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TLDR: AEye at $30m is an enticing risk/reward and alpha opportunity. The company is trading at less than half net assets, extended its runway to the end of 2024, and has a floor based on the value of its LiDAR IP that I believe is above the current stock price. I initiated a position today at $0.19.

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AEye, Inc. is a technology company that develops artificial intelligence (AI)-powered lidar systems for vehicle autonomy, advanced driver assistance systems, and robotic vision applications.

Luis Dussan, a leading aerospace designer of targeting systems for fighter jets, understood self-driving cars would face similar challenges: the need to see, classify, and respond to an object in real time. Luis founded AEye in 2013 where engineers from NASA, Lockheed, the USAF, and DARPA created AEye’s patented 4Sight™ lidar platform, key to the rollout of sensing applications for automotive, trucking, smart infrastructure, logistics, and rail.

AEye has partnered with leading automotive manufacturers and Tier 1 suppliers to develop and deploy its lidar systems. The company's lidar systems are currently being used in a variety of prototype and production vehicles, including the Continental Automated Truck (CAT) and the Toyota Sienna minivan.

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In 2021, AEye went public through a merger with a special purpose acquisition company (SPAC).

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Down from an ATH around $14/share $LIDR is now down to $0.19, equating to a market cap of $30m.

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The company is trying to turn over a new leaf after an obviously rocky debut to the public equity market, with a new CEO and CFO appointed in the last 3 months. In order to extend their runway in a challenging funding environment, AEye made a decision that is becoming more and more common in 2023, cutting 1/3 of their staff and trimming expenses such as professional services (e.g. consultants) and real estate.

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The new management team and slimmed-down workforce are now focused on one thing: validating and delivering their HRL LiDAR product jointly developed with Continental ($CTTAY). This is a great segue to why I believe AEye is such an enticing arbitrage opportunity.

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Companies who have lost the faith of equity markets typically trade around the equivalent of their net cash/asset balance, signifying that investors think that management is too incompetent to get above a 1:1 return on the investment of said cash/assets. At the current $30m market cap, AEye trades at 40.25% of net assets. I'll state below why I think that this valuation is far too harsh, based on an underappreciated roadmap and price floor.

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The HRL131 Long Range LiDAR, jointly developed with Continental, is the reason I believe that $LIDR is a significantly underappreciated stock.

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Continental, an international company that trades at a $15B market cap, is more than just a strategic partner and investor to AEye. They are also the first company that I've seen get on a partner company's quarterly earnings call to reaffirm their confidence in the product and vision.

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Norm Hammerschmidt, Vice President of the Components business at Continental went on AEye's Q1 earnings call this May to say the following:

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"I would like to start by saying that Continental is very pleased with the new management and the go-forward plan presented by AEye. AEye's decision to take an automotive first strategy further strengthens our partnership and provides the focus and velocity needed to secure automotive series production awards and expand our LiDAR business case. As a 150-year old automotive Tier 1 supplier, we at Continental deeply understand the processes, time and capital required to industrialize products for passenger and commercial vehicles, so when we choose partners like AEye, we do so with our brand and reputation with OEMs in mind. We are as committed to AEye today as we were 3 years ago when we began this journey. And even more so as we work together to accelerate through the design validation stage, which is a precursor to OEM integration and higher volume production.

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The Conti and the AEye engineering teams are working collaboratively during this stage to perform stringent accelerated life cycle testing on the HRL131 Long Range LiDAR products in our labs while also replicating real-world scenarios in a variety of adverse weather conditions at our closed course tracks in Michigan and Germany. In parallel, our business teams have progressed tremendously on quoting activities with multiple large volume LiDAR programs from both passenger and commercial vehicle OEMs, where we believe we are well positioned to win. As the global leader in ADAS products, Continental began this journey with AEye with a belief that the automotive LiDAR adoption curve will mimic that of radars, which saw exponential growth over the last 25 years, and these recent RFQs from OEMs confirm our belief. The future looks very bright for our LiDAR market and our partnership with AEye."

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In short, Continental believes strongly enough in AEye's product to center their own autonomous driving and trucking roadmap around their jointly developed HRL131 long range LiDAR. This HRL131 product, according to Continental's website, "enables new compelling automated driving features and will be ready for mass production starting in 2024."

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AEye and Continental are currently in the OEM validation process with the LiDAR, likely including companies such as Aurora Innovation ($AUR). This tweet from Continental Press shows an Aurora truck featuring the HR131 powered by AEye, which has not been publicly reported or acknowledged by AEye. At this low of a market cap, any positive press could send the stock upwards in a hurry.

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The new and improved AEye has a streamlined product roadmap, supported by an established partner in Continental, that not only gives the beat-down company an opportunity to succeed and thrive, but gives the company a buyout/investment floor at or above the current stock price.

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I initiated a position today at $0.19 and plan to slowly scale in if the price drops or stagnates in the current range.