Mobileye's legacy business had a good quarter and beat very nicely, with strong sales growth, FCF generation and inventory management.
However that's not what makes the company an interesting growth story.
Why not?
Basic ADAS is a legacy business. Sure, it's a necessity in all cars, but selling cars is cyclical and mainly in decline in the entire world besides Chinese OEMs. Chinese OEMs don't use Mobileye for cars sold to the Chinese market. ADAS is the best house in a bad neighborhood.
The future of the company's growth is built on a few products:
Surround ADAS, the next level up of ADAS systems is highly competitive. Thanks to AI computer vision and these systems in general are much more of a commodity today than they were when Mobileye pioneered this field a decade ago. Qualcomm, Aptiv, LG and a myriad of startups, other suppliers and in house OEM development solves this today. The competition is fierce and it's questionable how much of Mobileye's dominant market share they'll be able to maintain in the next generation of vehicle platforms.
Advanced driving: L2+, L3, L4 or Mobileye's SuperVision, Chauffeur and Drive platforms respectively. These represent the genuine competitive advantages in a marketplace that are hard to compete against. They therefore drive a much higher average selling price and even different business models in the case of Mobileye Drive. However, these platforms have had different success in receiving business adoption from OEMs over the past few years. When considering that Mobileye has deep relationships with almost all of the top 20 global OEMs, this puts this business into a further skeptical point of view.
Let's review the Q2 earnings and see what can be gleaned for Mobilize Future Business.
Bulls will say that Mobileye's pipeline is progressing:
The company announced a premium OEM for their 4D radar chipset during Q2
Advanced products advancing:
"Overall, opportunities to substantially grow content per vehicle in the ADAS space have improved over the last 6 months. Supervision activity remains robust... Chauffeur has generated multiple new OEM prospects that sees eyes off on highway as a breakthrough feature that allows drivers to reclaim their time during commutes."
“SuperVision and Chauffeur test vehicles are demonstrating better-than-predicted performance in multiple geographies.”
“Increased interest in the Chauffeur solution as a scalable enabler of L3 consumer AV, seen as high-value proposition by OEMs.”
“We made progress on completing the ecosystem for the Lyft / Marubeni engagement, and we continue to see strong interest from mobility providers across Europe”
CEO, Amnon Shashua, is great at talking up Mobileye's technology and position...but, here's the bear take:
Despite being a market leader in computer vision, having the best relationships in the business, Mobileye can't seem to close an additional SADAS, SV or Chauffeur deal. There's always an issue with market timing, lack of drive, or missing the market.
I wrote about this when I sold the position and following Q4:
Mobileye has been an invest and investigate for the past few quarters and unfortunately I don’t like enough of what I’ve seen with them to continue holding them in this environment. I’ve elaborated a bit about it here, but briefly: Mobileye has missed the boat on the market need and is late to the game. Recent industry news (GM, Nissan, Hyundai Mobis) increase the risk of them missing their business development pipeline for 2027. Again, better risk-rewards for my cash. Especially since their theme overlaps with Innoviz, which has a better risk/reward profile.
Looking into this quarter I see the same challenges, here are some quotes that showcase this from the call.
For Surround ADAS, analysts are doubting that Mobileye will win SADAS awards in time for the 2027 timeframe, which was the previous target promised by the company. That’s now shifted into 2028:
Shreyas Patil
Maybe could you guys talk about the typical lead time between securing awards and surround ADAS and launching programs? I believe it's typically 2 to 3 years.
So given the timing of the new ADAS standards in Europe, which I think is 2028, that would suggest OEMs need to secure contracts in the next 12 to 18 months.
So is that the kind of time line we should be thinking about in terms of potential awards?
Daniel Galves
Yes.
So when we're talking about Western OEMs, a time line is typical 2 years -- 2 to 2.5 years from nomination to startup production.
Shreyas Patil
Okay. That's helpful.
So if the standards are coming on in 2028, it would suggest they would be needed to secure these awards in 2026, something like that?
Dan Galves
Yes.
As for SuperVision, which is the more immediate, closer to market product than Chauffeur:
Supervision activity remains robust but lack of competitive pressure is enabling OEMs to continue to take their time with decision-making.
IR Director Dan Galves has admited that L3 Chauffeur is having a harder time being pushed to market, so I wasn't expecting much from that in any event, but was glad to see the issue addressed. If I translate what Chris McNally is trying to get at its something like this: "Chauffeur has no uptick and yet now you're saying that SuperVision doesn't as well...so what's the decision making process we have for a market where these L2 systems seem to have no competitive barrier?"
But you can read for yourself:
Chris McNally
Maybe we could just double click Amnon your comment around sort of the higher momentum at Chauffeur, maybe a little bit of slow momentum on supervision decision-making. How much do you think this is sort of OEMs having more of a question around their own pricing ability to pass through sort of a Level 2 plus product versus something else because I think we've all seen this sort of delay in implementation, and there is some fear that we're seeing these products given away almost for free in China, a lack of clarity, let's say, for how OEMs would price such a product? I would love your thoughts on that.
Amnon Shashua
I think there is lack of competitive pressure for these systems in Europe and the U.S.
You see these systems a lot in China. And in the -- outside of China, it's only the Tesla FSD, and the OEMs have seen the test FSD for more than a decade.
So we need more competitive pressure to kind of bring OEMs to a sense of urgency.
I think the last news about penetration rates of Tesla FSD are encouraging. It's more than 25% take rate. and it looks like it's climbing.
So I think the news are good in terms of public interest in these kinds of features and willing to pay for them.
But regardless, OEMs are still in planning stage because it's not only the Level 2 plus, the supervision, there is a Chauffeur.
It's not all rainy however. The bright spot of Mobileye's advanced products is definitely Drive, the L4 program. Beyond Waymo and Tesla, Mobileye is the clear other leader with ability to reach technology maturity and GTM, and especially scale with their VW partnership.
Drive also has the benefit of being Mobileye's highest ASP product and is scaling faster than I anticipated, with the ability to ramp into the tens of thousands of vehicles in 2027 and reach 100k+ vehicles by end of the decade.
Additionally, they've shipped their new generation EyeQ6 chipset and they're progressing very well towards their launches with the VW group, which while isn't a new business win, is a huge milestone for the company and I'm sure is taking up a lot of internal bandwidth.
All in all I don't see much new in the story. I still consider Mobileye to be in "show-me" mode as they prove that they can win a decent chunk of market share in the surround ADAS, L2+, and L3 markets over the coming years.
Agree with your analysis, except the L4 figures - no chance they'll have tens of thousands by 2027, or 100K+ by the end of the decade. Even so, i still wonder if at current (11B-12B) valuation - this is not a favorable investment. let's do a quick and dirty revenue forecast for 2030:
2B - current ADAS business (assuming no growth, just cycle rebound)
1B - L4 robotaxi (20K cars produced annually by 2030, $50K ASP)
0.5B - MAAS fees (by that time they'll already have a decent # of cars driving worldwide) + Radar deals + some surround adas + stuff.
That's 3.5B, about double today. slap the current P/S multiple on that, it's double the share price.
That's very conservative - ignoring L2+ and L3, and using lower L4 figures than the ones you've mentioned.
Slap a 10X P/S multiple on that (which makes sense if indeed robotaxi leadership is achieved, and l2+ and L3 are just lagging a few years behind), it's more than 3X today's market cap.
L4 succeeds more than that, or L2+ and L3 materialize faster, and overall autonomous hype hits the fan? - you're looking at both higher revenue and higher multiple by 2030.
On the other hand - the downside here is pretty limited given the formidable ADAS business, and existing assets.
What am i getting wrong?
And a comment on INVZ - assuming 20K L4 robotaxis produced annually, is not that great for INVZ (at 9 units for 500$ per vehicle, that's just $90M). So to believe in INVZ, you have to believe either L4 robotaxi succeeds way beyond that, or L3 coming sooner). the downside on the other hand, is 100%.
So in other words - if you model the potential revenue based on production numbers and ASP, i don't see how you can view INVZ as a favorable investment, without assuming the same for MBLY.