Much can be said about Smart Eye: Optimistic design wins announcements, notable capital raises, and financial disclosures that leave much to be desired. Yet, all of this is overshadowed by the company's upcoming harvest season after years of preparation. The EU GSR regulation took effect in July 2026, and Q1 demonstrated a significant increase in license revenue, along with confirmation of the closest competitor's production ramp-up. Smart Eye is expected to see a rapid revenue increase over the next 3-5 quarters, which we believe will be reflected in its share price.

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Disclaimer

Not investment advice, for informational purposes only. The company discussed, Smart Eye, is a holding in our public portfolio.

Smart Eye is a Swedish software company whose camera-based AI watches a car's driver and warns when they are drowsy or distracted. Founded in Gothenburg in 1999 as a niche eye-tracking software firm. They sell their software to researchers (Behavioral Research segment) and for eye-tracking in cars (Automotive segment), called DMS (Driver Monitoring Systems). Its software runs in over 2 million cars today, with OEM customers including BMW, Volvo Cars, Audi, Porsche, and GM.

The money works like royalties. A carmaker (usually via a supplier like a camera or ECU maker) picks Smart Eye's software for a car program, Smart Eye earns some engineering fees up front, then collects a small license fee for every car built with it, at a near-100% gross margin. It has 368 such design wins worth an estimated SEK 8.7 billion over their lifetimes, but only about a third of those models are in production yet, so revenue lags the wins. The other half of sales comes from research tools: eye-tracking hardware and the iMotions software platform sold to universities, NASA, and Boeing, plus Affectiva's ad-testing service.

The best investment case can be explained with one graph. For Smart Eye it’s the number of cars sold in Europe with DMS systems, which will explode over the coming years due to the July 2026 EU GSR (European Union's General Safety Regulation) mandate.

The European Union's General Safety Regulation (GSR) mandates DMS in all new passenger cars from July 2026. Smart Eye has, over the last +10 years, positioned itself for this moment. The DMS market in Europe is split between Smart Eye and its biggest competitor, Seeing Machines. Together, they control ≈90% of the market. Deals are called Design Wins (DWs), and are closed years ahead of production. Therefore, we already know that demand for Smart Eye’s software will certainly increase substantially. The number of cars with DMS in Europe will go from about 1 million in 2024 to +11 million in 2027. Seeing Machine themselves state the total EU market is worth about 12.5 million cars. The hard part is to lay the financial puzzle of how much of this value Smart Eye might capture, as the information is scattered across unclear calculations, press releases and, in our view, deliberately hidden to be able to raise expectations and capital.

Aside from the GSR catalyst for the Automotive business, Behavioral Research has seen a significant drought, but it’s due to changes in awards grant policy in the USA, not that their product is not competitive. The worst effect from the policy change is behind us, and we delved deeper into some data in this dive that signals positive growth from here and forward. This is illustrated by this chart:

Analyzing Smart Eye is like assembling a complex puzzle from scattered pieces of information. Due to limited data disclosures, it is very challenging to obtain reliable insights into the company's key value drivers, making it difficult to predict future revenue growth and earnings potential. However, in this deep dive we do our best to present the information we have at hand.

Smart Eyes’ main communication about the future centers on Design Wins (DW). These DWs have been press-released since 2016. In total, there have been +370 DWs, with a communicated value of SEK 8.79bn, plus SEK 5.69bn in extension options. Smart Eyes outlines how they calculate the value of a design win here:

As shown, there are many significant unknowns in these inputs. Initially, the production volumes are uncertain; although an estimate may exist, it remains a forecast. The production year is probably more fixed but can still fluctuate based on demand and other factors. The only certainty is the License Fee Per Vehicle, which Smart Eye does not disclose. NRE (non-recurring engineering fees) are incurred before production and can be substantial; these revenue streams cease once the vehicle model is in production and sold. NRE income involves high costs, whereas royalties are assumed to have nearly 100% gross margin.

The production volumes for a car model do not increase linearly but instead gradually ramp up to reach peak volumes around year three. Additionally, Smart Eye provides an example of production volumes throughout a typical car’s lifecycle.

In nearly all of Smart Eyes DW communications, they mention the total value, the number of models, and the expected start dates. We have collected all their press releases and data, and then used lifecycle patterns to develop a model for DW revenue distribution. Our DW based model suggests that the DW numbers are quite heavily overstated, at least if they were to follow the suggested DW lifecycle pattern. We will instead rely on the infrequently disclosed figures for cars on the road.

The automotive segment is where Smart Eye sells its software, some hardware, and does engineering at clients. The most important factor to follow is the number of cars with Smart Eye technology. The company does not always disclose these figures, and many times only mentions them briefly in the presentation or CEO letter. From the current communication, it seems that about 2.0-2.1 million new cars with Smart Eyes technology hit the road in 2025, and 50 new models entered production. Most of the increase in new models was in Q3 and Q4. Our best estimate of quarterly car deliveries is seen in the chart below. Revenue increase in Automotive follows the new models into production quite well. A key issue here is that we do not know the number for Q1, a best guess would be in the range of 0.8-1.1 million new cars (assuming they follow a similar pattern as Seeing Machine.

Looking further back, we know that the 1-million-car milestone was in Q3’22 and that about 2 million cars were reached by the end of 2024. We then compared Automotive net sales to the average Quarterly Car Deliveries.

The increase in Automotive net sales tracks the ramp-up in car deliveries well, but net sales per car delivered are also declining as fewer NREs are included in the Automotive sales figures. Based on the various milestones we have and the reported automotive numbers, net sales per car show a steady decline. Smart Eye has earlier communicated that NRE income will be 5-10% of the total Design Value.

In the long term, some NRE will likely remain in the reported numbers, but royalties should account for most of the income. Seeing Machine has better disclosures on its royalty numbers. The following is a comparison between H2’FY26, H1’FY26 and H1’FY25 for Seeing Machines:

Seeing Machine seems to have a royalty per car in the range of 7.5-11$, i.e., almost as much as Smart Eye had in revenue per car during the last four quarters. As there is likely still quite a lot of NRE in Smart Eye's figures, the actual royalty is likely much lower than that of Seeing Machines. However, there has never been any data on what the actual royalty is, due to Smart Eye’s less transparent disclosures.

Our model will be based on net sales per car, rather than the true royalty. This is due to the limited information we have on ASP and the NRE mix. We will still look into likely ASP ranges for Smart Eye as a foundation for our net sales per car assumption.