 nm LiDAR) are pursuing this option. The remaining companies are or will partner with Tier 1 suppliers for product manufacture, qualification and integration into OEM platforms. But this dilutes their margins substantially, and the competitive disadvantage is guaranteed to translate into price pressures and strain their income statements.
It will be interesting to see how this evolution plays out. Stay tuned!
