Knowing You Have The Real Business

Ouster has eschewed that market, focusing on selling lidar units a few at a time to a wide range of individual customers. For example, the company has a product called the Velarray that’s designed to be cheap enough for the automotive market. Whether or not Velodyne’s lower-cost products have been gaining traction is not clear.

The logo of Toyota Motor is displayed at a company’s car showroom in Tokyo on February 6, 2019. Toyodacknowledged Tesla’s success, but said its valuation and market cap do not reflect a “real world” business, or compare to Toyota’s high-volume manufacturing and sales.

Possibly the most famous automotive example of falling cost is that at the time Ford got started other auto makers were all in the luxury market and sought to preserve their margins. Ford’s innovation was to apply the mass production methods used for guns and bicycles. He not only undercut the other makers but his production methods reduced price without sacrificing quality or performance.

The company with the most to lose is Velodyne, which has dominated the market for a decade but now faces growing competition from low-cost rivals—especially Ouster. History has shown that it’s difficult for a company with a high-performance, high-cost product to deal effectively with a challenge from a cheaper disruptive rival.

Real Business

As lidar becomes more cheaper, easier to use, and the data transfer becomes easier, I can see construction firms starting to use these in lieu of in person inspections. Supplying equipment to automakers, on the other hand, is a notoriously cutthroat, low-margin business. If Luminar can’t sign up other automakers, it could find itself yoked to a demanding but not especially lucrative customer. Meanwhile, Ouster and Luminar have very different go-to-market strategies. Luminar has focused on scoring big, multiyear deals with major automotive customers.

My sense (based on conversations with Ouster’s CEO and the lack of convincing counterarguments from Velodyne execs) is that Ouster probably has generous profit margins even as they are undercutting Velodyne on price. And this should only get worse for Velodyne—both because Ouster’s solid-state components should improve over time and because they should enjoy falling costs for the chips with scale.