Q2 2023 Luminar Technologies Inc Earnings Call
Participants
Aileen Smith
Austin Russell; Founder, Chairperson, CEO & President; Luminar Technologies, Inc.
Thomas J. Fennimore; CFO; Luminar Technologies, Inc.
Itay Michaeli; Director & Global Head of Autos Sector; Citigroup Inc., Research Division
Joseph Cardoso
Joshua Louis Buchalter; VP; TD Cowen, Research Division
Kevin Garrigan; Research Analyst; WestPark Capital, Inc., Research Division
Mark John Lipacis; MD & Senior Equity Research Analyst; Jefferies LLC, Research Division
Yan Dong; Research Associate; Deutsche Bank AG, Research Division
Presentation
Aileen Smith
To Luminar's Second Quarter of 2023 Business Update Call. My name is Aileen Smith, and I am Luminar's Head of Investor Relations. With me today are Austin Russell, Founder and Chief Executive Officer; and Tom Fennimore, Chief Financial Officer.
As a quick reminder, this call is being recorded, and you can find the earnings release and slides that accompany this call at investors.luminartech.com. In a moment, you'll hear brief remarks from Austin and Tom, followed by questions posed to the Safe platform and then live questions from the analyst community. As with last quarter, we've extended the submission window for questions submitted VSA through the end of our call, should there be any that are upvoted during our call. Before we begin the prepared remarks and Q&A, let me remind everyone that during the call, we may refer to GAAP and non-GAAP financial measures. Today's discussion also contains forward-looking statements based on the environment as we currently see it, and as such, does include risks and uncertainties. Please refer to our press release and business update presentation for more information on the specific risk factors that could cause actual results to differ materially.
With that, I'd like to introduce Luminar's Founder and CEO, Austin Russell.
Austin Russell
Hi, everyone, and thanks, Aileen. So welcome, everyone, to our quarterly business update for the second quarter of 2023. So today, we are actually live from our new Princeton, New Jersey office after Ford's Argo AI, LiDAR team, formerly known as Princeton WhiteWave decided to join us. As you probably know, we already have some of the foremost global leaders and experts and specialized semiconductor designs for lasers, receivers and processing electronics with our new entity that we formed Luminar Semiconductor Inc. And the team here is definitely excited to be able to partner with them to help advance and accelerate our chip roadmap holistically. So jumping right in, but it could be good to share some slides for an update. So we'll do exactly that.
So first and foremost, for the second quarter, we're on track to be able to meet or beat all of our business and financial milestones for 2023. And that's despite a broader challenging macroeconomic backdrop, we've been able to successfully execute, advance our road map and attract some of the best leadership talent in the world to be able to drive for company at full speed ahead. So again, proud to be able to say the progress that we've made, and I'll touch on each of these different areas throughout the presentation before handing it off to Tom to talk more about the financials. But first, when it comes to industrialization, completing industrialization and scaling for a high volume is the key to being able to unlock additional exponential growth in our business. So we remain on schedule to meet the automaker requirements to achieve this high-volume starter production by the end of the year in the new high-volume facility in Monterrey, Mexico. So in Q2 specifically, went through rigorous validation for the facility, which is underway and currently going through other optimization cycles and preparations for this launch. So we expect to be able to achieve their acquired capacity to be able to support our global automakers for series production over the course of the next handful of months before the end the year and have that successfully demonstrated with them. So also in Q2, driven by rapidly growing demand for Luminar in Asia. TPK and Illumina announced a partnership for which [Shipcable] created an even higher volume factory for Luminar, which will primarily support vehicles delivered in China and the Asia Pacific region. So Luminar has become one of the only Western autonomous technology companies to be awarded substantive business in China, both domestically and from global OEMs and which just, again, another key attribution as to the prowess of the technology and the impact that we can be able to have at global scale.
So alongside this accelerating growth in Asia, I'm happy to announce that as of last week, TPK has decided to make an additional $10 million cash investment into Luminar stock with even greater conviction following their previous investment as they get to know the company even better. So next on -- when it comes to a product and technology road map for some of that for that milestone in that side of the business. But we remain on track to be able to meet our milestone and the key elements of that, including the C phase for Iris+ before year-end. And specifically, Iris+ began the validation and testing from its lead OEM customer in Q2 following the B-sample deliveries like one of the ones I just saw one around here for testing that I'm sure. I'll give a reference point. But we have a -- actually, even at Princeton, they're helping out with some of the validation process here, which is pretty cool. When it comes to our point cloud, they're looking great. We've begun data selection actually intestine already on the OEM-provided vehicle platforms that the lead surge production OEM for Iris+ has given us. And we've driven them now over 100,000 kilometers so far in terms of testing with more to come. And these initial results are very exciting and are critical for our customer software development program milestones. I'm excited to have this multibillion-dollar OEM program moving at full speed ahead.
Our target to complete our 2023 software deliver rules for both Volvo and Mercedes SOPs remain on track. And in Q2, we also reached a key software milestone for the Volvo program of becoming feature complete, so to say, for our software for them. And while on the topic, we wanted to make sure to also just get a chance to clear up some confusion that seemed to emerge like a few weeks ago regarding [Volvo] lead the launch timing and Luminar, which our timing is ultimately independent of the Volvo vehicle launch timing. So nothing has changed since Volvo's announcement back in May regarding the X90 launch timing for which we had mentioned at the time that we had already taken that into account previously when being able to provide guidance for our business growth and didn't have that embedded this year already. So like I said, we're in a good place. It's not something that was a surprise to us necessarily. But some seem to speculate and published articles more recently, the Luminar was the cause of this, but Volvo actually issued a statement directly since then, just to be able to clarify that and was basically saying that the adjusted time plan is connected at the initial time needed that they need for their software development, not related to Luminar. There's some work to do.
Ultimately, as when it comes to the production ramp, we were more excited as ever and Volvo as much conviction as ever in us to be able to see that successfully scaling with EX90 and beyond. And I think they're seeing, obviously, great success in terms of their preorders going far beyond the expectations of what they have. Volvo is an incredible partner of ours. They're not the only partner of ours, by any means. We have now over a dozen major commercial wins. And as we're saying, we're continuing to move full speed ahead as it relates to our timeline to be able to reach that SOP readiness to the high-volume facility by year-end. So looking forward to a successful launch and ramp of that as we really begin to start next year converting this multi-billion order book that we have into revenue and begin that process from the beginning and seeing that accelerate throughout 2021. So when it comes to next-generation LiDAR, we also mentioned that was one of the goals. We expect to have that product by year-end, and we believe that we have a few new breakthrough components to the technology that start with Luminar semiconductor and move their way all the way up through the stack, and ultimately, that's going to be the LiDAR that we see as having the opportunity to be standardized across the broader industry on every new vehicle produced ultimately. Obviously, you may recall our target market penetration by the end of the decade is only 3% to 4% because we think even with that, we'll be able to achieve around $5 billion in revenue and $2.5 billion EBITDA with as much as a $60 billion forward-looking order book at that point, even with just a relatively small amount of market penetration. But by the time we're done with this next-gen LiDAR, I think that there's ultimately a clear path of being able to take that to 100% at the end of the day.
So with these new safety improvements that we are able to deliver on cars as well as the autonomous capabilities, that makes all the difference to being able to make this successful. And we'll talk a little bit more about some of the regulatory tailwinds that we have that are fortunately in our favor later on. So combined with our other initiatives, I think that's how you ultimately are able to achieve the goal of becoming one of the great technology companies of our generation. But of course, we're picking it one step at a time in a measure of capacity and executing the plan. So lastly, when it comes to commercial success, we're on track to grow our forward-looking order book by at least $1 billion this year. We're continuing to execute across assigning new deals across hardware, software, AI, semiconductors this year as OEMs and our customers only further their conviction and [live] so exciting sum. Just taking a step forward and sharing a few highlights about some of the significant commercial progress on that note. First, starting with Polestar, this is now like the third vehicle model that consumers can out-order with Luminar equipped, this Polestar 3. So exciting that they're now making this available to consumers. And again, just showing further conviction and making that big step forward. So when it comes down to the revenue ramp from these contracted Polestar vehicles ultimately begin over the next 1.5 years as that converts into business and we start shipping at scale.
And as you take a look, one thing that I think is unique is that OEMs are really actively marketing Luminar as a key value proposition of the vehicle, the fact that it's equipped with Luminar. And you really take a look in these different vehicle programs and configurators and what they're showing to consumers. And there's really only 2 brands that become visible outside of the automaker brand. And that's us and oftentimes like a high-end audio system brand or manufacturer like Bowers & Wilkins, for example. So I think it's just really cool to see that for the first time, you have automakers that are proud to be able to have a breakthrough technology that's out on the vehicle because it is really something that's fundamentally differentiated than other commodities and something that has an opportunity to power the broader industry, more generally, it's very tech-forward fashion capacity. So point is Luminar being positioned as a premium feature. We could spend tens or hundreds of millions of dollars marketing our product to generate awareness, but we don't have to. Customers are doing it for us, best marketing comes from the customer. And at the end of the day, that's priceless. There we go.
And obviously, like I said, you're not really going to see that across the rest of the AV and LiDAR landscape, I think it's relatively unique to Luminar in terms of how meaningful that is. So we're going to go through each of these other 3 between Mobileye Nissan and Plus. In just a second, we have some dedicated slides for that. So first, Nissan, they've since recently unveiled some additional driver systems features as they have on the cars. So advanced intersection and collision avoidance is the latest addition that they have to the development stack with Luminar. And they've publicly stated now they plan to be able to introduce this with targeting with Luminar models by the mid-2020s and then ultimately, virtually every new vehicle model by 2030. We all know the size of Nissan and the impact that they can have on the industry when it comes to saving lives and then obviously, value for our business and their business. So they're very excited to be able to move full speed ahead. And like I said, it's great to be able to see them actually already taking begins the next level in terms of these advanced capabilities.
You can actually see on the graphic on the right, both the camera data of what it can show and then the Illumina LiDAR data in the background for what they're showing off of, how they can already see the motorcycle approaching to the distance at high speed for scenarios like, for example, running a red light that's very important for safety. Next up, we have Mobileye. So great to be able to see the progression that they've had and some recent major progress. So this goes back to 2020 when we were really engaging with them full speed ahead with the Luminar hydros coming back in the day on that and Mobileye's first-generation autonomous vehicle development. So I think that was at their Investor Day that they had. And then 2021, they started moving to the NEO platform, and then we're on a public display of Mobileye derive with Luminar. So that was exciting to be able to show that testing and development platform, so with Luminar and then showing the capabilities of what we can be able to do together. It's a very incredible progress and an incredible company in terms of what they've been able to do more generally. Obviously, they're strong leaders when it comes to a camera vision ADAS system more generally on cars. So that's something to be said when they partner with someone like us, obviously, on the LiDAR side. But exciting opportunity.
And now what we've seen is a lot of those routes of the labor start to be deployed with automakers, one of which they actually now just announced and as an OEM being able to adopt the Mobileye drive system. And of course, that's something that is featuring Luminar out of the car. So that's a very recent deployment they're just doing in the U.S. and this one was in Austin, Texas. So yes, gives a reference point. And I think this is where you see these incredible companies like Mobileye and NVIDIA that we have these special partnerships with that as we collaborate successfully with them and develop our programs with them and they build their software on top of our LiDAR and data and collaborate with us on in some cases, with our software as well. Those wins start to manifest itself across the rest of the landscape where it's also not just us working with OEMs, but then collaborating with OEMs that pushing us into different products and solutions. So they own a huge part of the landscape. So also recent Q2 development was Luminar and Plus. So we've successfully partnered with Plus and became their exclusive provider of LiDAR for Plus Drive, which is their factory-installed assisted driving system for commercial trucks. So in addition to that, we are also collaborating on this AI-assisted driving software for commercial trucking OEMs. So this is something that is an exciting opportunity for us together to be able to do from not just a hardware standpoint with them, but then also the software. So again, it's a scenario where we get to -- as we expand our horizons and really get into commercial trucking even more, which you see as a key emerging market for Luminar. You get to displace some of the other legacy LiDAR systems and actually get on these kinds of trucks with exciting new technology platform.
So Plus and Luminar are also going to be collaborating across the board for and targeting for some of the other areas in the Luminar business include everything from market insurance to [HE] mapping to [unibased] integration. So it will be great. And I think one thing that's meaningful with Plus and you can look this up, but one thing that attracted us to them, which you may have not have heard of them before, but even though they're on the smaller company in terms of size of those companies, they're working with some of the largest logistics companies in the world. And that was really what we saw as a key opportunity and channel to be able to get in some of the largest truck OEMs and logistics companies successfully with our technology and be able to scale accordingly. And it's because public like the Amazon to this world that are able to make that happen with Plus. So very exciting opportunity. So when it comes to the regulatory side and landscape, there's actually some really interesting stuff is that , whereas a lot of the autonomous vehicle landscape is facing regulatory headwinds, we actually have a lot of regulatory tailwinds in our favor. And really what this means is that the challenges and hurdles that are put up for autonomous vehicle generally come down to when you start ripping out the steering wheel systems and braking systems and other things in vehicles where you have to be able to get specialized extensive permitting and registration. And there's like really no regulatory framework to be able to allow that yet. When it comes to getting better safety or even enabling autonomy on existing production vehicles or production vehicle programs, there's a much, much better regulatory framework. And not only that, it's gone from like will regulators even allow it for full autonomous vehicles and robo taxis and robo trucks to now regulators are starting to require these kinds of capabilities for better safety. And this is where our big bet on proactive safety is really starting to pay off as automakers rapidly adopt it.
And then, of course, you have the regulators that want to be able to also help save additional lives out in the world in the landscape for a good cause that we stay on for. So that includes mandating. And again, this is not something just to get a 5-star rating on a car. This is literally mandated like every car must have this automatic emergency braking at higher speeds and pedestrian automatic emergency braking at night to be able to detect it while also discouraging and increasing the requirements around [those] positives. So that really helps push OEMs to be able to adopt Luminar LiDAR. And it's already started publishing draft regulation to be able to work at these higher speeds. So yes, I think you get them just a bit and some funny headlines around breaking that, which is absolutely true. AEV is absent when you need it most. It couldn't be more relevant. So we're doing play of our own research and studies around this and like benchmark studies that I think we'll have more to talk about in the future. So ultimately, all of this work when it comes to more advanced safety and highway autonomy capabilities is powered in some way, shape or form, not just by the alumina or hardware, but by AI as well. And this is where -- since 2017, we've been developing what we call the Luminar AI engine, where we aggregated this all together now between input, our AI engine output across products from proactive safety and highway autonomy to mapping localization to perception and detection. And I would highlight, by the way, just a shout-out to the mapping team for the first development deal with an OEM on that front. So that's an exciting one. And really, all of this comes back down to what we can do. So we don't need to hash through all the details here around what we're doing. But again, this is a huge investment led by CJ Moore, who's previously was a longtime Director of Autopilot over at Tesla and directed many of the autonomous systems worked at Apple. So it's great stuff going on.
And then as you may recall, we also partnered with Scale AI earlier this year exclusively. So we're actually the only ones that have access to Scale's technology of all the Lynore companies as a result of that partnership. And this is something that has proved hugely beneficial and meaningful to us. They've consistently delivered on the key actions and deliverables for what we need to be able to further enhance our AI engine and be able to provide these products and capabilities to our various customers. So yes, it's all powered by the data, and we're making it happen together with our customers something citing still. One other area that I think is lesser known that we wanted to be able to take an opportunity to highlight when it comes to Luminar Semiconductor Inc. Again, another area that we made early bets on, that's really starting to pay off in full swing now. We have a host of different new chips in ASICs that we developed in our launching across Q2 and Q3. And again, this is something that we strategically vertically integrated in-house working in acquiring some of the best and most specialized companies in the world when it comes to these different components for the design, ones that we've historically worked with and collaborated with for years to be able to make this happen. And for example, with Black Force Engineering that was back in 2017, OptoGration was a couple of years ago, Freedom Photonics was last year. But we since aggregated this all into Luminar Semiconductor. We've successfully taped out new chips for each of the different core components, this to further enhance performance, reduce cost and for both our current generation as well as future generations of LiDAR.
So we're continuing to upgrade things at the chip level. This is an incredible breakthrough new results from the laser chips that we have. You can actually see the tape-out laser chip itself in terms of the annum phosphide chip as well as the silicon laser driver that we've tapped out for this successfully is our [inungallium] arsenide photoinjector for the receiver chip, and this is already, again, this stuff is like validated and integrated into Iris as well as the processor ships. We have our fourth-gen and fifth-gen signal processing chips that are already – the fourth is already validated integrated Iris. The fifth generation [bioprocessing] chip is now developed and undergoing validation and testing. So what's cool, though, is that with this model and as we have the supposed to breakthrough semiconductor technologies that serves as a core innovation engine for Luminar, we're actually able to get a lot of interest for these same chips and technologies from other industries as well, including, for example, in the aerospace, we actually just received handful weeks back the NASA TippingPoint award for development of our breakthrough laser technology. So a very exciting one, and we're privileged to be able to have one that alongside other major companies like the Blue Origins and [Blockheeds] of this world in the aerospace industry. We were recently awarded a contract for a multiyear supply agreement for Luminar photodetectors for a major leader in fiber optic solutions as well as receiving our first volume order for Luminar's laser technology on the actual optical communications between actually for AI GPU servers. So that's something that for AI data centers can actually be massively impactful as the demand for that accelerates significantly. So is it becoming also a fantastic innovation and growth engine for Luminar more generally as we're vertically integrated. So just taking an opportunity to highlight some of the recent developments here that as this accelerates rapidly.
So thank you, everyone, for taking a look at that and some of the different major milestones that we met along the way. But in terms of the core company-level business milestones, we want to have an opportunity for Tom to be able to take you through the details of this and a little bit more about our financials for this quarter and guidance. So with that, I will hand it off to Tom here.
Thomas J. Fennimore
All right. Thank you, Austin. I'm going to start by reviewing our progress towards our 3 key 2023 milestones. And I know Austin has already talked about these points earlier. The first one is to successfully scale. As we talked earlier, we brought our new high-volume automated manufacturing facility in Mexico online in Q1 ahead of schedule. And we're now working towards completing our production validation testing at increasing volume rates to basically optimize our high-volume series production process. We remain on track to complete these steps and achieve high-volume SOP readiness by the end of the year. Our second milestone is to continue to execute our product and technology roadmap. In particular, we're going to enter the C phase for Iris+ by the end of the year, build our next-generation LiDAR prototype and complete our software deliverables to support Volvo and Mercedes SOPs. We remain on track to achieve all 3 elements of this milestone by the end of the year. And Austin highlighted some of the developments we achieved during the quarter towards this end. Our third milestone is to grow our forward-looking order book by at least $1 billion. We have already experienced growth in our order book this year from both new business awards from existing customers as well as a couple of new customer wins from companies who have decided to upgrade their legacy LiDAR to Luminar's LiDAR on their next-generation systems. Our recent strategic partnership with Plus is a good example of this upgrade trend. We are also signing deals with our customers across all our major product lines, hardware, software AI and semiconductors. We remain on track to achieve this milestone for the year.
Now let's review some of our financial results for the quarter. Revenue for the quarter was $16.2 million, up 63% year-over-year and in line with analyst expectations. Our Autonomy Solutions segment was the biggest contributor to our year-over-year revenue growth more than doubling. For the quarter, we reported a gross loss of $18.3 million on a GAAP basis and $16.2 million on a non-GAAP basis. During the quarter, we also reported GAAP EPS of negative $0.37 and negative $0.21 on a non-GAAP basis. This marked a sequential improvement from Q1 and came in better than our guidance and analyst expectations. A few more details on our second quarter COGS and gross margin. During the quarter, we incurred approximately $24 million of launch-related expenses. Approximately 25% of these charges were from contractor expenses to get our suppliers and contract manufacturer partners up and running. And the remaining 75% was from other laundry-related expenses such as contract manufacturer fixed absorption charges as we ramp up volume and inventory write-offs for product enhancements and production validation and testing. These launch-related expenses were somewhat higher than Q1 as we continue to improve our manufacturing process and product quality at higher production rates. But as we communicate, we expect these launch costs to significantly decline in the second half as we successfully approach high-volume SOP readiness by the end of the year. We remain on track to achieve positive gross margin on a non-GAAP basis in Q4 as we anticipate these launch-related expenses to significantly decline. Our Q2 free cash flow, as measured by operating cash flow less CapEx, was negative $78.5 million, consistent with our commentary that Q2 would look similar to the Q1 free cash flow number of $76 million negative.
A few more details on our Q2 free cash flow. In addition to the $24 million of launch-related expenses I discussed earlier, our Q2 free cash flow also included a $13 million working capital investment during the quarter as we prepare for our high-volume series production. Then our business and new facility ramps up and launch costs ramp down, we expect a significant improvement in our free cash flow spend rate by the end of the year. While we still have some wood to chop to reach our free cash flow exit rate for the year, we remain confident in our ability to achieve this target of improving our free cash flow run rate by approximately 50% by year-end relative to our Q1 and Q2 levels. We are seeing early signs of free cash flow improvement in Q3 so far. During Q2, we received a $10 million investment from TPK reinforcing our recent partnership and TPK informed us last week that they plan to execute the additional $10 million option they have in the next few days. During the quarter, we also raised $7 million from our strategic M&A equity program to backfill some smaller strategic activity earlier this year. In connection with our recent Plus strategic collaboration, we agreed to a $10 million mutual equity swap to reinforce the partnership. In the coming days, we plan to file a registration statement to register the shares we expect to issue to Plus as part of this strategic equity swap. We ended the quarter with $366 million in cash and marketable securities, which makes us one of the best-capitalized LiDAR companies. This quarter-end cash balance includes the $10 million we expect to receive from TPK exercising its option last week.
We are reaffirming our full-year 2023 financial guidance. Specifically, we expect to grow revenue at least 100% this year, achieved positive quarterly non-GAAP gross margin by year-end and then the year with leased $300 million in cash liquidity and a share count in the $395 million to $400 million range. For the quarter, we expect to be in the range of $18 million to $21 million of revenue and our EPS loss to be in the range of $0.18 to $0.22. That's what we expect for the third quarter, this upcoming one. We expect revenue growth to accelerate in Q4 as our new high-value manufacturing facility comes online in higher volume, and we expect a couple of new customer contracts to be executed that we're currently finalizing. Our team continually evaluates opportunities to optimize our manufacturing cost and process. As we are bringing our manufacturing facility in Mexico online at higher volumes, our team has identified a meaningful cost improvement opportunity by outsourcing the production of certain subassemblies and components originally planned to be made in this New Mexico facility to other women our supplier partners. We expect this change to meaningfully reduce our per-sensor manufacturing cost as well as the required manufacturing floor space requirements and automation equipment at our Mexico facility. Following Q2, our team finalized and committed to a plan to proceed with this cost savings opportunity. As a result, we are in the process of evaluating the exact financial and accounting impact of this action. But based upon our preliminary analysis, we expect to incur a noncash charge in the range of $10 million to $20 million in the second half of this year.
Before I hand it over to Aileen for Q&A, I wanted to reinforce one important point. Based upon our current year-end guidance, we expect to end the year with approximately $300 million in cash and liquidity and an exit free cash flow spend rate roughly half of our Q1, Q2 level. This year-end cash balance and improved exit free cash flow spend rate would imply 2 years of runway enough to get us to our target of breakeven by 2025 year-end. In addition, we expect our free cash flow spend rate to improve even further from the year-end levels once we reach Volvo SOP in 2024. To conclude, I would like to thank once again the broader Luminar team for another solid quarter and the great operational progress. With that, we'll hand it over to Aileen for Q&A.
Question and Answer Session
Aileen Smith
Fantastic. Thanks, Tom. We're going to start the Q&A with some of the questions that we received on the Save platform, and then we're going to move on to the analyst questions. Our first question is, are there any specific patents that protect Luminar and shareholders from Copycat technologies? For example, what makes a large automaker like Volvo partner with Luminar or prevents another large automaker from creating their own LiDAR technology?
Austin Russell
Yes. So state when it comes to the IP, this is one of the, I'd say, most significantly deep IP companies out there when it comes to advanced technologies. But this is not to say that people haven't tried. People, of course, in large companies, Tier 1s, startups, major tech companies, of course, have all tried and develop these kinds of brighter systems and technologies, but part of the whole point of where Luminar differentiate itself and one out this battle is by having, what, a decade worth of working back and experience by working from the chip level up to build these different kinds of technologies and having it all come together to successfully create a system-level solution. From a protection standpoint, I say we have about a larger U.S. patent portfolio than any other company or kind of course. But the reality is that there's a reason why there's no knockoffs of NVIDIA or Mobileye or some of our other semiconductor partners, for example, like across the rest of the landscape in the world just because there's a lot of fundamental differentiation and core technology that goes into it. So I think we put ourselves in that category and camp. And that's where you take a look at like every major automaker they've had previously had lighter development efforts. I think effectively, all of them. I actually don't know if a single one is remaining. I think they're pretty much all shut down in favor of working with a company like Luminar. So again, we want to be very collaborative partners to everybody, and it certainly makes the most sense to be able to work with a partner like us, and that's exactly what [Vetorial] landscape is starting to do.
Aileen Smith
Our second question, can you provide us with more insight into Luminar's software business and how it may outpace the company's hardware business in the future?
Thomas J. Fennimore
Sure. We talked about during the prepared remarks the progress that the software team has made in providing the software necessary to launch the initial business with our customers. But not only is there execution progress, but there's also commercial progress. Austin mentioned during the call, we signed our first mapping development contract for the major OEM. As some of you may recall, last year, we acquired a 3D mapping company, Civil Map. So we're starting to see some early bearing fruit from that acquisition. In addition, the...
Austin Russell
Which is funny because people are like, "No way Luminar is ever going to win. How are they going to do that?"
Thomas J. Fennimore
The Plus strategic collaboration not only does that include an exclusive supply agreement on the LiDAR side, but also a partnership to market and help industrialize plus the software package to select trucking customers, and there's a revenue sharing element to that. And in addition, there's also a collaboration to explore some of the other products we have, such as mapping and insurance. And so we've made a good execution progress on the software side this year as well as commercial progress.
Operator
Great. Our next question, which we received a couple of times. When do you expect Luminar to be profitable?
Thomas J. Fennimore
Nothing's changed from what we discussed at Luminar Day or later this year. By the end of this year, we expect to be gross margin positive by the end of next year, profitable in our core business and by the end of '25, reach the company breakeven point.
Austin Russell
We're on track to be able to do all of this.
Aileen Smith
Great. Next question. How is Luminar performing against competitors like Innoviz, do the recent commercial wins with BMW and Volkswagen concern you?
Thomas J. Fennimore
Yes. So look, we take all of our competition seriously, and we never underestimate anybody. But I wouldn't say that we're overly concerned about any competitor at Luminar. In fact, I think what we're seeing in the RFQ process is really a narrowing of the LiDAR companies that the OEMs are seriously considering. The industry is in a much different position than it was 2 to 3 years ago. I think OEMs are smarter about the balance sheet and excluding companies that don't have enough cash to survive for the foreseeable future and get through a development phase. But there are also -- if you're a lighter company, and at this point, you haven't successfully industrialized your product, where we have multiple wins with customers. I think that raises a lot of yellow and in some cases, red flags with our OEMs. And so we're seeing the crowd that the OEMs seriously consider significantly be reduced. And look, our strategy at this initial phase was to be very targeted in the OEMs that we want to work with. A lot of times the business we win.
It's outside of an RFQ process and one-off because there is certain vehicle functionality that only our LiDAR can enable. There are certain other vehicle functionality, whether it's a modest improvement in ADAS systems or low-speed functionality where, quite frankly, you don't necessarily need our LiDAR. And so those RFQ processes we deprioritize them and other LiDAR companies ultimately be successful. Our longer-term strategy is to really win as many customers as we can in the industry. And that's going to be through the upgrading of the LiDAR technology and the vehicle functionality. And as I mentioned earlier in the call, we're starting to see early signs of customers upgrading LiDAR selections they made in the past to our LiDAR in the next-generation vehicles. So look, we always take our competition seriously. We got to go out there and improve ourselves on a daily basis. We've got to continue to make our products better, smaller, cheaper and address our customer needs. But we see, I would say, the competitive dynamics continue to shift in our favor.
Austin Russell
And I'd say more generally there. By the way, sometimes people think of these competitive dynamics is like necessarily a bad in. I mean, obviously, -- so we're in a strong – and are continuing to get more major commercial wins than everyone else in the industry combined when it is to like AV and life companies from a partnership perspective more holistically. But we're not claiming to -- if we try to literally work with every major company on the planet all at the same time that would never work either. So you got to place your bets. I think it's actually a good thing for the industry. Ultimately, like when people are successful, sometimes people are negative a lot of us, but it's great. Now the question you obviously have to deliver on that. And I think that's where obviously Luminar continues to stand out that we do what we say.
Aileen Smith
Our final question before we move on to the analysts, is there any discussion or possibility of department defense applications of Luminar's products?
Austin Russell
Yes, absolutely. And I think that you can already see -- and I wouldn't even necessarily comment on anything specific there. But when you look at these different adjacent market types of applications like the stuff we've seen for contracts that we've already been awarded or working with different agencies like what was brought up with NASA, for example, it's very exciting to be able to for the semiconductor level, all the way up to the top. Anything else you want to add?
Thomas J. Fennimore
And look, I think we're always going to be very thoughtful in how we approach the adjacent markets, particularly with military applications. But what I would say, the vast majority of the resources at Luminar in the near term are going to be focused on the passenger vehicle and commercial trucking markets.
Austin Russell
Yes, just to be clear, all of our products are always built for series production consumer vehicles and trucking, to the extent that there's applications they're on now from the breakthrough technologies that we create in haste, like that's full steam ahead. That's the thing that's going to turn Luminar into the $1 trillion company at the end of the day. So we're not losing announced focus on that.
Aileen Smith
All right. Thanks so much to everyone who's submitted to say questions. We're continuing to use that as a platform to increase shareholder engagement. With that, let's transition to our analyst questions. (Operator Instructions) And with that, we're going to start our analyst questions with Samik Chatterjee at JPMorgan.
Joseph Cardoso
This is Joe Cardoso on for Samik Chatterjee. My first one is just can you elaborate on the comments in the slide deck around signing agreements with multiple new customers to upgrade legacy LiDAR solutions to Luminar's next-gen? What are the key drivers of these competitive takeouts? Do these takeouts include both hardware and software? And then maybe can you just touch on how material relative to volumes these takeouts are? And then I have a follow-up.
Thomas J. Fennimore
Sure. As I said in my prepared remarks, there's been a couple of instances so far this year where we brought in new customers that are specifically upgrading their legacy for their next generation, and we use Plus as an example of that. I would say... Yes, Mercedes was another example in the past. I think that's a trend that we were expecting, and we're actually starting to see it accelerate not only with some of the recent wins, but some of the discussions that we're having, it typically starts with the hardware. I would say the hardware is typically our lead entry into the customers. And then once we get in, as you can imagine, we look to grow the products and services that we provide those customers over time. Look, we really haven't gotten any details of what those volumes are going to look like. We're confident that they're going to be material and grow over time as we continue to get in there and execute and get more business and sell more products and services. But it has had a positive on our impact on our order book, so part of this year.
Joseph Cardoso
And then my second question is more for you, and it's around cash burn. How much of the cash burn reduction by 4Q will be driven from better gross profit outcomes as opposed to lower OpEx?
Thomas J. Fennimore
Yes. Look, I think you can look at the -- there's a few different levels in there. I think it's not only the COGS improvements and then you can see what our gross loss was this quarter getting the profit back into an improvement from there. There are going to be some OpEx improvements. But the other levels are going to be the CapEx and the working capital investments. So during Q2, we had $13 million of cash additional cash needs relative to Q1 just because as you're launching these new products and these new facilities, you have to invest in those in net working capital to get prepared for higher volume production. And so it's going to be a combination of all 3 of those things, call it, COGS improvements, OpEx improvements and then what I would say, CapEx and working capital other improvements as you get to this SOP readiness and work through some of these launch-related costs and investments you need to make.
Aileen Smith
Our next question will come from Mark Lipacis at Jefferies.
Thomas J. Fennimore
Mark, you there?
Mark John Lipacis
Yes. Sorry about that. Tom, you're talking about the order book on track. Can you give us a sense of where that is today? Should we think about that linearly through the year? Or is that going to be mostly in the fourth quarter?
Thomas J. Fennimore
Yes. Look, it's a step function increase with each piece of new business you win. It doesn't grow in early or graduate through the year. It increases once we have a new business win. We calculate it once a year, that's the pattern we've gotten into. We don't want to get into the habit of disclosing, like, "Oh, the order book increased by this amount for each new piece of business." I think that there's a little sensitivity around the customers with each of that. Look, we've had order book growth so far. It's been healthy. I wanted to say we're at the $1 billion-plus that we promised, but we remain confident by what we've won so far and what we expect to win based upon the active discussions that we have that we're going to be at that $1 billion-plus number by the end of the year.
Austin Russell
Those are the target.
Mark John Lipacis
Understood. And a follow-up if I may. On the software side, how far do you ultimately hope to go on the software side? Would you expect to -- it seems like some of the challenges are with software from your customers. It's a new technology and getting it integrated, I can completely understand the challenges associated with that. So in your view, do you have like a hard line, we're going to stop here and then a customer picks up the ball here? Or do you ultimately say we're going to do everything and make it just a completely plug-and-play for your customer?
Thomas J. Fennimore
And look, I think ultimately, it's going to vary in our interaction with each customer. And like a lot of things in life, you got to probably for you can log and before you can run. And so there's the perception software which is going to be, I would say, something that we expect to be a fair amount of interest in there. That's something that I think our team continues to make great progress on. And then once you have the perception software, you have what we call the full stack, where you have to do the sensor fusion and then ultimately, the decision-making and path planning. Some OEMs are doing it themselves. Some OEMs are relying on third-party partners, whether it's like an NVIDIA or a Mobileye or a Qualcomm, all of whom we're aligned with. Look, I think, Mark, you've seen some of the news not only by our customers (inaudible) we came out last week with a delay in their LT system and the software-related upon this. And the software here is always going to be challenging, and we're going to work with our OEM partners in different ways to make sure that ultimately the software does what it needs to do to fully unlock the capabilities of our LiDAR. Software usually ends up as harder than what people think. But I would say actually, one interesting data point is that, yes, the majority of our customers and partners are already using some illuminate, our core software stack. And then that's where as we expand on that, like our goal is to build more and more content value with customers and OEMs over time as those different products mature. So just what we did with the LiDAR. And that's how you choose the economics while at the same time, making better, safer, continuously improving ours.
And then one of the benefits we have, Mark, and we're real in this real-time is each OEM is trying to solve on their own, they're real and unique set of problems. We're working with several OEMs now. I think as Austin mentioned, we're close to a dozen major commercial wins. So we're in there working with them. Sometimes the issues that are facing are unique, but there's also a lot of overlap. And so as we get those scales and multiple reps, that allows us to learn a lot and share those learnings in our product development path to help our customers better.
Aileen Smith
Our next question will come from Emmanuel Rosner of Deutsche Bank.
Yan Dong
This is actually Winnie Dong on for Emmanuel. With Volkswagen recently taking a stake in China and more specifically, providing validation on this ad platform. Does it change or reaffirm the way that you're engaged with the customers or how you're thinking about competition in that region? Just any latest thought on that would be helpful.
Thomas J. Fennimore
Yes. Look, I think China right now is a very dynamic market. If you look over the last year or 2, there was a very fast and faster than the Western world adoption of LiDAR technology. And I think a lot of that, my personal hypothesis is that it was driven by these new EV brands, the neo, the [Shaopungs, the Artex, the Liatos] of the world trying to differentiate themselves with a very savvy Chinese consumer as technology leaders. You then had this price war earlier this year, which I think, brought a whole call-conscious, value-conscious aspect of that. And what I think you're starting to see is the couple adoption in a couple of ways. One is some of these local EV partners realizing that in order to be more cost competitive, getting those partnerships with global leaders can help. But I think at the same time, when you look at the market share trends in China, the local brands have been taking share from the Western brands. And so I also think that there's an incentive from the Western brands to be more partnering. So I think having those 2-way partnerships can be mutually beneficial. And it's actually helpful to us, not only because it gives us another avenue and entry point into that. And so we've made progress with some of the local brands. We have strategic partners in the region like EQRx, which have been helpful. But having some of the Western brands partner with the local brands there, it gives us another entry point into the China market. We're always going to be smart in terms of who we partner with, particularly in the near term, but I think that's a trend that's helpful to us.
Austin Russell
This is the point why TBK is building this next big factory for us out there, and they obviously see the opportunity just this additional investment in Luminar. So that's really taking off as the global especially in there. And again, like I said, I think it's something really special with Luminar that our technology is meaningful enough where we're really one of the only Western companies that actually made their way in a generally unfavorable environment for Western companies in China, like we've been able to actually make a big impact on the difference already.
Yan Dong
And then I was wondering if you can elaborate a little bit more on that first development contracts with the mapping software with the major OEM. What's the timeline? And then maybe a bit more on [this] contracts.
Thomas J. Fennimore
Look, I think it's a very positive development. And quite frankly, the fruit-bearing from the Civil Maps acquisition is happening a little earlier than at least my personal expectations. But I also don't want to go into too much detail at this time. But I think if things continue to head in the right direction, it's something that we hope to share at least more details at some point in the future.
Austin Russell
Yes. And I don't want to sound too head in the cloud, there with this, but part of the whole driver and the vision behind it was to be able to create what could be the most comprehensive 3D map of the environment in the world in real-time when it comes to this level of LiDAR being deployed on hundreds of thousands of production vehicles consumers constantly driving them around the amount of data that you get from that, and what that can do in terms of creating a real-time 3D map is really wouldn't be comparable to anything that exists to that. So that's where it's one of those things that can just be a ridiculous opportunity knee out on its own. But we've got to take it step by step, but this is an incredible first step as part of that cost.
Aileen Smith
Our next question will come from Josh Buchalter at TD Cowen.
Joshua Louis Buchalter
I appreciate the color you gave in the prepared remarks about what's going on at Volvo, but I wanted to – but the software, but I wanted to follow up there. It sounds like there were some milestones achieved in the second quarter. There's still some to go. They are on the public call were saying that it's surrounding LiDAR integration, but that can very much mean it's someone else's issue that they're dealing with. Just any more clarity you can give us on what's going on with the software engagement at Volvo and what's left to clear?
Austin Russell
Yes. So it's good. And we're obviously in close touch when it comes to Volvo more generally as it relates to the holistic program. And for that reason, that's why we didn't have it built into our economics for that time frame. But when it comes down to it, I think we wanted to make sure to clarify that when it comes to our deliverables for the LiDAR system and software and everything, we're meeting the requirements and drive and that's why when we're saying for software deliverables, we recently met a major milestone. I think when it comes to -- there's obviously a lot of different patterns of play and that's why Volvo issued that corrective statement thereafter. But more generally, I think, like I said, building software for new game-changing EVs is hard. And like I said, it usually takes more time than people think. I think we obviously see other examples from certain other companies that have taken years longer than they would have expected to. I think Volvo actually has one of the most advanced teams in this respect alongside Mercedes. I think also as one of the most advanced teams in the plan of doing this kind of work. So they actually should be pretty well off. But it's a tough challenge. So that's where -- when it comes to holistic vehicle. But I think the important part is for us, like I said, we have a dozen different major commercial programs that we're working with. So we're not slowing down by any means on any of it to be able to make sure all of it is successful. So that's been good. And yes, An important point of clarification.
Joshua Louis Buchalter
Yes. No, got it. I appreciate the color there. And then as my follow-up, you have the $1 billion order book and you're generating revenue or orders in a bunch of different avenues like insurance, software, mapping, et cetera. Is the order book growth still overwhelmingly over-indexed to your LiDAR hardware sales? Anything you can help us on granularity of your expanding business engagements?
Thomas J. Fennimore
Yes. So Josh, the order book at the end of the year was $3.4 billion and the $1 billion is the growth we expect this year. Look, I would say it remains overwhelmingly weighted towards hardware today. But I would say the percentage of it that software continues to grow.
Austin Russell
And I think the important part is, is like the LiDAR is the end with these customers and work on in to expand the value and that's where we haven't heavily weighted or we've been, I think, generally very conservative in counting these other areas at this point like we're not counting parts of like insurance or mapping or other stuff like in the order book. I think when we start to see some major large-scale wins on those fronts, then we'll start adding it in. But we want to be very conservative and that's why I say the most conservative with our order book by far in the industry as it stands and how we calculate that right now.
Thomas J. Fennimore
Aileen, I know we're at 6:00, but why don't we go a few minutes over to get a few more questions in?
Aileen Smith
Sounds great. Our next question will come from Kevin Garrigan at WestPark Capital.
Kevin Garrigan
So thanks, let me ask a question and congrats on the progress. I just had one multipart question. So a few of your competitors have noted that some RFQs are in the final stages, and we can get a decision by the end of the year. And I know you guys talked a little bit about the RFP process and being targeted in a previous question. So I'm just wondering, are you guys also in the final stages with some of these RFPs? Or are you not focused on these programs? And then are you taking a little bit of a different approach where you talked about a little bit with mobile and video, where you're leveraging your partnerships with them a little more to give you an upper hand when speaking with OEMs?
Thomas J. Fennimore
Yes. So I'll take the second part, yes. Like look, one of the benefits of being the reference ladder in the Mobiline NVIDIA platforms and part of the Qualcomm system, it gets us another bite at the apple, right, multiple avenues to go to the OEMs. What I would say, though, is that we are not dependent upon them to go to the OEMs. In fact, we're talking to all the customers we want to do business with. We're out there talking to them ourselves at the same time that our system partners are talking to them. And so we try to get to the customer any way that's possible. Look, I saw some of the commentary on the other calls around the RFQ process. Look, we're seeing a lot of the same things here. I would say a lot of the commercial activity that we're having to is one-off and what I would say, outside of the RFQ process. I'm not going to speculate on the timing of any of these decisions. The OEMs are going to make them at this point. But what I would say is over the last couple of months, we have seen an acceleration in some of the RFQ and RFI activity and some of the one-off conversations that we're having with our customers.
Austin Russell
Well, I think maybe instead of -- it's more like 1 1. The majority of the wins that we have had and the major commercial wins have not got -- it's like not there's some commodity procurement process here. It's basically OEMs come to us to be able to solve a problem and we're that default partner to work with. Because it's one thing about -- it's another thing about in terms of the scope of capabilities, like obviously, it's an order of magnitude greater than what really people have seen in the industry and landscape. But listen, it's not stopping us from doing this. But we always have to ask ourselves again is what is the end goal of what we want to achieve out of these different programs? What is the actual opportunity that is realistic and of course, considering the factor of how likely is it that such a program is going to make it to fruition? Because as you know, we've seen a lot of programs that maybe had a good press release but didn't actually end up happening. So we're in this for the long haul. We have to make the right bets, and that's the most important thing. And I think we've really done that so far.
Aileen Smith
Our final question comes from Itay Michaeli at Citi.
Itay Michaeli
Just 2 quick ones for me. First, I know that the mid-decade target, the 1 million units by 2026, 2027 was predicated on existing customers. So given some of the traction you're reporting today with new customers, do you see any potential upside now to those mid-decade targets? And then secondly, I was hoping to get a bit of an update on the insurance business and how that's going.
Thomas J. Fennimore
So first, yes, so if you remember what we said back in Luminar day, I think that we had that $1 million target $26, $27 million, I think exactly when we hit that depends upon if everything hits the SOP timetable that our customer has will be 26%. If there's a little bit of a delay, you'll be in the 27%. We had about 75% of that awarded to get to that $1 million. That number has gone up. And I'm not in a position today to update that number, whether what percentage are booked or that 1 million. But I would say that the percentage awarded has increased from some of the success we've had so far. And in fact, based upon the discussions we're having increased further by year-end from where we are today. On insurance, look, we had a great update on a lot of things on the Q2. We'll talk more about the insurance point and giving an update there at some point in the future.
Austin Russell
I think it's fair to say of the new initiatives that we've had or some of the things that people were skeptical can pull it off, being wider, we're crushing but when it comes to software, AI, we're making it happen when it goes to mapping, we're making it happen in great results when it comes to semiconductor absolutely crushing it. When it comes to insurance, that's obviously a newer program that we have. And we're already making great progress with that, that I'm sure Tom will also be more excited to talk about for the future.
Aileen Smith
Fantastic. Well, that marks the end of our analyst queue and the questions. I'd like to thank everybody for sticking around and participating in the call for the analysts that ask the questions and for the investors and other folks who've joined us. We look forward to talking with you next quarter.
Austin Russell
Thanks, everyone.
