Lidar Adoption Headwinds Will Persist But Long Run Sensor Demand Will Eventually Support Upside

Catalysts

About MicroVision

MicroVision develops lidar sensors and perception software for automotive, industrial and defense applications.

What are the underlying business or industry changes driving this perspective?

• Although MOVIA S is positioned for a low-cost, solid state lidar family with a planned automotive, industrial and defense launch path, execution risk around industrialization, manufacturing ramp and customer validation could limit how quickly this translates into meaningful revenue.
• While the Tri Lidar and satellite sensor approach aligns with the long run move toward higher sensor counts in vehicles, delays in OEM sourcing cycles and platform decisions could push out adoption and keep revenue and earnings below what the current product roadmap might suggest.
• Although the Scantinel FMCW acquisition adds ultra long range capability that complements existing time of flight products, the pre revenue status and need to industrialize this technology for automotive grade use introduce timing and cost uncertainty for margin expansion.
• While drone based mapping, ISR and denied environment navigation are areas of rising defense interest, program timing, proof of concept milestones and budget decisions can be slow and uneven, which may limit near term defense revenue contribution and delay any improvement in net margins.
• Although MicroVision is targeting much lower sensor price points that could support wider lidar adoption in automotive, industrial AGV and AMR markets, the company still faces customer driven delays, price pressure from Chinese suppliers and the need to control bill of materials tightly, all of which could weigh on gross margins and push out the timing of earnings leverage.

Assumptions

This narrative explores a more pessimistic perspective on MicroVision compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming MicroVision's revenue will grow by 148.0% annually over the next 3 years.
• The bearish analysts are not forecasting that MicroVision will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate MicroVision's profit margin will increase from -3354.1% to the average US Electronic industry of 8.2% in 3 years.
• If MicroVision's profit margin were to converge on the industry average, you could expect earnings to reach $3.3 million (and earnings per share of $0.01) by about January 2029, up from $-88.4 million today.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 293.6x on those 2029 earnings, up from -3.1x today. This future PE is greater than the current PE for the US Electronic industry at 27.8x.
• The bearish analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.89%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Long-term lidar adoption in automotive remains limited because cameras and radar continue to satisfy most safety and automation use cases at lower cost. This could constrain demand for MicroVision sensors and keep revenue and earnings below expectations over time.
• The industry-wide focus on reducing lidar cost to camera and radar territory, including pressure from Chinese suppliers, may force MicroVision to pursue aggressive price points such as the US$200 to US$300 range. These levels could prove difficult to achieve with healthy unit economics, which would weigh on gross margins and delay any improvement in net margins.
• Extended timelines for OEM sourcing cycles, industrial RFQs and defense programs, combined with customer driven delays and the shift from MOVIA L to MOVIA S, could push out commercialization beyond current expectations. This could leave the business reliant on modest quarterly revenue of US$0.2 million while operating expenses and cash burn of US$16.5 million per quarter continue, which would pressure earnings.
• The plan to grow through three end markets (automotive, industrial and defense) rests on the same core technology. Any technical, reliability or manufacturing issues with MOVIA or Scantinel FMCW products could therefore have a broad impact and limit adoption across all segments, reducing potential revenue and holding back net margin improvement.
• Although MicroVision currently reports US$99.5 million in cash and access to additional facilities, the expectation of higher quarterly spending by US$1.5 million to US$2 million and the history of share issuance through the ATM program mean that a prolonged period without meaningful revenue growth could lead to further equity dilution. This would affect per share earnings even if absolute earnings improve.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for MicroVision is $2.0, which represents up to two standard deviations below the consensus price target of $2.5. This valuation is based on what can be assumed as the expectations of MicroVision's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $3.0, and the most bearish reporting a price target of just $2.0.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2029, revenues will be $40.2 million, earnings will come to $3.3 million, and it would be trading on a PE ratio of 293.6x, assuming you use a discount rate of 8.9%.
  
• Given the current share price of $0.89, the analyst price target of $2.0 is 55.5% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.