The next wave of technology in the automotive industry is the self-driving car, and Mobileye looks to be very well-positioned here. Automakers and suppliers alike are jockeying for position in everything from the cars themselves to sensors, operating systems and more.

Mobileye NV MBLY
Mobileye NV MBLY

Confident in Mobileye’s long-term story

In a report dated April 10, Citi analyst Itay Michaeli outlined the details of their Friday meeting with senior management at Mobileye. The analyst noted that auto executives are constantly fielding questions about new technology and especially new entrants to the market because all that new tech is making it easier for new entrants to get in and potentially become dominant in an industry that has been essentially closed to outsiders for a long time.

He believes the ongoing evolution in the auto industry will result in a mixture of winning and losing automakers and that to avoid becoming a loser, he thinks automakers must partner with Mobileye. He sees the company’s expertise as potentially being the best in the industry. But that’s not the only reason he likes the Israel-based company. He also appreciates its target of having a fully autonomous driving solution priced at around $2,000 by 2021 and its use of crowdsourcing solutions to leverage the size and scale of traditional automakers.

Becoming expensive for automakers to switch

Michaeli reported that Mobileye management said that the main sourcing decisions relating to ADAS are becoming more and more dependent on each supplier’s long-term positioning within the autonomous driving part of the industry, which he believes means that just catching up on AEB just isn’t enough any longer. He thinks automakers are more about chasing major revenue streams from both semi-autonomous and fully autonomous features and also beating back new entrants instead of squeezing Mobileye’s margins.

As a result, he said the costs for an automaker to switch ADAS suppliers are rising and should keep rising as semi-autonomous features become more and more complex, driver policies adapt, and deep-learning becomes even more opening. He believes this means Mobileye will be able to make itself the main operating system for self-driving vehicles.

The Citi analyst doesn’t think it will take long for investors to start seeing major Mobileye customers like General Motors as probable winners in the race for autonomous vehicles because an REM head start could create an early mover advantage for GM. Michaeli continues to rate Mobileye as a Buy with a $66 per share price target. His view stands in stark contrast with that of Citron Research, which has issued scathing reports on the company.

Shares of Mobileye climbed by more than 5% during regular trading hours today, reaching as high as $39.59 per share.