Updated: May 7
TLDR or MAM (My Aha! Moment)-
Innoviz, an Israeli Lidar developer and manufacturer who recently completed its merger with the SPAC "Collective Growth Corporation" is now trading under the ticker $INVZ. While Innoviz is the only Lidar manufacturer with a series production deal with a major OEM (BMW, the deal is valued at no less than 2 Billion USD over the next 5-7 years) they currently trade at a significant discount in comparison to some of their peers. Most notably, Luminar who raised similar amounts in the private markets prior to its own SPAC merger, is trading at a market cap of ~$7.7B while Innoviz is trading at a mere ~$1.6B. Conclusion- I would argue that Innoviz is immensely undervalued.
The Full Story
I first had the chance to visit Innoviz in 2019, that was actually my last visit in the company as well. I am in no way affiliated with the company or its founders (unfortunately I may add), I was just lucky enough to join a tour to their HQ in Israel through my university.
About 2 years later, I came across an article about their IPO via SPAC merger.
Since my company visit and until stumbling across this article, I hadn't thought about Innoviz often. I was pretty intrigued with autonomous vehicles and would often imagine my daily commute in the backseat of a driverless car, but Innoviz didn't cross my mind so often.
Since first reading the article about the merger, I have researched Innoviz relentlessly and heard their CEO speak at a number of podcasts (some in Hebrew, some in English, I will add links to all at the bottom.)
I will try to reiterate my most important learnings below.
What is Lidar Anyways?
Lidar is an acronym for light, detection and ranging, or more simply put, a 3D camera.
It is considered to be one of the most important enablers of the autonomous vehicle revolution. It works by shooting light photons, and measuring how longs it takes them to come back to the source, thereby creating a 3D image of the environment. I could go on and on but this picture illustrates it well. (Visit Innoviz website, twitter or LinkedIn for even better images and videos)
Founders and Investors (the namedropping section of this post)
Innoviz was founded in 2016 by alumni of the Israeli technological unit 81- Omer Keilaf, Oren Rosenzweig, Oren Buskila and Amit Steinberg. The 81 name may not ring any bells to international readers, but in Israel it has a reputation for producing some of the country's most prominent technological entrepreneurs. To make a simplistic comparison, if the US' most talented techies get degrees at MIT, Israel's most talented go solve some real complex problems at Unit 81.
From the start, Innoviz was able to attract some of Israel's biggest names as investors. Namely, Zohar Zisapel who practically became the 5th founder and a major door-opener for additional investors. Since Zohar, the list of investors is quite long but I will mention Amiti Ventures. Vertex Ventures, Magma ventures, Softbank Korea, Samsung Catalyst and most importantly (more on this below) tier 1 automotive suppliers Magna International and Aptiv. Most recently, Antara Capital led the PIPE investment in the Innoviz SPAC merger. Interestingly, they also invested in QuantumScape's PIPE, which was probably 2020's most hyped de-spaced company. (just look at its 6-month graph).
Innoviz Cost Focused Approach
During my visit to Innoviz HQ, my group was met by Oren R. one of the co-founders and Chief Business Officer of the company (cool title right?). I found Oren to be a very impressive guy with a really interesting diverse background which includes technological background in Electrical Engineering as well as an MBA from Chicago Booth and consulting experience from BCG.
Oren gave us a tour and presentation about the company. One of the things that resonated with me the most was Innoviz' cost-focused approach. Innoviz understood at a very early point that in order to sell a Lidar in mass-production numbers, they must optimize cost just as much as performance. Oren told us that every technological decision they made, such as choosing the wavelength the Lidar operates in, was made with cost optimization in mind.
Years later (today), when I have listened to every podcast episode where CEO Omer Keilaf is interviewed, I understand how crucial this choice of wavelength was to the cost optimization of the Innoviz Lidar. In the podcast Autonocast, Omer explains that the only way to achieve low cost is by using 905 nm, which is the only wavelength which can work with Silicon (which the entire semiconductor industry is based on). Any other choice of wavelength would dictate significantly more expensive laser components and exotic materials, and while it may be easier to solve performance at other wavelengths, it would be impossible to solve cost. He finishes with "we knew it was on to us to solve the problem of performance of 905nm".
Business Model- Working Their Way Down the Market
Innoviz have a very clear approach as to how to sell to the automotive industry. They recognize that automotive OEMs cannot purchase such a critical component directly from a small startup. (Yes, as incredible as I find Innoviz, with its 300 employees and incredible tech, in automotive terms, it is a small startup). This is why they identified partnerships with Tier 1 automotive supplier as a crucial part of their business model. They have so far established partnerships with Magna, Aptiv, Hirain Technologies and Harman, where Magna and Aptiv have also invested in the company.
At a very early stage of this paid off, BMW selected Innoviz alongside its tier 1 partner Magna International to supply Innoviz' Lidar the InnovizOne to a series production vehicle. While the deal is valued at around ~$2B over the next 5-7 years, the achievement of being selected for a series production deal by BMW is just as exciting as the financial implications of it.
According to Omer, it is not by coincidence that BMW is the first OEM to choose a Lidar partner for their vehicles. New technology and innovation is often introduced into the automotive world by the luxury German brands (BMW, Mercedes, Audi). These manufacturers have the capacity to vet an innovative new technology, to test it, to redefine requirements and standards. Omer describes an extremely rigorous process they went through with BMW, not every car manufacturer has the capacity, culture or will to facilitate such a process. These luxury brands sell low-volume, high-margin vehicles and can absorb the cost of a new technology way better than a high-volume, low-margin auto manufacturer can. With this understanding, Innoviz knows which OEMs to target first, and at the same time, are working around the clock to further reduce costs. Innoviz recently announced the InnovizTwo which would have a 70% cost reduction, this new product would likely enable less luxurious brands to adopt the technology.
Innoviz is the only Lidar manufacturer with a series production deal, it has built a team with incredible technological background, a clear business model and an impressive list of strategic investors and partners.
I believe that the selection by BMW is an indication of what lies ahead for the company. The Lidar market is not a "winner-takes-all" market, but it is not far from it either. Requirements for Lidar do not vary greatly across the different manufacturers, and the more OEMs that select the same supplier, the lower the cost can be driven down. I suspect BMW was very careful with its selection, and therefore expect more OEMs to follow BMW's lead and enter series production deals with Innoviz and its tier 1 partners.
My goal is not to hype up stocks, but rather to introduce stories of incredible companies in a way that is interesting, responsible and even educational. Every investment has a risk attached to it, it is important to understand those risks by applying critical thinking.
We do not have the details of the agreement with BMW, if this agreement were to be canceled it would put Innoviz in a completely different position.
Innoviz could experience difficulties ramping up automotive-grade production.
Lidar could become obsolete if major improvements were to be made to cameras, radars, or other sensors which are not currently considered part of the standard sensor-suite of the autonomous vehicle.
Regulatory environment could become hostile to autonomous technologies thereby delaying the urgency to incorporate such technologies.