Mobileye Is a Rare IPO Winner. The Stock Still Looks Like a Buy.

In October, California suspended
General Motors
’ (GM) Cruise robotaxi unit from operating in the state, after a series of safety incidents. And, this past week, Cruise announced a recall after one of its robotaxis hit and dragged a pedestrian in San Francisco.

Those drivers hoping to read Barron’s from the back seat of their cars will have to wait.

But, in some areas, the future of autonomous driving continues to make progress. And for investors, there’s a way to play the theme that doesn’t require a direct bet on Tesla, GM, or any other automobile manufacturer.

Mobileye Global
(MBLY) is a Jerusalem-based autonomous-driving systems company that first went public in 2014, before selling itself to
Intel
(INTC) for $15.3 billion in 2017. It returned to the public market late last year at $21 a share, opened for trading at $26.71, and now sits at $37, up 75% from the offering price. (Intel continues to own a majority of the stock.) It’s one of the few big initial public offerings of the past 18 months. As a successful IPO, it’s in even rarer company.

The momentum for the stock could continue, especially if Mobileye founder and CEO Amnon Shashua is right about the future of the business. Unlike Musk’s self-driving promise, Shashua sees a middle ground for autonomy, making cars safer while keeping drivers behind the wheel. At least for now.

Shashua founded Mobileye in 1999, capitalizing on his academic research on computer vision systems at Hebrew University. Fifteen years later, the company launched the largest-ever U.S. IPO by an Israeli company.

To be sure, the stock isn’t cheap. Wall Street estimates call for 2023 revenue of about $2.1 billion, with adjusted profit of 71 cents a share, giving the stock a valuation of 50 times projected earnings and 14 times forward sales.

But Mobileye’s business is about to change in a way that analysts don’t fully appreciate.

Currently, the company makes systems for auto makers—mostly front-facing cameras and related software—that help to make cars safer. They handle tasks like collision avoidance, emergency braking, and lane-keeping, protecting drivers from their own bad behavior.

Shashua estimates that 60% to 70% of new cars now ship with front-facing cameras for safety applications, and Mobileye thinks it has about 75% of that market.

Over time, those systems will grow in sophistication and power—and the focus will shift from saving lives to saving time. And that’s where the big money awaits.

Shashua is particularly excited about a Mobileye platform called SuperVision—an apt name for a technology that can see better than humans, while supervising automobile safety.

SuperVision has been installed in about 100,000 Zeekr cars, produced by China-based Geely, which is getting ready to expand sales of the line into Europe. Mobileye also has agreements in place to add SuperVision to new models from
Porsche
(PAH3.Germany), Polestar, and Volvo over the next three years.

Shashua says Mobileye is negotiating with 10 additional auto makers with a combined 34% of global auto production to add SuperVision, with “many more” in the pipeline.

The Mobileye chief concedes that some companies, including Tesla and Mercedes, are likely to continue to develop self-driving systems in-house, but he thinks many others will turn to Mobileye as a better alternative.

“Very few car makers will be able to sustain their own development of these high-end systems,” he says. “The rest will find their systems are not optimized in terms of time to market, in terms of costs, in terms of performance.”

Citi analyst Itay Michaeli recently wrote that Cruise parent GM could be considering a shift to SuperVision from its own proprietary UltraCruise program.

“One must wonder whether Cruise’s recent setback might compel GM to consider a Plan B so as to provide Cruise with more time to resolve recent issues—in turn keeping Cruise focused solely on robotaxis for the foreseeable future,” wrote Michaeli, who has a $72 target on Mobileye stock, about double the current price.

Mobileye’s hardware currently generates revenue of $54 per vehicle. Those cars offer ADAS—advanced driver assistance systems—with a front-facing camera that can provide features like emergency autonomous braking, lane-departure warnings, and adaptive cruise control.

Shashua says the company’s revenue per car can double to about $100 by adding cloud-connected features that access high-definition maps, enabling cars to achieve lane-keeping without road markers, for instance.

But even those numbers look tiny compared with the opportunity from SuperVision. Shashua says that system will generate revenue of about $1,500 per vehicle for Mobileye. With those systems, the car gets a network of 11 cameras, along with onboard computing capability, and in some situations a hands-free experience for the driver—a significant step toward full autonomy.

Shashua sees a market for SuperVision-level cars of one million vehicles by 2026. Cowen models 2024 SuperVision shipments of 200,000 units, twice the company’s own 2023 target.

Mobileye has also developed a less-expensive version of the self-driving system—SuperVision Lite—for lower-cost vehicles. That one comes with seven cameras, only works on highways, and provides more limited opportunities for hands-free driving.

Further out, Mobileye expects to sell auto makers a $3,000-per-vehicle system called Chauffeur, which will allow drivers to safely take their eyes off the road, initially on highways. Mobileye already has deals with FAW Group, a Chinese auto maker, and Polestar to use Chauffeur.

Shashua says that almost every auto maker will be using SuperVision—or something like it—in at least some models by 2026. “Autonomy is coming to consumer cars,” he says. “This is not speculation anymore.”

To be clear, this version of autonomy doesn’t match Musk’s back-seat experience. With SuperVision, Shashua says, you can take your eyes off the road and your hands off the wheel but you still need to be in the driver’s seat—and awake.

Eventually, though, Shashua says, the software will allow cars to drive from Point A to Point B without any human intervention—and without any need for human supervision. Which is to say, you’ll be able to go to sleep.

Shashua’s timeline has cars traversing highways with “eyes off” systems in 2026, adding arterial and urban roads by 2028. He says the cost of those systems to consumers will be about $10,000 per vehicle. And he thinks they will sell like hotcakes.

“I think $10,000 for a real eyes-off system is something that will have big traction,” he says.

If he’s right, Mobileye shares are going to get big traction, too.

Write to Eric J. Savitz at [email protected]