Innoviz Achieves Major LiDAR Victory with Dominant Automotive OEM – as Tier 1 Supplier
Innoviz ensured high volume production win in 2018 for the InnovizOne LiDAR with BMW for its project L3 function (L3 indicates conditional range – where a human driver can fully disengage under specific geographic, road, traffic, speed and weather conditions). L3 capability is expected to launch in 2023 in iX and 7 series models. InnovizOne is the first generation product manufactured and integrated by Magna, a Tier 1 automotive OEM. It offers 120m range (@10% reflectivity ) and 3M PPS (dots/second), consumes 17W of power and occupies a volume of approximately 500 cm³.
Innoviz’s next-generation product (InnovizTwo) essentially retains the volume and power consumption of InnovizOne but offers significantly better performance (200m range and 10M PPS – see Figure 1). A significant business structure is also at stake with InnovizTwo. Innoviz has announced that it will be the automotive Tier 1 supplier for this product for one of the largest passenger car suppliers in the world – the Volkswagen Group. The group includes brands such as Volkswagen, Audi, Porsche, Skoda, Seat, Lamborghini, Man Trucks, Scania and others. Cariad (a wholly-owned subsidiary of Volkswagen focused on automotive software and autonomy for the VW car line) runs the program. It is a revolutionary development. Innoviz’s move from a Tier 2 supplier to a Tier 1 supplier is a substantial disruption to an industry where automakers tend to trust only the 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 over the past decade (mostly focused on electric vehicles), the number of Tier 1 suppliers has remained stagnant given difficulties in establishing relationships with OEMs, capital investments substantial and relatively low financial returns.
How did Innoviz manage to become a Tier 1 automotive supplier?
Innoviz has accumulated significant knowledge and capabilities on the critical manufacturing, operations, quality, and supply chain aspects of delivering a safety-critical product in a high-volume automotive application. during the transition from InnovizOne to its Tier 1 supplier. The experience was leveraged in the design of InnovizTwo in which the product design, production tooling and test infrastructure were developed simultaneously . As a result, all quality, scalability, supply chain and cost considerations have been built into the product from the prototyping stage. The BOM (Bill of Materials) has fewer parts. It also leverages integrated semiconductor optics, resulting in significantly lower material costs and assembly times than the first generation InnovizOne. Series manufacturing began at a specialist automotive supplier based in Germany (Innoviz provided all process recipes, production tooling and test equipment). Acceptance as a Tier 1 supplier was difficult and required patience, resilience and conviction. According to Omer Keilaf, CEO of Innoviz: “The automotive industry is highly dependent on the ability of direct suppliers to deliver critical components on time and at the right quality, reliability and cost. We have gone through a lengthy process of due diligence and multiple audits, which has finally allowed to be selected as a Tier 1 supplier. We are delighted with the market acceptance of our new position and are expanding our direct relationship with several other OEMs.”
Why did Innoviz decide to become a Tier 1 supplier?
Margin and profits! Automotive products must be offered at aggressive prices for OEMs in order to make their offer (L3 functionality) attractive to the end consumer. As pointed out in a previous article, Daimler is offering L3 capability on the Mercedes S-Class for $5,000. LiDAR pricing needs to be around $300-500/unit to enable this and support the migration of this autonomy to cheaper cars (assuming only one forward-facing LiDAR per car for L3). After factoring in BOM and assembly costs, there isn’t much headroom for a standalone LiDAR enterprise to share with a Tier 1. The answer, of course, is to become a Tier 1 and retain more of the money. Figure 2 below summarizes the financial impact:
Earning money is essential, but achieving Tier 1 status also creates opportunities for access and direct interaction with OEM R&D, purchasing and management teams. It accelerates learning and innovation for the next series of products (hardware and software) and easier penetration with other major OEMs in the future.
The impact on the automotive industry
For OEMs, this is good news. Relying on traditional Tier 1 vendors for non-commodity, high-tech products like LiDAR (when Tier 1s rely on Tier 2 companies to develop these products) is complex, opaque, and expensive. This becomes even more apparent when software integration is essential for areas such as perception and autonomy. A direct relationship with the product and intellectual property 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 have not traditionally been their sweet spot. Companies like Valeo are in a good position – they are essentially the only Tier 1 vendor today that has invested and developed their LiDAR and perception software products in-house. One path for other traditional Tier 1s is to acquire standalone LiDAR companies, a development likely to occur as the LiDAR ecosystem grows from >70 independent companies today to
Implications for other independent LiDAR companies
They should seriously consider becoming a Tier 1 supplier or being acquired by a supplier. The first option involves substantial investments in concurrent product design and manufacturing infrastructure and requires commitment and culture change; the latter is a matter of valuation and return on venture capital investments. A third option is to vertically integrate and control all BOM items (including optical semiconductors), eliminating markup stacking with suppliers. A few LiDAR companies (especially those using silicon photonics for coherent LiDAR at 1550 nm) are pursuing this option. The remaining companies are or will partner with Tier 1 suppliers for manufacturing, qualifying and integrating products into OEM platforms. But that drastically dilutes their margins and the competitive disadvantage is guaranteed to translate into pricing pressures and hurt their bottom line.
It will be interesting to see how this evolution unfolds. Stay tuned!