Self-Driving Cars May Not Be So Far Off

"A year ago, investors were wildly optimistic about the potential of automotive technologies such as automated driving. They now risk swinging to the opposite extreme.

Anyone looking for an idea of the cars that might be on sale in five years' time likely found the news from this year's CES trade show in Las Vegas more muted than usual. Stellantis showed off new concept electric vehicles on Thursday, but in reality it is playing catch-up with peers such as Ford and General Motors. Sony unveiled a brand for its new automotive joint venture with Honda, but didn't give many details of the much-hyped EV they expect to start selling in North America in 2026.

As Stellantis Chief Executive Carlos Tavares pointed out in his keynote speech, more than $1 trillion of market value was wiped off automotive technology stocks last year. This isn't just about Tesla: Shares in early-stage companies that don't make profits have been even worse hit. That makes car makers understandably reticent about putting too much weight on -- or money behind -- the gizmos CES is best known for.

Investors shouldn't mistake the cautious turn for a lack of technological progress, though. Driverless taxis run by Alphabet's Waymo and GM's Cruise continue to roam the streets of San Francisco and Phoenix, albeit very cautiously and with strict limitations. The problem with these projects is that they are hugely expensive, with no proven business model or clear route to commercial scale. Unless this changes, they could suffer in a tighter financial environment.

Two Western companies above all make meaningful profits from the automation of driving today: Tesla and Israeli supplier Mobileye.

The former now charges $15,000 for its so-called full self-driving software package that automates most mundane driving tasks but, crucially, requires drivers to keep their eyes on the road as a backup. Tesla said late last month that 285,000 Tesla owners in North America had bought what it refers to as FSD.

Mobileye, which was spun out of chip giant Intel last year, has a comparable "eyes-on, hands-off" offering it calls SuperVision, in addition to the more basic assisted-driving technology that generates most of today's profit.

In an update at CES on Thursday, CEO Amnon Shashua said SuperVision had a cumulative revenue pipeline of $3.5 billion through 2030, based on the production estimates of car makers that have included the technology in coming models.

Mr. Shashua also gave a levelheaded account of how Mobileye would move into the more adventurous realm of extended "eyes-off" autonomy, at least on and between highways. By adding a second sensor suite, Mobileye expects to deliver in 2026 the kind of provably safe automated driving that would actually give consumers time back. It said it already had "line of sight" toward $1.5 billion in revenue from one vehicle program that will likely include the product.

It is frustrating that Mobileye can't yet reveal which brands are backing its latest products, beyond its Chinese launch partner Zeekr, but the supplier's technological path to a more useful self-driving future seems much clearer than Tesla's. The car maker run by Elon Musk has no plan to include backup sensors and doesn't publish data on how often its system requires the human driver's intervention -- an approach unlikely to win over regulators or the broad public.

But the real appeal of Mobileye for investors is that it doesn't demand an all-in bet on full autonomy: SuperVision and basic driver-assistance packages should underpin profitable growth for years. A forward earnings multiple of 44 times is ahead of 33 times for Nvidia, arguably its closest peer, but Mobileye should grow faster. A small premium doesn't seem a big stretch for a company that could, maybe, let you read a book on your future commute." [1]

1. EXCHANGE --- Heard on the Street: Self-Driving Cars May Not Be So Far Off
Wilmot, Stephen.  Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 07 Jan 2023: B.14.