Israeli autonomous vehicle company Mobileye shut down its aftermarket division on Tuesday and announced it will lay off 130 employees, including 90 in Israel. This represents less than 5% of Mobileye's total workforce, which numbers around 3,700 employees, 3,400 of whom are in Israel.
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The aftermarket division is responsible for producing warning systems for drivers, which Mobileye was the first to introduce to the market. These systems are familiar to most drivers in Israel and around the world and have become somewhat unpopular over the years due to the loud beeping sound they make when deviating from a lane or approaching another vehicle too quickly.
These systems were considered revolutionary a decade ago but have since become a basic product developed by car manufacturers themselves, so the need to install them following the purchase of a new car has declined drastically. After a decade of sales, Mobileye still records revenues of about $40 million a year from the product, but according to the company, it no longer contributes to its profitability.
Over the years, Mobileye marketed the system as one that helps prevent road accidents, with the Transportation Ministry even deciding to encourage the installation of these systems by providing a discount on vehicle licensing for cars that had the system installed.
However, as time passed, studies conducted on the matter didn't find a correlation between the installation of Mobileye's alert system and the prevention of traffic accidents.
“This was a very difficult decision,” said Prof. Amnon Shashua, President and CEO of Mobileye on Tuesday. “The IMS division, formerly known as Aftermarket, was an early driver of Mobileye’s leadership, demonstrating that road safety can be effectively delivered at a low cost, a key catalyst for increasing adoption of ADAS technologies on new vehicles. Unfortunately, the success of Mobileye’s built-in ADAS solutions has diminished the opportunities for retrofit solutions to the point where it is no longer viable to continue the retrofit solutions activity.”
Mobileye insists that the move isn't related to the sharp downturn in its core business of driver assistance systems. The company added Tuesday that it is continuing to recruit employees for its other departments.
When asked why it didn't transfer the aftermarket division's workers to new projects, the company said that they were mainly logistics workers, which they have no need for at this time. While Mobileye has not invested resources in the development and marketing of these systems in recent years, estimates suggest that there are still around 300,000 active systems in Israel alone.
It seems that Mobileye's investors nonetheless interpreted the move as a first sign of cost-cutting by the company, with the stock recording a 3.5% increase at the start of trading on Wall Street.
However, it's still far from recovering from the blow it suffered to its stockholders at the end of December when it announced an expected decline in 2024's first-quarter revenues due to excess inventory among its customers.
If in the fourth quarter, Mobileye's revenues amounted to $637 million, reflecting a 13% increase over the same quarter, it's expected to report only a third of these revenues in the current quarter – with just over $200 million.
As a result of the sharp decline, profitability is also expected to be affected, with an estimated operational loss of $378-468 million in 2024 on revenues of $1.83-1.96 billion. Mobileye ended 2023 with $2.1 billion in revenues, an 11% increase over 2022. Since the profit warning that halved Mobileye's stock, it is currently traded at a price reflecting a market value of $23 billion.
A challenging future
Most of Mobileye's sales currently come from ADAS systems, which assist drivers and enable very high levels of automated driving. The company enjoys a 70% market share in these systems among Western cars (including almost all major manufacturers except Mercedes and Toyota) and a significantly lower market share of about 40% in China.
Most of Mobileye's sales are made through OEM agreements with car part manufacturers who work with car manufacturers directly, known as Tier 1. According to Mobileye, the significant downturn in its performance expected throughout 2024, especially in the first half of the year, isn't due to a significant change in its market, but only to a lack of real-time information on excess inventory by its partner companies.
The excess accumulated after increased purchases the company made due to fluctuations experienced by many manufacturers during the COVID-19 pandemic, which they wanted to avoid.
The company insists it's not losing market share or new contracts to strong competitors, primarily Nvidia and Qualcomm, who have recently entered the market, and that it will continue to grow in the coming years.
With the publication of its 2023 financial reports, Mobileye updated its order backlog stand at $7.4 billion as long as it supplies the 61 million units of ADAS systems according to long-term contracts it has signed.
"We understand that the good performance of the fourth quarter is overshadowed by the impact of excess stock in the first quarter of 2024, but we expect to see a significant improvement in revenues in the second quarter of 2024 and stabilization in the second half of the year," said Shashua.
Questions about Mobileye's future growth are also appearing, including its penetration rate in the Chinese market, which is the growing and less saturated market in the field of ADAS systems at the moment.
The company itself noted in its full financial reports for 2023 that in recent years, the ADAS systems market among Western manufacturers has grown at a relatively high rate compared to other systems, so it isn't certain how much room is left for significant growth in the field.
If Mobileye fails to show signs of growth as it has over the past few years, it will require more significant and deeper cuts than it has chosen to make at this stage. Even before the expected downturn in 2024, Mobileye didn't reach operational profitability despite lowering its operational loss from $37 million to $33 million in two years.
Mobileye says the current layoffs won't significantly affect its financial forecasts for 2024.