SAN FRANCISCO (Reuters) - Mercedes-Benz has signed a new agreement with Luminar Technologies ( LAZR ) to develop and integrate its latest lidar product, Luminar's ( LAZR ) CEO said, shifting from a supply deal for its currently available sensors.

The contract with the German auto giant is the first deal for Luminar's ( LAZR ) smaller, more efficient Halo lidar sensors, and it comes as global automakers race to launch safer self-driving vehicles.

"Mercedes is on board," Luminar ( LAZR ) CEO Austin Russell said in an interview. "We're working with them at a global scale to develop and integrate the technology in their vehicles with the ultimate objective to be able to get this into scale production."

The global lidar market is small but growing as automakers expand autonomous and driver-assistance features. Lidar, which stands for light detection and ranging, shoots light pulses that are reflected off objects to create a three-dimensional view of the world around a vehicle.

Mercedes said it works with several lidar partners, including French car parts supplier Valeo. "Mercedes-Benz is also working together with Luminar ( LAZR ) to evaluate next generation LiDAR technology," it said in a statement to Reuters, declining to give details. It did not comment on Chinese lidar maker Hesai, which Reuters last month reported had signed a global supply deal with Mercedes.

Mercedes had signed a supply deal for Luminar's ( LAZR ) Iris lidars over two years ago and planned to integrate them into vehicles mid-decade. That plan has been shelved in favor of the development agreement for Halo, which is set to roll out in 2026, Russell said. Luminar ( LAZR ) will be working on the development contract with Mercedes over the next couple of years, he said. 

The deal, which has not previously been reported, is the first step toward a potential supply deal but does not guarantee one. 

Some Mercedes top-line models already are equipped with Valeo lidar and can drive without constant human oversight in limited circumstances.

Mercedes has said it wants to introduce advanced automated driving features in a broader range of vehicles. 

PRICE OF HESAI VS LUMINAR

Unlike robotaxis, which usually use four or more bulky lidar sensors that spin for a 360-degree view, high-end personal vehicles typically employ one or two smaller sensors that are mostly seen jutting out from cars.

Luminar's ( LAZR ) Halo is smaller and more efficient than its previous generation Iris sensor and can blend into the roofline of a car or sit behind the windshield

Mercedes-Benz has chosen Hesai, China's largest lidar maker, for global markets, despite legal and geopolitical risks, because of its lower costs and ability to produce at scale, according to the Reuters report, citing a source.

Hesai's latest ATX lidars cost around $200 each. Luminar ( LAZR ) told Reuters the target price for the Halo is $500.

It is common for automakers to work with two or more suppliers to reduce supply risk, especially during periods of uncertainty such as the current Sino-U.S. trade war.

Luminar ( LAZR ) has a manufacturing facility in the U.S., but makes most of its lidars outside the country - it has plants in Mexico, Thailand, China. The company is considering making Halo in the U.S. if the "tariff situation isn't resolved," Russell said.