The tug-o-war battle over Mobileye shares continues for another day following an announcement from Volkswagen that the two will partner in a deal that’s similar with the plan the latter secured with General Motors earlier. Today Mobileye shares climbed by as much as 5.09% to $37.97 per share after tumbling by more than 9% on Tuesday on investor fears about competition from Nvidia. The embattled stock has been targeted by Citron Research for some time, with the firm calling it the “short of the year” last month.
Not many details on Volkswagen deal
Analysts were quick to weigh in on Mobileye’s latest win, which is seen as a huge positive because for the last six months or so, investors were increasingly beginning to worry that it would lose the VW contract to Bosch. Through the partnership, Mobileye will provide sensors which the automaker will use for real time mapping, a similar contract the company had already won from GM. Although there weren’t many details about the contract, it could be a sizeable one as Evercore ISI analyst Chris McNally and team said Volkswagen will need a whole fleet of vehicles fitted with Mobileye sensors in order to meet its goals.
Real time mapping basically involves using cameras to offer live, updating static maps derived from GPS. The Evercore ISI team sees this development as a “small incremental positive” for the sensor maker because it potentially opens up new revenue streams and could make customers become stickier. Further, real time mapping involves more data, requires more refined algorithms and offers “more moat/competitive advantage,” McNally said.
A best case scenario for Mobileye
The analyst currently sees Mobileye in a best case scenario because they expect the firm to supply sensors for most of VW’s future AEB platforms. Interestingly, the tie-up between the two companies is reminiscent of Citron’s comments about the VW scandal proving their short thesis of Mobileye.
The Evercore team wasn’t expecting any confirmations on the VW deal until the middle of this year, so receiving the news so early is a surprise. They add that Volkswagen was one of just two undecided large requests for proposals Mobileye was in the running for. With VW, Honda (an already existing customer), and the other outstanding proposal, they add that the sensor maker has about 85% of the market or all of the “non-captive, or open-competitive bid business outside of Toyota and Daimler.”
Although it will take some time to implement the partnership, they expect Volkswagen to be committed for about six years from 2018 until 2022. He believes the win amounts to between 30 cents and 50 cents in earnings per share for Mobileye in 2020, based on 5 million to 7 million Volkswagens, a 50% ADAS adoption rate and an average selling price of $53 for lower end vehicles.
The Evercore team thought the Volkswagen win would be a $6 or more event for Mobileye shares, particularly due to the -15% move over the last couple of days for basically no news. As a result, they wouldn’t be surprised if the stock moves by $10 over two days. They think the negative news cycle has shifted as short-sellers had been expecting bad news from the Consumer Electronics Show. McNally and team have a $68 per share price target and Buy rating on the sensor maker’s stock.
Investors scared by Nvidia
Deutsche Bank analyst Rod Lache and his team also weighed in on this week’s selloff in Mobileye shares. They think comments from Nvidia management may have been partially to blame as the components supplier suggested that competition just might catch up in the ADAS/ Vision market. Nvidia unveiled a new computer it expects to be used by developers to speed up the development of ADAS software. The company also believes that Vision systems-on-a-chip will eventually become a commodity and that this value “will accrue to their GPUs.” However, Lache said following a number of conversations with automakers, suppliers and consultants, they disagree with Nvidia management’s comments.
In fact, they said Mobileye’s biggest competitors are still saying that it will be much harder for developers to replicate the accuracy of the company’s newest systems than investors believe it will be. Further, they said the barriers to entry are quite high as automakers work on projects for years ahead of their release. They added that most of the automakers and suppliers they spoke with don’t see GPU-based ADAS platforms like those talked about by Nvidia as “the most compelling option” right now.
Lache also said that his view is backed by VW’s and GM’s decisions to contract Mobileye for their systems. Deutsche Bank continues to rate the company’s stock as a Buy with a price target of $72 per share.