Introduction

Luminar (NASDAQ:LAZR) has demonstrated excellence in reporting its expectations for 2023 and beyond. As someone who has monitored all public Lidar companies, I must commend Luminar for setting the bar high regarding transparency and clarity. Nevertheless, it is essential to note that while I am impressed with the company’s efforts, I remain somewhat skeptical about feasibility, as numerous risks are involved. Still, I hope other companies will follow the example and embrace this format, as it represents a step towards a better understanding of lidar progression.

Now, I can see how the business is expected to evolve, its spending plans, cash position, and projected profitability. For investors, these are crucial accountabilities that measure the company’s execution and ability to deliver on its promises.

On the technology front, however, I am not as impressed. The most suitable lidar sensor for consumers vehicles is not a visible one. In my previous article, I discussed my lack of enthusiasm for Luminar’s rooftop installation approach. While I understand why this approach is being embraced, the company should try to advance the change already. Luminar appears to be committed to this format until 2030, which I think is too long and could leave the company behind competitors.

The Iris Plus sensor is expected to have a 20% reduction in form factor. The company has also announced changes in specifications, promising better resolution and a longer distance range than its predecessor. Unfortunately, the company has not provided more details on these improvements. The utterly new prototype is set to be built in 2023, and the technology used will likely be a hybrid version of MEMS technology, which Luminar has used in Iris.

The rendered images suggest that the sensor will measure approximately one-third of the current sensor’s width at 9cm. In contrast, the Chinese company RoboSense offers the RS-Lidar-M1, a MEMS hybrid sensor approximately 11cm wide. Given Luminar’s interest in the Chinese market, the eight-year development timeline may leave Luminar lagging behind the competition, which includes InnovizTwo, already available in the B sample.

The timeline for Iris Plus has been set for production in 2025, while the new concept sensor is expected to reach SOP in 2030. The company has partnered with Celestica (CLS) and Fabrinet (FN) for production facilities in Mexico and Thailand. The plant in Mexico will be ready to produce no fewer than 250,000 sensors by the end of the year, with the ability to scale up to as many as 500,000 per year.

Financial Plan

Luminar plans to install sensors on 20 models, which is expected to increase revenue by 32 times over the next five years. The company anticipates generating $1.28B in revenue by 2027, up from $40M in 2022. For 2030, the company is estimating $5B.

The company exited 2022 with $489M in cash. The cash line was reduced by $308M, and the net cash used in operating activities was $208M. Luminar has estimated its cash to be $300M by the end of 2023.

On the revenue front, the 2023 estimate sees $80M or 100% growth from 2022, with positive margin expectations for the first time in Q4 2023—a massive improvement from the gross margin in 2022, which was a negative 235%. Then the order book would grow by $1B in 2023.

The slide below describes the revenue generation potential and the cost influence. The revenue beyond units comes from software, not just one managing the sensor, but the suite managing other aspects of the sensor’s data collection. There is also net insurance profit added per sensor. The expansion in that category is something which I find odd for a technology company. Still, the wholesome approach to the mission and how Luminar looks at its role make it part of a package.

Based on the modeling of $1B in revenue and 1 million vehicles, the implied revenue potential is $1000 per sensor. By 2030 the exact pricing mechanism will drive $5B based on 5 million installations.

Initially, the average selling price seems high for six years, while the idea of ​​Lidar being ubiquitous requires constant ASP reduction. The company explains in the follow-up slide that the later date rate combines sensor and base software support plus other contributors, implying that revenue per sensor alone will be much lower, complying with expectations of ASP and COGS reduction.

My first concern is the gross margin rate of 35%; in the automotive world it is unheard of to have such a rate for any of the parts, including sensors. I understand that Lidar has a limited history of installations, and some things may indicate this as possible, but I am cautious.

Secondly, collecting $1000 by including additional services costing $350 per installation now drives the margin to 65%, making it even more challenging. Of course, those are predictions, and I am sure the company has set targets for producing new sensors to drive them. I also understand that software revenue can have high margins based on initial development costs and then flatlining afterwards. The net insurance revenue has to be considered as an add-on. Still, the number is very high, facing additional risk in delivery.

Moving on to the specific slide describing the profitability road map, it explains expectations relatively well. However, I check those expectations using the slide explaining scalable OPEX and Capex.

I aim to determine if the company needs to seek cash, even though the slide states it has a sufficient amount.

The table here shows a summary of those activities. I have used $221M of cash to grow by 20% to $265M. Using a gross margin of 35% in 2024, I am adding $75M of equity issuance. The company indicated by the year-end of 2025 to break even. My understanding is that by 2026, the gross margin must already reach 60% for that year to deliver it. In 2025 I am adding $125M of equity issuance to run a $50M cash positive; by 2027, the company will be profitable and self-sufficient. The timelines are my assumptions, but I do not see Luminar achieving its profitability path without a $185M equity offering unless targets are missed and need more cash or improved, which I see as challenging.

Conclusion

Based on my analysis, I believe that in addition to the $75M equity sale already announced, the company may need another $110M offering as long as revenue and margins remain as forecast. Those two, revenue and margins, are critical, and both are just estimates based on order book predictions and manufacturing efficiency. Any deviation from those targets, profitability and cash runway could be further at risk.

I do not find the sale of the equity to be an issue. Even if the equity is sold at $8, just 23M new shares would be needed, representing less than a 7% dilution given the current 370M outstanding shares. It’s important to note that the convertible issue must be addressed in 2026, and it would influence the company’s valuation in a year of critical execution.

At its current market cap of $3.1B, Luminar appears to be fully valued. However, if we assume a ten times revenue multiple in 2027, the company’s market cap potential could reach $12.8B. That potential is quite appealing, with 400M shares (without conversion) offering $33 per share. However, I see the path to profitability as uncertain enough to cloud this expectation. Considering that plan has apparent targets, and if my analysis is accurate, new equity will be sold, the patience of watching it from the sidelines is probably the best approach if one does not own LAZR stock. Otherwise, my rating suggestion is to hold until timelines and expectations become facts, and hopefully, the predictions will not miss the targets.